Back in August, my husband and I sat down with our new financial planner who shocked us by urging us to withdraw money from our retirement when I did my IRA rollover so we could pay off credit card debt.
At the time, we had $19,912.31 in credit card debt. We were paying approximately $398 a month in minimum payments. We were paying interest rates that ranged from 0% to 12%. On our limited income, we weren’t going to be able to pay off the credit cards for quite some time.
After much discussion and thought, my husband and I decided to take the financial advisor’s advice and take $27,500 out of our retirement.
Immediately $2,750 was taken for the penalty. Nothing else was taken out, so my husband and I set aside $4,000 in a bank account anticipating we would need to pay that much in taxes come tax time.
That left us with $20,750, which we applied to the credit cards. The little bit remaining went in our emergency fund.
For the last six months, we’ve nervously waited. Would $4,000 be enough? Would we owe even more? If we did, how would we come up with the money?
Well, last week we heard from our accountant. For the first time in years, we do owe the government. However, even after taking the money out of our retirement, our tax bill was just $2,100. We both gave a collective sigh of relief.
I wouldn’t recommend that everyone cash out part of their retirement to pay off debt. I know that in addition to paying the penalty and taxes we also lost money in the future, in the form of interest that could be growing on that money if we had kept it in retirement.
However, we eliminated years of credit card interest by paying off those credit cards, and we also lifted a weight off our shoulders and gave ourselves some financial breathing room.
Now that the entire process is over and the tax burden wasn’t as bad as we had expected, I can say for us, at this point in our lives, the financial advisor was right. Taking the money out of our retirement was the best move.
Have you taken money out of your retirement account? If so, was your experience like ours, or did you have to pay more than expected?