Posted on: 06th Jan, 2009 11:01 am
I have $45K in a IRA (I had moved my 401K to an IRA from a previous employer) that I would like to cash out to pay credit card debts.
I am 37 years old. How would that affect my credit score and what amount of taxes am I looking at?
I am 37 years old. How would that affect my credit score and what amount of taxes am I looking at?
Again, whats new in thsi answer??
I am in a similar situation with $26K in credit card debt and $105K in IRA and $10K in 401k. Despite spotless credit, all three of my major credit cards jacked rates on me recently. My wife and I decided no more credit cards!!! If we are making 10% on our investments but paying 17% on debt, it does not take a genius to figure out this makes sense EVEN with a penalty. Besides, it is highly likely that when I retire in 25 years, our tax rates will be much higher to pay for the massive entitlements!!
Guest
That's good question!
But you cannot avoid taxes. You did not pay taxes on that money when you contributed, so need to pay that now
Good luck and feel free to ask
That's good question!
But you cannot avoid taxes. You did not pay taxes on that money when you contributed, so need to pay that now
Good luck and feel free to ask
ok i am 44, doubtful i'll ever retire. if i cash out my miniscule $4800 ira i will get what about $3700 cash?? ok i take $3k of that to pay off one one my credit cards (that paid for medical bills over the summer). paying off that will make me eligible to refinance my mortgage, saving me about $200/ month. which will me pay of my other credit card with $9k on it. tell me what to do. i am betting most here that keep saying hold onto your ira do not feel their back against the wall.
phil, i feel your pain - truly. for the piddling amount you have in your ira, maybe it's in your best interests to liquidate it and pay off what you feel you need to pay. it's certainly not the best situation to be in, and i think that's where most everyone is coming from. nevertheless, it's a situation that you're in, and you're pinched and kind of lost in the wilderness.
don't let me be the person who says "liquidate the ira" but at the same time, i can't tell you not to, based on what you've just said. you may be quite right that those who say don't do it are not in the same position you're in, and it's easy for them to say what they've said. if you had $50K in an ira and talked about liquidation, i'd be on their bandwagon. but since you've got less than $5000, i can say i don't see it as a financial nightmare for you to do it.
it's your decision, ultimately, isn't it...we don't know your age - maybe you're 60 and $4800 isn't going to do you much good anyway. or maybe you're 30 and you can easily begin to sock money away again after a short while, so the funds will be replenished eventually.
in 2009, unfortunately, we are being forced to do what we've gotta do to survive, and that involves some hard decisions.
don't let me be the person who says "liquidate the ira" but at the same time, i can't tell you not to, based on what you've just said. you may be quite right that those who say don't do it are not in the same position you're in, and it's easy for them to say what they've said. if you had $50K in an ira and talked about liquidation, i'd be on their bandwagon. but since you've got less than $5000, i can say i don't see it as a financial nightmare for you to do it.
it's your decision, ultimately, isn't it...we don't know your age - maybe you're 60 and $4800 isn't going to do you much good anyway. or maybe you're 30 and you can easily begin to sock money away again after a short while, so the funds will be replenished eventually.
in 2009, unfortunately, we are being forced to do what we've gotta do to survive, and that involves some hard decisions.
Alright I'm just going to say it...
CASH IN THOSE IRA'S!!!!!
I did and I couldn't be happier. If you think about it, unless you're almost ready to retire, most investments are going down while credit card rates are going up. Say you hav about 50,000 in cc debt and your monthly payments are just the 1.5% most cc companies make you pay. That's $750/month or $9K/year. So if you were to cash in $50K worth of IRA's to pay it off you could save that money back up in just 5-6 years. Where as if you just continued to make your min. payments on your cc's, the balances would be going nowhere and you would probably find yourself using all of your IRA payments at retirement just to pay your cc debt!
It may just be me but I don't see how sitting on money when you are so far in debt can be a good thing. If you are needing to borrow money to get by than maybe you shouldn't be putting so much of it into retirement and use that money to keep you from getting in the hole to begin with!
What says you??? :D
CASH IN THOSE IRA'S!!!!!
I did and I couldn't be happier. If you think about it, unless you're almost ready to retire, most investments are going down while credit card rates are going up. Say you hav about 50,000 in cc debt and your monthly payments are just the 1.5% most cc companies make you pay. That's $750/month or $9K/year. So if you were to cash in $50K worth of IRA's to pay it off you could save that money back up in just 5-6 years. Where as if you just continued to make your min. payments on your cc's, the balances would be going nowhere and you would probably find yourself using all of your IRA payments at retirement just to pay your cc debt!
It may just be me but I don't see how sitting on money when you are so far in debt can be a good thing. If you are needing to borrow money to get by than maybe you shouldn't be putting so much of it into retirement and use that money to keep you from getting in the hole to begin with!
What says you??? :D
i agree with that logic, scott. i suppose it depends on someone's age, too. but the bills don't go away, that's for sure.
