on Mar 5th, 2006Raid the IRA to Pay Off Home Equity Loan (Pay No Attention, Tony Blair)
Second child got you down? Didn’t anticipate the full cost of raising a child so you took out a home equity loan to help make ends meet? Welcome to the suburbs, where the women work, the men work, and the babies cry for lack of attention.
But that’s not the only thing screaming these days. As interest rates begin to feel like an unwanted friend, the urge to get your life under control hopefully comes sooner than later. For the couple below, the doomsday hour has arrived, and rest assured, it comes with penalties.
Question: I am considering withdrawing $80,000 from my individual retirement account to pay off a home equity line of credit balance that is drowning us. Our second child has really put our monthly budget out of whack, and we are spending more than we make. We have no debts except for a mortgage and a car loan. I realize this would not be the first choice of most advisors, but I can’t see another way. My plan is to pay off the car loan ($5,000) as well as the home equity line ($45,000), but I need to know how much extra I should take out to cover the taxes and penalties. Is $30,000 enough to cover those costs?
Liz Pulliam Weston: Money Talk
Raiding an IRA to Pay Debts Will Be Costly in Retirement
March 5, 2006
Cracking Your Retirement Nest Egg (Without Scrambling Your Finances): 25 Things You Must Know Before You Tap Your 401(k), IRA, or Other Retirement Savings Plan
by Margaret A. Malaspina
A former vice-president of Fidelity offers indispensable advice for the millions of baby boomers hitting 50, 55, and beyond. The author of “Don’t Die Broke,” she focuses on spending and living off retirement savings, while other books are geared towards saving for retirement.