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What went wrong?

By Ramsey's account, Selena faces serious consequences: a major tax bill and potentially simultaneous mortgage payments.

Listeners should note that though Ramsey offers some insights, he is not a qualified tax professional. While he advises his caller in this case to seek help from investment advisers (via his website), someone in a similar situation may be best served by a Certified Public Accountant or tax attorney.

With that in mind, here's what Ramsey says went wrong.

Impulse buying

Ramsey chastised Selena for pulling the 403(b) money to put it toward a new house before selling her current home.

More: 403(b) vs. 401(k)

"You guys got completely impulsive and you impulsed a house," Ramsey said.

Even worse, Ramsey warned, interest rates could increase in the near future, making it a tough market for sellers and leaving Selena with two home loan payments. A better approach would have been for Selena to sell her home first and live in an apartment while the next home was being built, according to the host.

Overlooking tax implications

By Ramsey's estimate, the retirement withdrawal was equivalent to a 40% interest loan and Selena should expect a tax bill of around $12,000.

While Ramsey did not explain how he arrived at those figures, he may have based them on these IRS charges:

  • 10% early withdrawal penalty
  • Income taxes assessed on the amount withdrawn

Yet Ramsey didn't address other factors that could affect her tax bill, such as whether she qualified any exceptions to the 10% in additional tax, which would significantly reduce the early withdrawal penalty. He also glossed over the $27,700 standard deduction for married couples filing jointly effective in the 2023 tax year.

But he does share an important financial guideline: Retirement funds should not be used for anything except retirement.

"The system is designed to punish you beyond belief if you do," he said.

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What was Ramsey's advice?

Selena's first priority, according to Ramsey, should be to reduce pending tax penalties by putting money back into the 403(b).

According to the IRS, taxes can generally be avoided on an early retirement withdrawal by "rolling over" the funds into another qualified retirement account, if done within 60 days. It's unclear, however, whether the penalty can be avoided by depositing money back into the account used for the withdrawal.

Ramsey told Selena to find cash anywhere possible, including her daughter's 529 education savings account, to replenish the 403(b).

"I would pull every dollar I could find that's not in a retirement account," he said.

But the host doesn't mention that there are tax penalties as well for an unqualified 529 withdrawal. Nor does he address how the caller would cover her downpayment after replenishing her 403(b). Listeners should also note that mortgage lenders typically will not accept a loan as a downpayment.

Ramsey offers this sound advice: "Stop buying things you can't afford and buying them out of order."


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Sarah Brady Freelance Contributor

Sarah Brady is a (self-)certified money nerd. She's a personal finance writer and speaker who's been helping individuals and entrepreneurs improve their financial wellness since 2013. Sarah has written for Forbes Advisor, USA Today's Blueprint, FORTUNE, Experian, Investopedia and more,


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