Should I withdraw from one of my retirement accounts to pay off debt before they potentially decrease in value?

I am in $50,000 of credit card debt. The monthly payments are killing me. I have a 401(k) with $120,000 from my previous employer, a 401(k) of $17,000 with my current employer, and a Roth IRA of $40,000 with Vanguard. That is all I have for emergencies. But, if times get rough through this current administration, won't my retirement accounts take a dip as well? Should I pay my debt off now that my retirement accounts are doing, what I think is, good? If I do withdraw from my retirement accounts, where should I take from first?

Debt, 401(k), IRAs
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February 2017
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You are in a difficult situation, and I can understand because many people have taken on way too much debt. As an advisor, we can recommend what types of accounts, and how they are taxed. Given I don't have much information other than the debt and the accounts, it makes answering your question more difficult. What is your current age? Your 401(k)s and IRAs have 10% early withdrawal penalties.

I'm sure these monthly payments are killing you, but if I were you, I would explore these options first:

1. Some type of debt consolidation loan. If you currently own a home, a possible choice would be to refinance your existing mortgage for a better rate, and take existing equity out to pay down debt.  Mortgage interest may be used for tax advantages, but please consult a tax professional.

2. Talk with your credit card companies. This can sometimes help with reducing interest rates to help pay them off.

3. Talk with your current employer about taking a loan against your existing 401(k) which can have lower rates and I would also think about moving your old 401(k) into your current 401(k). Your new 401(k) provider should be able to assist with this.

4. Your Roth IRA has already been taxed, but will still be assessed a 10% early withdrawal penalty and additional penalties. (To make qualified distributions from a Roth IRA, you must be at least 59½ and it must be at least five years since you first began contributing. And if you converted a regular IRA to a Roth IRA, you can't take out the money penalty-free until at least five years after the conversion.)


So, before you do anything, consult a tax professional on this matter.

February 2017
February 2017
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February 2017