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Started By
Message
Going into my IRA to be debt free
Posted on 12/17/09 at 3:09 pm
Posted on 12/17/09 at 3:09 pm
Ok, i posted something to the effect of this a couple days ago, but i'm trying to word a little more clear.
Is it better to go into my IRA and take the 10% penalty to quickly payoff my truck note that has me in debt, and seems like a weight on my shoulders. Or continue to pay off my truck, and have it finally paid off.
My interest rate is 7.9% on my truck, so i figure if i take out the $15,000 (note value plus interest if paid off by the full term = $16,185) left on my truck from my IRA (with a 10-15% penalty = $17,000). I figure i will only be losing about $1000, which i can live with.
So to recap
Truck note value = $15,000
Interest on truck = 7.9%
Total truck note + interest if paid off on a monthly basis = $16,185
Amount required from IRA = $15,000
Penalty on IRA for early withdrawel = 10-15%
Withdrawel amount, plus penalty = $17,250
If i'm thinking of this correctly, i will lose about $1000, which is acceptable to me. Any suggestions on my plan. Or do i just keep paying it off.
Note: I am 27 years old, and if i were to pay off my truck, i'd still put the same amount i pay on truck note, pack into my IRA. Repaying my IRA just doesn't have the strain on my finances as paying off my truck.
Is it better to go into my IRA and take the 10% penalty to quickly payoff my truck note that has me in debt, and seems like a weight on my shoulders. Or continue to pay off my truck, and have it finally paid off.
My interest rate is 7.9% on my truck, so i figure if i take out the $15,000 (note value plus interest if paid off by the full term = $16,185) left on my truck from my IRA (with a 10-15% penalty = $17,000). I figure i will only be losing about $1000, which i can live with.
So to recap
Truck note value = $15,000
Interest on truck = 7.9%
Total truck note + interest if paid off on a monthly basis = $16,185
Amount required from IRA = $15,000
Penalty on IRA for early withdrawel = 10-15%
Withdrawel amount, plus penalty = $17,250
If i'm thinking of this correctly, i will lose about $1000, which is acceptable to me. Any suggestions on my plan. Or do i just keep paying it off.
Note: I am 27 years old, and if i were to pay off my truck, i'd still put the same amount i pay on truck note, pack into my IRA. Repaying my IRA just doesn't have the strain on my finances as paying off my truck.
8
Posted on 12/17/09 at 3:12 pm to BugAC
You will have to pay applicable income taxes on the withdrawal on top of the 10% penalty. Be sure to factor that in as well.
ETA: are we talking aabout a pre or post tax account?
ETA: are we talking aabout a pre or post tax account?
This post was edited on 12/17/09 at 3:13 pm
Posted on 12/17/09 at 3:16 pm to Martavius
Pre tax, i had a 401k, but i switched companies, so i moved my 401k into an IRA. I now have the IRA and a 401k with my new company.
This post was edited on 12/17/09 at 3:17 pm
Posted on 12/17/09 at 3:18 pm to BugAC
quote:
am 27 years old, and if i were to pay off my truck, i'd still put the same amount i pay on truck note, pack into my IRA. Repaying my IRA just doesn't have the strain on my finances as paying off my truck.
How's this work out?
Posted on 12/17/09 at 3:23 pm to kfizzle85
quote:
How's this work out?
Well my truck note is a must pay every month, with a set amount. Putting money back into my IRA isn't as schedule driven. (I know it is as important, but the weight of investing into my retirement is lighter than the weight of paying off my loan)
Posted on 12/17/09 at 3:28 pm to BugAC
quote:This makes me doubt whether you actually will faithfully put the money back into the IRA. Be honest with yourself - are you likely to say something like "I can splurge and spend my retirement money this month - I'll just put in double next month!"
Well my truck note is a must pay every month, with a set amount. Putting money back into my IRA isn't as schedule driven.
Posted on 12/17/09 at 3:32 pm to BugAC
Well, if you witdraw $17.500 pre-tax contributions you're looking at something like $1,750 in penalties, around $4,000 in fed taxes (assuming 25% tax bracket) plus state taxes. So after it's all said and done, you'll probably walk away with $10k-$11K which won't be enough to pay off your truck.
Posted on 12/17/09 at 3:36 pm to Cold Cous Cous
quote:
This makes me doubt whether you actually will faithfully put the money back into the IRA. Be honest with yourself - are you likely to say something like "I can splurge and spend my retirement money this month - I'll just put in double next month!"
