Comments on: Should You Use Retirement Savings to Pay Off Debt? http://outofyourrut.com/should-you-use-retirement-savings-to-pay-off-debt/ Making more money...Saving more money Mon, 21 May 2012 08:18:27 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: Kevin M http://outofyourrut.com/should-you-use-retirement-savings-to-pay-off-debt/#comment-160437 Kevin M Tue, 10 Jan 2012 14:11:44 +0000 http://outofyourrut.com/blog/?p=1198#comment-160437 Hi Bill--If you're certain that there will be no tax liability as a result of withdrawing $30,000 from the IRA, then by all means, use the money to paydown the student loan debt. Please be sure to discuss this with your tax preparer/CPA first to be certain--when it comes to income taxes, general advice doesn't always apply to specific situations! (What ever you do, don't skip this step!!!) Money movements of this magnitude are seldom as simple as we think! The carpenters adage of "measure twice, cut once" is the order of the day. Also, I calculate that the interest on your loan is more likely building at a rate of about $280/month, so that's another reason for moving quickly on this. For what it's worth, I think your goal to be debt free is the way to go at your age. If you can get the debt paid off, and still have some money left over for investing, you'll be giving yourself plenty of breathing room to move forward. Hi Bill–If you’re certain that there will be no tax liability as a result of withdrawing $30,000 from the IRA, then by all means, use the money to paydown the student loan debt. Please be sure to discuss this with your tax preparer/CPA first to be certain–when it comes to income taxes, general advice doesn’t always apply to specific situations! (What ever you do, don’t skip this step!!!)

Money movements of this magnitude are seldom as simple as we think! The carpenters adage of “measure twice, cut once” is the order of the day.

Also, I calculate that the interest on your loan is more likely building at a rate of about $280/month, so that’s another reason for moving quickly on this.

For what it’s worth, I think your goal to be debt free is the way to go at your age. If you can get the debt paid off, and still have some money left over for investing, you’ll be giving yourself plenty of breathing room to move forward.

]]> By: Bill http://outofyourrut.com/should-you-use-retirement-savings-to-pay-off-debt/#comment-160254 Bill Tue, 10 Jan 2012 02:46:09 +0000 http://outofyourrut.com/blog/?p=1198#comment-160254 Kevin, Thanks for the great post. I’m hoping to get a little financial guidance. I've inherited an IRA ($75,000) as a result of my Mother's passing and will get another $30,000 from the sale of her home (when it sells, hopefully within the year). I have student loans for a total of $44,000 at interest rate of 7.75% (already consolidated). I am 53 years old and single. I am thinking of paying off the student loan with the inheritance money because I will probably not get that high of a return in the market and because it would be really nice to be out of debt. I am currently in deferment with the loans because I can’t afford the $365/mo payment. This adds about $100 of interest to the balance every month. I make around $30,000 a year and have a disability with my hands that holds me back. My plan is to immediately pay the loan down $14,000 out of the IRA and to wait until the house sells, then pay the rest with the money from the sale of the house. I have been told that I will not have to pay taxes on the $30,000 because it is part of her estate and thus part of the inheritance. If that is the case, it is better that I wait until the house sells rather than use the IRA money to pay off the whole loan. This will get me pretty much debt free and I will have $55,000 + left in the IRA. I don’t own a home and have no car payment. I might even be able to save money after that. I want to do what is best for my future and I can’t afford to make the wrong decision at my age. I would appreciate any feedback. Bill Kevin,

Thanks for the great post. I’m hoping to get a little financial guidance.

I’ve inherited an IRA ($75,000) as a result of my Mother’s passing and will get another $30,000 from the sale of her home (when it sells, hopefully within the year). I have student loans for a total of $44,000 at interest rate of 7.75% (already consolidated). I am 53 years old and single.

I am thinking of paying off the student loan with the inheritance money because I will probably not get that high of a return in the market and because it would be really nice to be out of debt. I am currently in deferment with the loans because I can’t afford the $365/mo payment. This adds about $100 of interest to the balance every month. I make around $30,000 a year and have a disability with my hands that holds me back.

My plan is to immediately pay the loan down $14,000 out of the IRA and to wait until the house sells, then pay the rest with the money from the sale of the house. I have been told that I will not have to pay taxes on the $30,000 because it is part of her estate and thus part of the inheritance. If that is the case, it is better that I wait until the house sells rather than use the IRA money to pay off the whole loan.

This will get me pretty much debt free and I will have $55,000 + left in the IRA. I don’t own a home and have no car payment. I might even be able to save money after that.

I want to do what is best for my future and I can’t afford to make the wrong decision at my age. I would appreciate any feedback.

Bill

]]> By: Tax Treatment for Inherited IRAs | Finance Blog http://outofyourrut.com/should-you-use-retirement-savings-to-pay-off-debt/#comment-27485 Tax Treatment for Inherited IRAs | Finance Blog Mon, 01 Nov 2010 22:37:08 +0000 http://outofyourrut.com/blog/?p=1198#comment-27485 [...] year in income and you receive a $100,000 IRA as an inheritance. In your mind, you’d like to use retirement savings to pay off your debt, so you request a [...] [...] year in income and you receive a $100,000 IRA as an inheritance. In your mind, you’d like to use retirement savings to pay off your debt, so you request a [...]

