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I recently signed my divorce papers. As part of the agreement, my ex agreed to sign over the deed to the house to me for a cash payment. Since I did not have the amount on hand I decided to "raid" one of my IRA accounts. I did get her to agree to two payments (one in 1998 and one in 1999) so that I could avoid having one IRA withdrawal put me into the next tax bracket.

Now that only my name is on the deed, I have already refinanced the first mortgage and taken out a home equity loan. The original intent was to put my credit card balance on the equity loan which I plan to still do. That would use up only about half of the line.

The real question is "Should I use the balance of the equity line to pay back some of the early withdrawal from my IRA?" I still have about 14 days to decide before I hit the end of the 60 day period in which I can pay back the withdrawal. I'm thinking that I can avoid the 10% penalty on the amount I pay back into the IRA and I will still have use of that money for the long term. The actual numbers look like this

Payment for house - $20,000 in 1998
$16,000 in 1999

Equity Line - $30,000 of which $15,000 is for Credit Card debt. Rate = prime + 1.50% (9.50% currently) Tax bracket Fed - 28%; State 7%

I could use $15,000 of the Equity Line to pay back the IRA withdrawal saving $1,500 in penalties and I would still have $15,000 to invest. I would also be deferring paying the income taxes on this amount. I'm 50 and I anticipate having to work until 65.

Am I missing something here? Or does this make sense?

Since I don't have anymore borrowing capacity, I will probably have to make another early withdrawal in 1999 for the $16,000 payment.

Any comments or suggestions will be appreciated.

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