Using My IRA
First of all, I was divorced at the age of 49 (presently 60 as of 4-30-09) and started over from scratch. In the last 10 years I have purchased a home and it is financed with a fixed rate of 5.6%. I have a 401k plan worth about $50,000. I also have an IRA worth about $20,000.00. I have approximately $15,000 in credit card debt. My credit card debt started with some hard times that I won’t bore you with. I can’t seem to catch up and I continue to watch the value of the IRA diminish. I would like to just take the money from the IRA and pay the debt. My FICO credit score is 771. This debt is causing me a lot of stress. I’ve never been in debt like this. I want to retire when I am 65-67 so I still have another 5-7 years to stash some cash for my old age. I have a good job and I consider it secure. I make approximately $45,000 a year. I have 3 credit cards. the interest rates are as follows: 9.99%, 7.74% and 6.99%. I have negotiated these rates down on my own. I know there will not be a penalty because of my age but I am not sure about the tax hit I may take this year by doing this. Thank you.
Permalink Submitted by Denise Appleby on Fri, 2009-01-23 07:09
[quote=”koneill”]First of all, I was divorced at the age of 49 (presently 60 as of 4-30-09) and started over from scratch. In the last 10 years I have purchased a home and it is financed with a fixed rate of 5.6%. I have a 401k plan worth about $50,000. I also have an IRA worth about $20,000.00. I have approximately $15,000 in credit card debt. My credit card debt started with some hard times that I won’t bore you with. I can’t seem to catch up and I continue to watch the value of the IRA diminish. I would like to just take the money from the IRA and pay the debt. My FICO credit score is 771. This debt is causing me a lot of stress. I’ve never been in debt like this. I want to retire when I am 65-67 so I still have another 5-7 years to stash some cash for my old age. I have a good job and I consider it secure. I make approximately $45,000 a year. I have 3 credit cards. the interest rates are as follows: 9.99%, 7.74% and 6.99%. I have negotiated these rates down on my own. I know there will not be a penalty because of my age but I am not sure about the tax hit I may take this year by doing this. Thank you.[/quote]
Whether it makes sense to use your retirement savings and pay off your debt, is hard to say without running the numbers. What you want to look at is the net result at the end of [b]x[/b]-period. For instance, since you plan to retire in 7 years, you could look at:
—-The projected balance of your retirement account at that time, assuming a rate of return of x %, (scenario 1) if you make no withdrawals and (scenario 2) if you make the withdrawal. Run numbers for both.
—–The net amount of your retirement assets after taxes, for both scenarios
—-The projected amount you will repay on your credit cards overtime, if you pay a certain amount (that you can comfortably afford).
An experienced financial planner should be able to determine other factors that should be considered.
Once you have the numbers , it becomes easier to make a decision…and likely take away the stress.
Good luck.