]]> By: Tax Treatment of Inherited IRA Accounts http://outofyourrut.com/should-you-use-retirement-savings-to-pay-off-debt/#comment-27425 Tax Treatment of Inherited IRA Accounts Mon, 01 Nov 2010 15:16:16 +0000 http://outofyourrut.com/blog/?p=1198#comment-27425 [...] year in income and you receive a $100,000 IRA as an inheritance. In your mind, you’d like to use retirement savings to pay off your debt, so you request a [...] [...] year in income and you receive a $100,000 IRA as an inheritance. In your mind, you’d like to use retirement savings to pay off your debt, so you request a [...]

]]> By: Kevin M http://outofyourrut.com/should-you-use-retirement-savings-to-pay-off-debt/#comment-7037 Kevin M Thu, 08 Apr 2010 13:06:13 +0000 http://outofyourrut.com/blog/?p=1198#comment-7037 Maddi, that $30,000 in credit card debt is like a margin loan on your retirement savings. Maybe you can split the amount to be paid between a retirement withdrawal and other sources, like higher monthly payments or use of any non-retirement savings you have. Unfortuanately, a credit card debt of that size can grow and grow, so you want to get rid of it as soon as possible. Maddi, that $30,000 in credit card debt is like a margin loan on your retirement savings. Maybe you can split the amount to be paid between a retirement withdrawal and other sources, like higher monthly payments or use of any non-retirement savings you have.

Unfortuanately, a credit card debt of that size can grow and grow, so you want to get rid of it as soon as possible.

]]> By: Maddi http://outofyourrut.com/should-you-use-retirement-savings-to-pay-off-debt/#comment-7021 Maddi Wed, 07 Apr 2010 23:40:48 +0000 http://outofyourrut.com/blog/?p=1198#comment-7021 Thanks for the advice - I've been struggling with this one. Your numbers match mine - I'm losing money especialy now that I've seen interest rates on $30,000 in card debt increased to 15% even though I have excellent payment history. My retirement accounts are over $70,000 and I'm only 40 - A do over is in order. Will shred last 2 cards and save up for the taxes - 1 year to go. Thanks for the advice – I’ve been struggling with this one. Your numbers match mine – I’m losing money especialy now that I’ve seen interest rates on $30,000 in card debt increased to 15% even though I have excellent payment history. My retirement accounts are over $70,000 and I’m only 40 – A do over is in order. Will shred last 2 cards and save up for the taxes – 1 year to go.

]]> By: Kevin M http://outofyourrut.com/should-you-use-retirement-savings-to-pay-off-debt/#comment-6946 Kevin M Tue, 06 Apr 2010 12:46:10 +0000 http://outofyourrut.com/blog/?p=1198#comment-6946 Jim, If you're going to retire soon, you may want to payoff the debts as soon as you retire. Debts costs more than it earns on a equivalent amount of savings, and if it's one thing you don't need going into retirement, it's monthly payments on old obligations. Could you take a second job to whittle down the debts before retirement? Jim, If you’re going to retire soon, you may want to payoff the debts as soon as you retire. Debts costs more than it earns on a equivalent amount of savings, and if it’s one thing you don’t need going into retirement, it’s monthly payments on old obligations. Could you take a second job to whittle down the debts before retirement?

]]> By: jim c http://outofyourrut.com/should-you-use-retirement-savings-to-pay-off-debt/#comment-6932 jim c Tue, 06 Apr 2010 02:26:47 +0000 http://outofyourrut.com/blog/?p=1198#comment-6932 I actually googled this question and wound up at this website with this article. I am 65 and still working and have adequate funds in my retirement accounts to pay off my cc debt incurred through divorce and education expenses for my children. The card companies have recently raised my rates, one of them to 17.9% and I am furious about it but can't get them to reduce. If I wait until I retire my tax implications will be less but I'm wasting lots of interest until then,???? I actually googled this question and wound up at this website with this article. I am 65 and still working and have adequate funds in my retirement accounts to pay off my cc debt incurred through divorce and education expenses for my children. The card companies have recently raised my rates, one of them to 17.9% and I am furious about it but can’t get them to reduce. If I wait until I retire my tax implications will be less but I’m wasting lots of interest until then,????

]]> By: Yard Sale Season / Weekly Roundup « Armada Media Blog Issues http://outofyourrut.com/should-you-use-retirement-savings-to-pay-off-debt/#comment-6679 Yard Sale Season / Weekly Roundup « Armada Media Blog Issues Thu, 01 Apr 2010 00:56:58 +0000 http://outofyourrut.com/blog/?p=1198#comment-6679 [...] [...] [...] [...]

]]> By: Yard Sale Season / Weekly Roundup http://outofyourrut.com/should-you-use-retirement-savings-to-pay-off-debt/#comment-6065 Yard Sale Season / Weekly Roundup Fri, 19 Mar 2010 08:57:13 +0000 http://outofyourrut.com/blog/?p=1198#comment-6065 [...] [...] [...] [...]

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