cash balance question ?? (see additional info for question)?

Question

I was layed off 4 months ago and have $5 k cash balance that can either take in a lump sum or put in a roth ira. I want to cash out on it to pay for my braces is that a good idea? Or should I put in a roth ira then borrow from it? Any financial specialist that can help?

Answer 1

Sorry that your were layed off. Hopefully you've found work by now.

I'd roll the retirement account over. If you move the money into a Roth (if that's allowable...usually it's a 2 step procedure) the amount that moves into a Roth is taxable. I'd probably move it into a regular IRA to avoid the taxes.

Cashing a retirement account in to pay for something usually isn't wise. If you're not 59.5 then money withdrawn from a IRA is subject to taxes AND a 10% penalty....ouch!

You can't borrow from a IRA, so that's not an option.

I'd hold off on the braces until you found a job. Then I'd find some other way to pay for the braces....preferably some way that didn't hit with a 10% penalty AND tax (additional 15% to 25%).