AboutGina Boykin Expertise Financial planning, debt management & credit cards, and money-saving tips for adults and teens. Saving vehicles such as CDs, treasuries, bonds, and money-market funds. I provide honest, objective and relevant information to help you made the best decision for your money.
Experience Over 10 years of combined experience in accounting, audit, investing, entrepreneurship, real estate.
I am the CEO of Atlanta Y.E.S., a nonprofit organization dedicated to financial literacy for youth.
Education/Credentials B.S. Accounting, 10 years of experience in accounting, audit, and investing
Question I am single, 57 1/2, earn 42,500 year. I have a 20,000 credit card debt I want to pay off. Options: Sell most of my Texaco stock, use my 401K savings or my IRA. I know I wont be penalized as I am 57 1/2. I sold 7,000 of my stock this year to pay off my car so I am aware that taxes will be due for that. My interest rate is 9% on the American Express.
Answer If you did not sell your Texaco stock, when would you need that money? If you will need that money within the next 5 years or so, that money should not be in the stock market anyway. Since that is the case, that would be a reason to use that money. Also, if any of the stock was purchased at a higher price than the current price, you would be selling this portion at a loss and this would reduce your overall tax burden.
The same thing applies to the 401K and IRA. Any money that is still in stocks or growth mutual funds within your 401K and IRA that you plan to use sometime soon should be moved to something that does not have the ability to fluctuate greatly in the meantime (like money market mutual funds, government bonds, and CDs). This is because you don't want to depend on a certain amount of money for a short-term goal, and not meet it because you have to sell at a time that the market has dropped. The only difference for the 401K and IRA is that you won't pay taxes on the money you move until after you withdraw it.
If you don't need the stock money any time soon, there is not much difference in withdrawing from this account or your 401K or IRA. All of these will require paying taxes - you will pay taxes on stock gains, and pay taxes on the entire withdrawal of the 401K or IRA. This is something you will have to pay no matter what year you take the money.
One thing you should consider, and this will require talking to the person who prepares your tax return, is that you don't want to put yourself in a higher tax bracket by this transaction. If you withdraw $20K from your retirement accunts, this may happen, depending on what other tax-related events have happened in the same year. To avoid being in a higher tax bracket, you may want to withdraw part this year and part next year.
