Dave Ramsey isn't known for his subtlety, and the radio host and personal finance expert proved it once again on a recent episode of The Ramsey Show when he called out an Orlando woman by telling her, "You've screwed yourself. You've really made yourself a mess."

His criticism came after Selena, 28, shared the details of her recent home purchase She withdrew $26,000 from her 403(b) retirement account for a downpayment on a home construction with the idea it would offer more room for her new baby than her condo.

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Ramsey's reaction was less than optimistic.

"I'm scared for you," he said. "I hope you get out of it with your skin intact, but I'm not positive you're going to."

But in offering suggestions on how to recover, Ramsey may have overlooked some key details.

What went wrong?

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

Listeners should note that though Ramsey offers some insights, he's 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 her 403(b) savings out to put down on a new house before she'd even sold her current home.

"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 for Selena would have been to sell her home first and live in an apartment while the next home was being built, Ramsey says.

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Overlooking tax implications

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

While Ramsey didn't explain how he arrived at those figures, he may have based them on the IRS's 10% early withdrawal penalty along with the income tax she'll be charged on the amount withdrawn.

Yet Ramsey didn't address other factors that could affect her tax bill, such as whether she qualified for 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 never be used for anything except retirement.

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

What was Ramsey's advice?

Selena's first priority, according to Ramsey, should be to reduce pending tax penalties by quickly 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. Taking cash out for unqualified expenses means you'll have to pay both state and federal income taxes on that money, along with an extra 10% federal tax penalty on earnings. Nor does he address how the caller would cover her down payment after replenishing her 403(b). Listeners should also note that mortgage lenders typically will not accept a loan as a down payment. Your best bet is to work saving for your down payment into your monthly budget, tools like a savings goal calculator can help you come up with a plan and a timeline, which helps with motivation, too.

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

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.