@Jeff Rose That doesn’t sound correct, that you can’t replace your contribution from a Roth IRA withdraw. That would mean you could never contribute again to your Roth IRA!

Jeff –
The $35k would pay off the equity loan. The loan was taken for 15 years and is supposed to be payed off by then. They are 5 years into the loan currently and have only paid off $2k of the loan due to compounding interest. If they weren’t to pay off the loan with the 401k money, what would be another option for taking care of this loan? The couple is living on one income right now and also has a student loan for a master’s degree starting up in December. Financially there is no other income to use to put towards this loan.

@ Christina

Without running any numbers I don’t like it. Taking out a large lump sum like $50k takes years to accumulate for most. Even if you could afford to max out your 401k each year, it would take 3 years to get back to that mark. That’s 3 years that $50k would have had a chance to compound even more (market cooperating).

Plus, you say withdrawing $50k from the 401k which probably means you’re only left with about $35k to go towards home equity loan.

@ Long Yes, the article pertains to borrowing from a traditional IRA. Thank for mentioning the Roth IRA; I should have mentioned it in the post. Shame on me!

Your understanding on the Roth IRA is correct on all fronts. Thanks for adding to the discussion!

I’m under the impression that you are talking about Traditional IRA’s in this case. It’s my understanding that with a Roth IRA, you can take your original contribution out at any time without penalty. Is that true? Also, once you remove the contribution, you cannot replace it later. Right?

Although, I would not encourage anyone to do that (make it a last resort), it is an option.