No, i actually will. Thats why i responded in the parenthasis. When i was 23 i was putting 20% of my income into 401k, i didn't adjust to 15% until i was 25. I believe i'm ahead of the curve as for as retirement investing is concerned. I'm just trying to figure out the cost benefit of getting out of debt.
Posted on 12/17/09 at 3:36 pm to Cold Cous Cous
quote:
Well my truck note is a must pay every month, with a set amount. Putting money back into my IRA isn't as schedule driven.
Yeah, that's akin to "I'm not going to put as much money in every month." If there is no CF implications it can't be any less of a strain on your finances. Just sayin'
Posted on 12/17/09 at 3:48 pm to Martavius
quote:
around $4,000 in fed taxes (assuming 25% tax bracket) plus state taxes
Yeah, didn't think about the fed and state taxes. Looks like i'll stick with paying it off the same and putting my bonus and tax refund into paying off the truck.
My problem, is simply that i want to buy a house in 2 years, and i'd like to put 20% down on the house. I'm not the best at saving, besides reitrement, and most my money goes to rent, truck note, insurance and bills. I figure if i pay off my truck, i could start saving more.
Guess i just need to stop spending as much and keep with the plan.
Posted on 12/17/09 at 3:49 pm to BugAC
Another question, should i transfer my IRA to a Roth IRA?
Posted on 12/17/09 at 3:54 pm to BugAC
This seems like a terrible idea. Not trying to go all Dave Ramsey on you, but if you can't afford the truck payments, sell it and buy something you can afford. If you can afford the truck payments, pay them, and try to pay them off early.
That 17K will grow tax free for the next 30 years.
That 17K will grow tax free for the next 30 years.
Posted on 12/17/09 at 3:57 pm to BugAC
quote:
most my money goes to rent, truck note, insurance and bills
Not trying to be a dick, but it doesn't look like you can afford a house (or you bought a truck out of your price range).
Posted on 12/17/09 at 4:00 pm to Ric Flair
quote:
If you can afford the truck payments
I can afford the truck payments, but in all honesty, i didn't think long term when i bought the truck, as for as a house. The company i used to work for had me moving all over every 6 months or so, so renting was fine with me. THen i started to realize that, though they paid me well, i wasn't happy moving all the time. so i left the company and was hired on in the new company, that keeps me settled in one place. I am moving again in a month to NOLA, but it's on my terms, and it's for a year, and i was asked by the VP if i wanted to accept the opportunity, not demanded to move like my old company.
Posted on 12/17/09 at 4:01 pm to Ric Flair
quote:
but it doesn't look like you can afford a house (or you bought a truck out of your price range).
I could afford a house now, but i'd be living pretty tight with my money, thats why i'm waiting till i pay off my truck until i decide to buy.
This post was edited on 12/17/09 at 4:02 pm
Posted on 12/17/09 at 4:03 pm to BugAC
With my truck note, rent, and high car insurance (have to pay double what i normally pay for business uses) i could afford a house without compromising my lifestyle. I just wanted to do it sooner than later.
Posted on 12/17/09 at 4:09 pm to BugAC
Would you qualify for an FHA loan? I think you only have to put down 3.5% down payment for this.
Posted on 12/17/09 at 4:15 pm to Ric Flair
I don't know, i haven't tried. I'm not looking to buy right now. But when i do buy, i'd like to but down at least 20%.
Posted on 12/17/09 at 4:42 pm to BugAC
quote:
Another question, should i transfer my IRA to a Roth IRA?
Don't do it until 2010 which isn't far away. You'll have to pay taxes on the money you convert from an IRA to a Roth IRA but in 2010 you will get a break. I believe you will be able to spread the tax liability out over 2 years.
Posted on 12/17/09 at 4:42 pm to BugAC
As others have pointed out, you need to consider that you will be paying tax on withdrawing from a traditional IRA. If it's a Roth, you don't owe tax.
However, you will also lose the benefits of future investment earnings. They probably won't be 7.9% but they will go on for a lot longer than a truck loan will. The bottom line is that this is a very bad idea.
FWIW you can (I think) withdraw from an IRA penalty-free for a downpayment on a first home up to $10K. I still don't know if that is wise, but it may be an option.
However, you will also lose the benefits of future investment earnings. They probably won't be 7.9% but they will go on for a lot longer than a truck loan will. The bottom line is that this is a very bad idea.
FWIW you can (I think) withdraw from an IRA penalty-free for a downpayment on a first home up to $10K. I still don't know if that is wise, but it may be an option.
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