Retirement Law Change (withdrawal after child birth)

[chrispy]

From WSJ:

 

After Dec. 31, 2019, parents can withdraw up to $5,000 from a retirement account within a year of a child’s birth or adoption. The law waives the 10% penalty owners younger than 59½ would normally owe. But they must pay income tax on the withdrawal.

 

We are expecting our first child in April and both have work retirement plans we could do this from. Both of our 401k only allow for investing in mutual funds. While we don't need the cash, I am trying to think of ways to use this new option to our benefit.

 

I most likely won't max out my HSA next year so i could withdrawal from 401k, put into HSA, therefore canceling out the income tax and then have the ability to invest in anything.

 

Could pay the income tax and use it to start a "college fund". Would need to have a high enough return to justify the income tax though.

 

Spitballing other options would be to put the money towards our mortgage which would provide a guaranteed 4.25 percent return.

 

Any thoughts from the clever folks here?

[sleepydragon]

From WSJ:

 

After Dec. 31, 2019, parents can withdraw up to $5,000 from a retirement account within a year of a child’s birth or adoption. The law waives the 10% penalty owners younger than 59½ would normally owe. But they must pay income tax on the withdrawal.

 

We are expecting our first child in April and both have work retirement plans we could do this from. Both of our 401k only allow for investing in mutual funds. While we don't need the cash, I am trying to think of ways to use this new option to our benefit.

 

I most likely won't max out my HSA next year so i could withdrawal from 401k, put into HSA, therefore canceling out the income tax and then have the ability to invest in anything.

 

Could pay the income tax and use it to start a "college fund". Would need to have a high enough return to justify the income tax though.

 

Spitballing other options would be to put the money towards our mortgage which would provide a guaranteed 4.25 percent return.

 

Any thoughts from the clever folks here?

 

You can contribute maximum of 19k tax free. If u do that and then withdraw 5000, isn’t that same as only contribute 14k?

 

[chrispy]

Yes, that is a much more concise way of thinking about it.

[Wabash02]

Sleepydragon,

 

Can you share the where your HSA account is that lets you invest.  I'm looking to roll two HSA's over to somewhere with actual investment options.

 

Thanks

[chrispy]

I moved mine to Fidelity and am able to buy individual securities