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Ude --

Sorry about the job. I'm sure it's unnerving to be without a steady income, but there has got to be some better options than cashing out the IRA.

First, it's unclear from your post how much of your IRA you are intending to cash out. It sounds like you want to cash out the entire thing, not a very Foolish thing to do. [You mention wanting to live off of it for a while in addition to paying off your debts -while holding half in a CD -- sounds like you are talking about an amount $40K or more.]

Why are you assuming that it could take months to land a new job? What if you cash everything out and than get a great offer in 6 weeks? Not only will you get hit with the huge tax bill, but you will have lost your opportunity to have those funds accrue tax free.

You may want to visit the Consumer Credit/Credit Card Board (negotiating with creditors to lower interest rates), the Living Below Your Means Board (lifestyle adjustments) and Budgeting Boards (goal setting for living w/in your means, cash reserve, etc.) for some tips on how to tide you over during this transitionary period in your life.

But since this is a Tax Strategies board -- a few thoughts (that hopefully the experts can embellish upon):

1. Rather than cash the entire amount out, perhaps cash out only what is necessary to carry you through the minimum living expenses for a 3 month period. Let the "tax amount" stay in the IRA until you are sure that you need it. This will minimize your tax hit for this year. You can always make a 2nd withdrawl next year to cover taxes (and additional living expenses if absolutely necessary)-- and if you are still unemployeed then, your tax rate may very well be lower.

You mentioned you earn about $60K annual -- meaning you've probably earned about $40-45K this year. If you have a lot of deductions (i.e., mortgage), it's possible that you are on the cusp of the 15% FIT bracket. Any large cash out will most assuredly place you firmly into the the 28%. If you have few deductions and pull out the entire amount at this time, you could easily escalte yourself in to the 31%.

So, be strategic and pull out only the minimum or that which will keep you in the most beneficial tax bracket.

2. If you are serious about going back to school, consider the various types of education tax credits that you might be able to claim and try to coordinate these to their best tax advantage to offset any IRA withdraws.

A few other questions to ponder. Do you own a home that you could sell and profit from the equity so that could tie you over?

Whatever you do -- consider your long-term financial future and not just pride. Help from the saddle (I assume this means family -- sorry if I've misinterpreted) might be better at this point than later.

Good Luck.

Making Trax
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