This past week, my tax accountant informed me I owe a total of almost $3K in taxes for 2006. With the condo purchase last July, I thought I would be seeing a refund, but also knew in the back of my mind I may end up owing because of stocks and cash I liquidated toward the down payment.
To pay the taxes, I had 2 options. First, write checks (ugh!) payable to the IRS and Franchise Tax board of "Coli-for-nee-uh". The second option, put it on a credit card and pay it off in about 6 months. I initially decided to put it on my credit card, but then found out the company the Federal & State uses to process the charge issues a 2.49% (percentage based on amount owed) fee, which was about $75.
Then I realized not only would I have to pay $75 for the processing fee, I'll have interest accrued against any unpaid balance (for me, about 1% a month). My next thought was to tap into my Roth IRA. Not something I wanted to do, but after being nearly credit card debt-free for 7+ years, I was determined not to start another balance, albeit small, compared to the average credit card debt of $8K or so.
I called Ester, my financial planner, and told her I wanted to move money from my Roth IRA into my checking account. Since my account was over 5 years old, I wouldn't incur fees there, but she told me it could have tax implications. Geez Louise, taxed on income to pay my friggin' taxes. Any wonder why Wesley Snipes left the country. My initial internet research tells me I'll still have to pay a 10% early withdrawal fee because I'm not 59 1/2 yet. If I had tapped into the Roth as part of my down payment (up to $10K) on the condo, I would have been exempt. (AARRGGGHH!)
Either way, the fees are about the same. I decided to tap into the Roth because I pay everything off in one shot. If I paid it with my credit card, my cash flow is a lot tighter and my debt lingers on for the remainder of the year. On the brighter side, I got my review at work today and got a small raise. A comfort to know since there was a wage freeze last year.
Despite all of this, I don't regret our condo purchase whatsoever. I've been hit over the head too many times about how much one can save in taxes from a buying a house. But I don't feel like I'm going to see any real relief for another 2 years.
image courtesy of un.org