IRA Cash Out or Bankruptcy.?

Question

We are about to file bankruptcy and my husband came up with an idea today that might save us from doing this. Here is the situation. We are losing our house, have about 20000, in credit card debt and a deliquent truck. He has about 80000, in his Ira and if we cash it out we will take home around 45000. giving us enough to pay off everything except the house. I am ok about losing the house but I don't want to pay big fees on next years taxes. I know the IRS pentalies us for the early with draw but do we have to claim the whole amount or the balance of the amount after pentalties on our taxes and is it worth it. They are wanting us to pay around 1000 per month on a chapter 13 for 5 years. I am so confused. Should we just wait it out and see what happens after the house and just take enough to pay the credit cards and truck..

Answer 1

CHECK THE YAHOO NEWS:
MORTAGE GIANTS MAY HELP BORROWERS. ALSO THERE IS FREE CREDIT COUNCELING OUT THERE WHO
WILL TALK TO YOUR MORTAGE COMPANY AND GET AN AGREEMENT THAT IF YOU SELL YOUR HOUSE FOR WHAT YOU CAN, YOU WONT HAVE TO PAY THE BALANCE ON WHAT IS OWED AFTER THE SALE OF THE
HOUSE.
ABOUT YOUR IRA. CHECK WITH YOUR IRA AGENT.
IT LOOKS TO ME THAT DRAWING INTEREST IN YOUR IRA AT AN INTEREST RATE, SAY MAYBEE LESS THAN
8%, AND YOU ARE MAYBEE 16% OR MORE INTEREST ON YOUR CREDIT CARDS. BY THE TIME YOU PAID OFF
THE CREDIT CARDS ON A MONTHLY BASIS, YOU WOULD BE PAYING MORE IN INTEREST, THAN YOU WOULD FOR THE 10% PENALTY. IT LOOKS TO ME THAT
PAYING A 10% PENALTY ON $20,000 WOULD COST LESS THAN PAYING A PENALTY ON $80,000. WITH THE CREDIT CARDS PAID OFF, YOU COULD START PAYING ON THE TRUCK AGAIN AND THEN PAY THAT OFF NEXT
YEAR. I DONT KNOW HOW FAR BACK YOU ARE ON THE
HOUSE PAYMENTS. I WAS TOLD IF YOU ARE TO LOSE
YOUR HOUSE AND TURN YOUR TITLE OVER TO THE MORTGAGE COMPANY, YOU WILL LOSE YOUR HOUSE, BUT IT WILL NOT AFFECT YOUR CREDIT RATING ANY. BUT, DON'T TAKE MY WORDFOR IT.CK. WITH EXPERTS

Answer 2

A good bankruptcy attorney is the best advice on the bankruptcy. There is an option for taking money from an IRA penalty free, if done in substantially equal payments over the life expectancy of the owner. Because of the tax advantages of the IRA, I would save that until all other options are exhausted. If it comes to using it, consider the option I mentioned.

Answer 3

Cashing out of your IRA early results in taxes on all the money you take out of the IRA at ordinary income tax rates plus a substantial excise tax for the early withdrawal. In bankruptcy, the IRA is totally exempt.

I would avoid cashing out the IRA if you could.

If you make more than the median income, you might have to pay your disposable income for the applicable commitment period (sounds like 5 years in your case). You didn't mention your income and expenses, so I can't tell if that $1000 figure is high, low or right.

You have a complex case. Get a good bankruptcy lawyer to look at your case. Find one at http://www.abcworld.org

Answer 4

You will pay income taxes on the full $80,000. On top of that you will pay $8,000 in penalties.

If you are in the 25% bracket, then your tax on the $80,000 is $20,000, plus $8,000 penalty, for a total of $28,000. This leaves you $52,000 so I don't understand how you figure you will take home $45,000.

Have you considered a partial withdrawal over several years, in order for you to make the payments? From a tax standpoint that would save you a lot of money. Your accumulation will continue to earn money, and you may be able to stay in the 15% bracket. Your earnings from wages may increase in future years so that you don't have to take as much out of the IRA.

Can't advise you on whether to do the bankruptcy or not, just on the taxes.

Answer 5

a good financial ruin lawyer is the suitable suggestion on the financial ruin. there is an determination for taking money from an IRA penalty loose, if executed in notably equivalent money over the existence expectancy of the owner. because of the tax reward of the IRA, i might shop that until eventually all different concepts are exhausted. If it includes utilising it, evaluate the alternative i discussed.

Answer 6

You'd have to pay taxes and the 10% penalty on the entire amount of the withdrawal.