IRA to pay off Debt?
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IRA to pay off Debt?
| Sat, 01-07-2006 - 8:08pm |
My husband worked for a company for 10 years and then was laid off. When he was he took the money in his 401K and put it in an IRA. would you all recommend using that money to pay off CC debt? He is a contract worker for a similar company right now which means no retirement, no benefits, no days off etc. He is looking for another job that will give him all of those things. But I was wondering about the IRA stuff. What good is savings when you have debt that is at 12% unterest right? don't know.

Personally I would be very reluctant to use the money in the IRA. Not only would have to pay taxes on what your took out but probably a fine and from what I've heard those are pretty hefty. You might not come out ahead even after you take into account the 22% interest you're paying on the debt.
And it would depend greatly on how long you had until retirement. I would rather live a little tight now that sacrifice my future for past debts. But this is a decision that every person needs to make for themselves.
Good Luck with whatever you decide.
I would do that only as a last resort.
All my best,
Danni
BTDT. It all depends on your situation, including how far you are from retirement, what company you have your IRA with, whether it is a ROTH or regular IRA, how much debt you have, etc. All things you should think about before you cash in.
My story: DH and I had Roth IRAs through a company a couple of years ago. We had been investing in them since the early 1990s. Well, when the mutual fund company scandals hit back in late 2003, I had a gut feeling that the company we were with was about to get caught up in it. No one believed me, but DH and I bailed, using the excuse to pay off debt. (The company had some of the same legal practices as the companies that were in trouble and I had had a bad feeling since DH started with them, but we were dating at the time and I didn't feel it was my place to push my fears--wish I would have!) Sure enough the company we were in got caught up in the fringes--not the center but still enough to scare me off. As a side note--the company which handle our investments is no longer allowed to do investments (they took our money and gave it to the mutual fund company).
We took our money from the cashed out IRAs and paid off all of our credit card debt, paid $5000 toward the principle on our van and took the kids to Sea World one weekend, and went to Disneyland for a weekend.
The problem, we are now over $13,000 in credit card debt, so I don't think we learned our lessons very well. So, there is something to be said for working the hard way to get the debt paid off, you apprecitate how hard it is and you won't let yourself get it that position again.
If I had trusted the company and felt good about the investments I doubt I would have bailed. But, like I said it all depends on your situation and how you feel about it. It is all up to you. Good luck on your decision.
Let me stress--I got out of our IRAs becasue I didn't trust the company and it was a good way to pay off the debt. But that was what was good for my situation--it may not be good for you. And, I am back in debt, just not the level I was before.
As a side note--I did pay a 10% penalty and we did have to pay income taxes, but because the company took out too much, we got a hefty return at tax time.
HTH--good luck,
Kellie
Another option if you have an IRA and are uncomfortable with the investments, find an investment company you do trust and roll the IRA over to that company.