Is it ever advisable to take out money from a retirement fund? I know it's generally looked down upon, and I understand the 10% fee plus paying income taxes on it- but if you are paying down debt, should you do that before saving money, kwim??
according to my tax classes the only time you should consider it, is to either buy a home for the first time or to pay education expenses. other than that no
We did it once several years ago to pay off a vehicle, which decreased our monthly debt by a lot (the vehicle was $300/month, but we were po' folk at the time). It helped immensely and we were in our early 20s, but I'd never do it again. We got socked at tax time. A lot.
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Well, I am not sure what kind of retirement account you are talking about. But, for a 401K for example, that is pretax money. So you borrow it, pay taxes and penalties on it, and then have to repay your 401k with AFTER tax money.
As far as the "do we pay off debt or save for retirement first" that is an on-going debate. The simple dollar guy has had a few interesting posts on it. I think for most people the answer is, do both.
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Quote:
Originally Posted by brayg
We did it once several years ago to pay off a vehicle, which decreased our monthly debt by a lot (the vehicle was $300/month, but we were po' folk at the time). It helped immensely and we were in our early 20s, but I'd never do it again. We got socked at tax time. A lot.
Ditto ditto... This is exactly what happened to us. Again, we were in our early 20's... so it was ok, but it wasn't at all worth it for what we got out of it. I think we ended up getting like $1,400 out of a $6K IRA (or some other similar account).
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My dh did this last month to pay two months of our cobra insurance. He took the $ out of his account without consulting me. To be honest I'm really glad he did. The stress I would have put on myself to squeeze another $816 per month out of our budget with holidays and fixing up the house, and traveling for Thanksgiving would have been crazy. Sometimes what is the smartest thing to do and what is best for your mental health are very different.
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We did it in the past & it was one of the biggest mistakes EVER. I'm pretty sure that all of the big financial experts advise to not do it unless your only other option is bankruptcy.
I don't know what to do about this either. I'm going back to university in January 2009. We have RRSPs that may disqualify us from student loans, but by pulling them out and being taxed really high and having that count as income in that year, we'll also lose. I'm still researching it, though.
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Yikes, there is TONS to do before then. Gulp.
I was going to do this for medical expenses, which some companies allow without the penalty, although I know it's always taxed. But it isn't an option anyway..dh's co offers no loans or hardship withdrawals for any reason. Probably just as well.
we are having to consider this too. we moved to a new city for a new job for dh. our old house has been on the market for 8 mos. we had hoped to MAKE close to $40K on the sale of the house, but it looks like instead we will have to bring about $20K to the table to close. and that is in addition to some debt we have incurred as a result of paying 2 mortgages and upkeeps for the past 8 mos.
mamagael, i agree that sometimes it makes sense from a mental health standpoint.
does anybody know of a good website that talks about how much you should have saved (in a 401k) by X age to retire by Y age?
bethany, i'm sorry you don't have the option. i hope you'll be able to figure something out.
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