It sounds logical to pay off cc debt with your ira money especially if your paying 18% interest and really only able to make the minimum payments. I have 31k in debt and 53k in ira. Minimum payments are $720 month. 45 yrs old, Ira had dropped all the way down to 41k a year ago from a high of 55k. My thought is use the money now while markets back up and value is there. I really dont want to but every part of me is saying get this cc debt off my back, tear them up and never use again which I have done. I have only been able to contribute about $200 month so i could apply that towards cc debt but at $2400 more per year I know i would still pay a TON of interest on these cc. Help!
jjb, since you're only 45 i suppose that means you'll have plenty of time to build back up your ira between now and retirement. since your cash flow situation now has pretty much eliminated your ability to contribute to the ira, it might just improve so that you'll be back to speed in shorter order. i guess it's pretty clear that in certain situations it's an advantage to do what you propose. but i think age is certainly key in making that decision.
I agree with the last few comments. I am not a financial expert but I do understand math and debt. What is the point of keeping $$ in an IRA or 401K when you have very high credit card debt, with high interest and with most people only paying the minimum balance. They will retire in 20 - 30 years with great retirement, but still paying of high interest credit card. Atleast if you can use some or all of the retirement savings even with the penalties, you still have the chance depending on age to rebuild the IRA or 401K. Some friends of mine are in this exact situation. They have about $40K in credit card debt between 4 cards with interest rates of between 20-29%. One credit card is over $500 a month. They are 54 and 59 years old. Then they have a mortgage and other bills. At the rate they are going, paying the minimum balance, it will take more than 20 years to pay off these credit cards and most of it will be the interest. They have an 401k with about $40K+ and I suggested that they take out $20-30K to at least pay off one of the credit cards that has a $17K balance. It makes no sense to be trying to save money for retirement and still retire with thousands of dollars in credit card debt with such high interest rate. At least now you are working and can even supplement with another job. At 75 or 80 you should not have to work to pay off credit card debt. I know there will be penalties, but…At least they still have the opportunity to save for real now without credit card debt to worry about. I have advised them to call and try to negotiate with the credit card companies 1st to see if they can get the balances down. Then try to consolidate. Then make the decision about the 401k. With state of the credit card industry, I think it is crazy that you can use your 401k $$$ to buy a house, but you are penalized because you are trying to help yourself out of debt
i owe 27,000.00 in credit cards i want to use my IRA money and pay off my credit cards. The interest rate is very high. so If i am paying between 19% to 27% interest rate, and i am going to be tax one time is it worth it? I just dont see any other option.
it will depend...if you can do a debt consolidation it maybe cheaper BUT
we would need to look at ALL the hard facts or the numbers
almost impossible to say.
another thing to consider...why not just cut back on stuff and payoff the debt?
a lot of people pay off their debt with 401k/IRA but max out their credit cards AGAIN!
we would need to look at ALL the hard facts or the numbers
almost impossible to say.
another thing to consider...why not just cut back on stuff and payoff the debt?
a lot of people pay off their debt with 401k/IRA but max out their credit cards AGAIN!
well said, banker.
Hello,
Lots of good info in this forum. Appreciate all of the comments. I was doing some research online regarding the pitfalls of cashing out my IRA to pay off credit card debt. I can across this particular thread and I thought I'd try putting my situation out there and seeing what type of input I receive. So here it is:
I'm 38 years old
Roughly 80k in an IRA
$18,000 in cc debt
I've been a seasonal worker for the past two years, and I could possibly be unemployed for a portion of the summer.
Own 2 rental properties. One is underwater the other has lots of equity, however I'm having trouble qualifying to access the equity because if my debt ratio.
I know that i'm going to have to pay tax and penalties, but I feel like I can recover from that pretty quickly and get back to saving again. I just don't see any end in sight with paying a little over the minimum on these credit cards. I also realize this risk of paying the cc debt off then running it up again. Don't really see that happening because almost all of the debt was incurred during a year when I was let go from my job and unemployed for a long period of time. I'm in a much more stable position employment wise and really want to start putting money away again and not towards this debt and interest.
Sorry for the rambling, but any input would be greatly appreciated.
Thank You.
Lots of good info in this forum. Appreciate all of the comments. I was doing some research online regarding the pitfalls of cashing out my IRA to pay off credit card debt. I can across this particular thread and I thought I'd try putting my situation out there and seeing what type of input I receive. So here it is:
I'm 38 years old
Roughly 80k in an IRA
$18,000 in cc debt
I've been a seasonal worker for the past two years, and I could possibly be unemployed for a portion of the summer.
Own 2 rental properties. One is underwater the other has lots of equity, however I'm having trouble qualifying to access the equity because if my debt ratio.
I know that i'm going to have to pay tax and penalties, but I feel like I can recover from that pretty quickly and get back to saving again. I just don't see any end in sight with paying a little over the minimum on these credit cards. I also realize this risk of paying the cc debt off then running it up again. Don't really see that happening because almost all of the debt was incurred during a year when I was let go from my job and unemployed for a long period of time. I'm in a much more stable position employment wise and really want to start putting money away again and not towards this debt and interest.
Sorry for the rambling, but any input would be greatly appreciated.
Thank You.
fj, i think your reasoning is sound.