It’s only August so you have plenty of time to do some look ahead planning but have you ever considered using a 0% balance transfer from a credit card to fund your Roth IRA? Well, if you have, rest assured that you aren’t alone but there are a few things you should be very much aware of. There are some good reasons to do this and some bad reasons why you shouldn’t and I will outline all them below.
Good Reason: You Expect A Tax Refund
If you are expecting to get a tax refund and you don’t currently have the funds to contribute to your Roth IRA, a 0% balance transfer for 12 months is a great way to get some money right now. Getting the funds now means that you can contribute to your Roth and then when you get your tax refund a few weeks after you file your taxes, you can pay off the credit card debt. Since the interest rate will be 0%, you pay nothing extra to get this money a few weeks earlier. Or, since it is August, you can file your taxes as soon as possible (sometime in February after you get your W-2’s) so you get your rebate earlier than April 15th.
Bad Reason: You Carry The Debt Past Promotion
Let’s say you get the one year offer and you contribute it to your Roth IRA but then you also go on a spending spree with the “extra money” and you don’t pay off the credit card debt before the promotional period ends. Or, say you get a smaller than expected tax refund check or you run into some hardship later on. Those are all reasons why a 0% balance transfer for this purposes would not be for you, if you can’t pay it off within the time period alloted for the promotional offer, DO NOT APPLY FOR THE OFFER. A Roth IRA is valuable but you shouldn’t take on credit card debt to fund it. Since it is August, start some saving now so you aren’t in this position in six months.
In general, since it is so early, I would not recommend doing it because you should instead implement a savings plan so you are funding it with savings instead of debt. If you are reading this article and it’s February or March, then be sure to get a card that has a 0% balance transfer offer such as the Citi Professional Cash card or the Citi Platinum Select card.