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Subject:  Re: Liquidating IRA Date:  10/25/1998  2:06 PM
Author:  TMFPixy Number:  6276 of 88486

Greetings, Goldie2000, and welcome. You wrote:

<<I need some advice. I am a born again student who works part time. I have 10K in debt from foolish spending. I am thinking of making a withdrawal from my IRA to pay off this debt (I am < 59 1/2 YO and IRA balance 10k+). I understand there are fees etc but It would really remove the burden of debt that I carry. Also next fall I may not be able to work as much as I do now (I may have to do a full time school commitment) and paying things off would be a help. I thought I'd wait and do this next year after 4/15 because of taxes. Ideally I do not want to touch this $$ but It seems like the best thing for me to do.>>

I'm always reluctant to tell anyone it's a smart thing to take money from an IRA prior to age 59 1/2. That's because of the steep price you pay to do so. If you're in the 15% tax bracket and you take $1K, then you must pay $150 in ordinary income tax plus another $100 (or 10%) as a penalty for the early withdrawal. That means you net just $750, or three-fourths of what you wanted. That seems a pretty steep price to pay. Only you can say whether that price is worth it based on your debt and your need to eliminate that debt. Just keep in mind that it will cost you today, and it will cost you tomorrow when that money and its compounded earnings is no longer available at retirement. If those factors are out-weighed by your need to pay down the debt, then do so. OTOH, if you can manage that debt without cashing in the IRA, then IMHO you should do that instead.


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