Cashing in an IRA?

[Goldeneagle]

I'm about to my wits end. It's gotten to the point of almost more $ going out than coming in. My wife is handicapped and can't work. I have an IRA that has enough in it to pay off everything but the mortgage and I'm down to about 8yrs left on it. I do have a pension plan and 401k here at work. I'm 55yrs old. Does cashing the IRA in sound like a good plan? We paid our bills the other day and had only $150 left for food and gas for 2 weeks then it will happen again next payday. We are struggling bad. What do ya'll think?

[wes122984]

not worth it....

if you cash it in you will pay at 10% penalty plus taxes.

The thing with the taxes is it will count as ordinary income. so take how much you make, plus how much you would pull out and thats your income for the year. whatever that new tax bracket is, how much roughly you will owe in taxes. its basically like cashing it in at 1/2 the value.

[BrianL]

I don't think so. I think you will be looking at a 25% tax and 10 % penalty.

[coogfan]

not worth it....

if you cash it in you will pay at 10% penalty plus taxes.

The thing with the taxes is it will count as ordinary income. so take how much you make, plus how much you would pull out and thats your income for the year. whatever that new tax bracket is, how much roughly you will owe in taxes. its basically like cashing it in at 1/2 the value.

I agree. Never a good idea to borrow money at 50% interest.

[Bily Lovec]

wes gave you sound advice.

can you get a loan against your 401k ?

being realistic and keeping wes' advice in mind, if its worth losing say 40% of its value in tax to get your head above water, go for it.

[MDC]

Not sure if this a good or bad idea but maybe a 401K loan to pay off the bills. This way you don't take a tax hit and you pay yourself back with interest. Set your payments to where you can afford to live. Just a thought.

[coogfan]

Have you guys done a detailed budget? If not that is a great place to start. I would also recommend reading Dave Ramsey's book "The Total Money Make Over".

[Codie]

start in with your debt before you start in on your assets

I would sell mine and my wifes vehicles and buy cheap vehicles with cash, sell my home and pay cash for a smaller home using the equity in my current home etc.etc.etc. before I started depleting my $ assets

check with your local bank/credit union about a debt consolidation loan

[buckwild17]

Avoid it if you can . I had to draw a state pension out as the result of a divorce. Cost me about $25 k to give away $50 k !!! Got hit with a $ 9 k penalty on top of the $16 k taxes. It does count towards your annual income .

Debt consolidation ??
Does your wife qualify for disability income ??

Prayers for God to help you meet financial needs .

[Bill]

I can't answer your questions, but send my prayers.
There are members of TBH who work for financial services companies (I know several are with Edward Jones for example) and I'd really suggest you connect, set up a phone call and talk about what's going on and ask an impartial, unemotional expert their opinion of your strategy going forward. I do not want to endorse any one person, so hopefully somebody comes forward, or if not you can PM me and I'll let you know who on TBH I refer to.

[txhunter83]

In general terms, the advice given above is normally the correct answer. However, it's not always the case.

Do you have any debt outside of your mortgage? If so, you need to consider the interest rate on that debt and what you are losing by NOT paying it off with the proceeds from your IRA. You're going to pay ordinary income tax on the proceeds when you money out of your IRA either way, it's just a question of the 10% penalty. If you're paying 20% interest on a credit card balance, I would say you're better off paying off the credit card balance.

What is your mortgage rate, and have you looked at refinancing? You could probably substantially lower your payments by refinancing to a 10-15 year fixed rate loan, and that would help. Depending on your credit, you could probably borrow money at 3.5%. Debt can be useful!

Like Bily Lovec mentioned above, you might look into taking a loan against your 401k. You pay yourself the interest, which is nice, but you're also taking money out of the market.

Hope this helps.

[Goldeneagle]

My 401k does not have enough in it yet to pay off everything. My wife does not quailfy for any disability benefits yet. Even with the taxes and penalties, the IRA does have enough in it. Only other thing that has crossed my mind has been life insurance. But not that desperate yet. Thanks for trying to help.

[Mike Murphey]

Check with your tax person or a tax person, you might have other options open to you....

[wes122984]

My 401k does not have enough in it yet to pay off everything. My wife does not quailfy for any disability benefits yet. Even with the taxes and penalties, the IRA does have enough in it. Only other thing that has crossed my mind has been life insurance. But not that desperate yet. Thanks for trying to help.

if you only have 8 years left on the house i imagine you have some equity in it. you could pull some cash out with home equity or similar to pay everything else.

this would prob reduce your monthly outflow big time, and you keep your ira in tact knowing you can pay it off at any time

ex: 50k in cc debt has min payment of $1250/m at average of 12% interest
50k heloc has about a $200/m min payment at about 4% interest

[BrianL]

If it will reduce your stress load significantly I would say might be worth it. You can't provide laid up with a stroke or heart attack.