Is it a good idea to use original contributions from my Roth to pay off credit card debt?

Question

The amount is about $2500. Is this a good idea? Roth has earned around 10%, the card's interest is around 14%.

Fool: I thought taking out original contributions (not the earnings) was tax free on the Roth? The contributions were after-taxes...

maybe you're thinking of the traditional IRA?

Answer 1

Personally, I never like seeing people going into their retirement savings for any reason other than catastrophe. That said, I would recommend that you transfer the balance to a lower interest rate credit card. Many have introductory rates of 0% for a few months (check Money Magazine for the best credit cards if you carry a balance). In the meantime, try to pay down that debt by adjusting your day to day spending. Withdrawal from a retirement account should be a worst case scenario.

Answer 2

You're correct that the Roth does not have the same qualities that a traditional IRA has with regards to tax penalties. However, earnings come out first and are taxed at your ordinary income tax rate + 10% penalty (for this withdrawl).

It would be wise to transfer the balance to a better card (apply for a new one and cut the old one up, but don't close it if you don't need to - longer history is better for your credit rating).

The amount seems small enough that you should be able to pay it off without withdrawing from your Roth, I would just keep an eye on spending in the future and pay the card off over time rather than remove from the powerful long-term savings vehicle you have with your Roth. You're 75 year-old self will thank you for it.

Answer 3

No way, I would suggest anything before taking a distribution from your Roth Ira. That is a worse case scenario. You'll pay severe tax penalties for taking money out early. Depending on what your income is the tax would be anywhere from 10%-25%. You would be better of getting a credit card with a lower interest rate and transferring the balance. Talk to your tax/financial advisor before doing anything.

Answer 4

I believe you're right when you say that, as long as you're withdrawing your own contributions, not your earnings, the withdrawals are tax free. They were already post-tax when you deposited them into your Roth.

That said, the only thing you could be doing is taking away retirement money and putting it toward a debt. I suppose, as long as you will not run up a bill like that for a while and you plan to replenish that $2500, it's not a bad idea. The %age rates bear that out.

Answer 5

on the exterior I could consider the different responders. repay the mastercard debt then tear them up. yet incredibly the appropriate answer could be extra complicated than that. in case you repay the mastercard debt and then turn around and rack up extra debt on the credit enjoying cards, you haven't any longer something to coach on your problems. regrettably, many people fall into that capture. won't be able to help spending the money they have not got. Now in case you place the money right into a Roth IRA account, that funds is going to be extremely complicated to get to interior the destiny and is extra frequently risk-free from being spent. In different words that's an investment on your destiny. the shrink back is which you will nonetheless have that miserably mastercard debt racking up interest at a value it is plenty greater than you may anticipate to get carry of on any investment you would be able to make on your IRA account.

Answer 6

Simply NO ! No !
visit DaveRamsey.com to learn what no one has taught you.
Smart people get a 2nd , 3rd job turn off TV and work to pay off the debt and THEN NEVER go back into it.
Visit DaveRamsey.com
Closing a ROTH to pay credit cards is real world dumb.

Answer 7

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Answer 8

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Answer 9

If it has served its purpose and there is money left over that will not be needed for its original intention go ahead. As long as it is legal and this money is not supposed to be for something else. If this money is truly yours with no strings attached you can do what you want with it.

Answer 10

No don,t do it