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You are here: Experts > Business > Finance > Personal Investment & Financial Planning Q`s > IRA/401K early distribution
Expert: Bruce Julien - 11/3/2009
Question
I lost my $100k+/yr job in July of this year and was able to quickly get a job making $60k/yr (my wife also makes $60k/yr). My new employer doesn't have a 401K plan, therefore I had to rollover my previous 401K into an IRA. My wife and I had been trying to right the wrongs of our youth by paying down nearly $60k in credit card debt (I know....stupid!!)before I was downsized. I am 44 yoa and need to get out from under the debt so that I can start rebuilding my retirement. I need to pull the money out of the IRA early and pay off the credit card debt and free ourselves financially and emotionally. I know conventional wisdom would dictate that we don't touch the IRA...but we are in dire straits and need to be free and not ever use those cards again. My question is how is the best way to take out the money and hedge against 1) raising us up to a higher tax bracket, 2) saving the 25%? penalty on withdrawing from an IRA vs. 401K plan and 3) paying the proper amount of taxes on the withdrawals and on time so as to avoid late fees, interest and penalties from the IRS? Thank you in advance for your help. We will rebuild, but we need to clear out the financial rubble that is our credit card debt.
Answer
Don't take money out of your retirement plan to pay off debt. You will lose half your money to taxes and penalties so you will not have much to pay the cards off
Talk directly to the card companies and get them to reduce interest rtes, accept lower payments, take advantage of zero percent transfers, anything but don't take the retirement money out
Good luck Jeff
Bruce
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