I owe $25,500 at 7.74% for a home equity loan. Unfortunately, I can pay only the interest for now (and until my car is paid off in another 16 months), and the interest charge is $168 /month. Balancing that out (in theory, I guess) is my IRA account with $31,000 - earning 4.87%.
I’m tempted to cash out my IRA to pay off my home equity loan, and put the rest aside to pay the tax penalty. Then I wouldn’t have the HELOC debt, but I also wouldn’t have any retirement savings either. (I'm 47 with no other retirement acct. or savings. And about $5,000 in credit card debt.)
What should I do? Is one option smarter from a financial perspective? Or should I just leave things as is -- where the two accounts seem to even things out ... but then what's the point of keeping them? Any help from financial experts would be greatly appreciated!
2007-12-16 07:17:08 · 7 answers · asked by idwhatever7 1 in Business & Finance ➔ Personal Finance
Keep the money in your IRA, if you take it out, you have to pay taxes on it plus a 10% penalty, and that pushes you into a higher tax bracket.
Plus, the interest on your mortage is a tax deduction, so you will go into an even higher tax bracket.
Pay off your other debts FIRST.
Then Pay off the mortgage.
And put as much as you can into your IRA.
FYI: Your IRA is also protected from most lawsuits and from creditors during a bankruptcy.
2007-12-16 09:58:22 · answer #1 · answered by Feeling Mutual 7 · 0⤊ 0⤋
First of all you should start living within your means. Evidently you have been a spendthrift, or else you had some health or other problems. Your home equity loan is tax deductible so the actual cost is less than 7.74%. Your IRA was funded with before tax money, and you should not cash it in. It is growing tax free, but you might consider investing it at a somewhat higher yield. You do not say what it contains, but a good selection of solid stocks will grow it faster over the next 20 years than your home equity loan. Pay off your credit cards quickly. It is irresponsible to owe that much on it. If you can't control your buying on credit, cut up your card. A man your age should know better than to incur that much credit card debt.
2007-12-16 07:34:36 · answer #2 · answered by Anonymous · 1⤊ 0⤋
No! Firstly, let it be known that I'm sorry you're in debt, don't get me wrong, it's not good and I'm not happy about it, but I have to be adamant that you do not cash in your IRA. It may seem like a good idea right now, but that money is going to be much more important in the future. There are many ways to get out of debt, or at least lessen the pain, obviously you can talk to your credit card provider and see if there is anything they can do to extend the loan (reduces monthly costs.) Also, try to re-evaluate your living status, is there anything you can cut back on? Anything you can live without? Getting rid of the "want" expenses will help you pay off the "need" expenses. It's hard, but sometimes it's the best thing to do. However, the last thing you want to do is to cash your IRA, when you hit 65 or so you're definitely going to regret not having the money around.
2016-04-09 07:27:16 · answer #3 · answered by Anonymous · 0⤊ 0⤋
Your HELOC interest is tax deductible, so that reduces the overall interest rate you are actually paying. I would not cash out your IRA to pay off your HELOC. I'm sure you can find other ways to pay down the loan faster. You need to adjust your budget so that you're paying more than just the interest on your loan. Also, next time don't use a HELOC to pay for a car. If you can't pay, you'll not only lose your car, but your house.
2007-12-16 07:24:22 · answer #4 · answered by bar_two_123 3 · 2⤊ 0⤋
DO NOT CASH OUT YOUR IRA. The HELOC is tax deductible. It appears you have a vehicle that is to expensive for your income. I would either suck it up and deal with your financial situation for the next 16 months or get rid of the vehicle.
2007-12-16 11:40:43 · answer #5 · answered by Anonymous · 0⤊ 0⤋
Keep the IRA. You will never be able to replace that money and it is making you compounded interest. Early withdrawal has a 10% penalty and then they withhold 20% to offset your tax liability. Economize in other areas, but do not touch the IRA.
2007-12-16 07:24:35 · answer #6 · answered by Butterfly Lover 7 · 2⤊ 0⤋
I do not see why you need to cash out your IRA. You may need that some day.
Also, there is a penalty and taxes on that withdrawl.
2007-12-16 07:21:41 · answer #7 · answered by Steve B 6 · 1⤊ 1⤋