Using a Roth IRA to buy a car might sound like a smart move if it means avoiding debt. But financial expert Suze Orman says it's one of the worst things you could do with your retirement savings — and she didn't hold back when a podcast listener asked about it.
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A Listener’s Dilemma
On a recent episode of her "Women & Money" podcast, Orman responded to a listener named Sarah, who asked if she should tap her Roth IRA to buy a new car.
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Sarah had been driving her 2003 Honda Accord for nearly two decades and had finally decided it was time for an upgrade. She was approved for a $25,000 car loan with a 5.95% interest rate but wondered if she should skip the loan and take money from her Roth IRA instead — penalty-free — using only her principal contributions.
Her financial adviser said she could withdraw the funds without a penalty since the account had been open for at least five years and she was only taking out contributions. Sarah is 47 years old and earns around $90,000 a year. She has about $400,000 in retirement savings, $13,000 in cash, and contributes regularly to her savings and retirement accounts.
Suze’s Strong Rebuttal
Orman didn't mince words. "That is the worst financial advice I've ever heard in my life," she said, calling out the adviser's misunderstanding of Roth IRA withdrawal rules.
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She clarified that while it's true Roth IRA contributions – not earnings – can be withdrawn at any time without taxes or penalties, the five-year rule does not apply to original contributions. That part of the adviser's advice, she said, was flat-out wrong.
But more importantly, Orman emphasized the long-term cost of pulling from retirement to pay for a car. "If you were to have left that $25,000 in there at just a mere 8% annual average rate of return for 25 years…you're looking at $171,000 tax-free," she explained. "That's what your financial adviser is telling you that you should spend on this car."
A Better Way to Pay
Instead of touching the Roth IRA, Orman recommended taking the auto loan. She noted that if Sarah financed the $25,000 over three years at 5.95%, her monthly payment would be around $760, with a total interest cost of about $2,300. In her view, that was a far better option than sacrificing decades of compound growth in a tax-free retirement account.
Orman also pointed out that Sarah's $13,000 in liquid savings should remain untouched as an emergency fund — not used for a car down payment or extra loan payments.
Bigger Lesson: Be Careful Who You Trust
The moment served as a cautionary tale not just about Roth IRAs, but about relying too heavily on advice that might not be well-informed.
"You go and ask experts what you should do with your hard-earned money," Orman said. "You trust them."
Her final suggestion? If your financial adviser recommends using your Roth IRA to buy a car — it might be time to find a new one.
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