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Article Series: Debt
Relief & Debt Consolidation
I Want To Get Rid
Of My Debt...NOW!
Don't
Tap Into Your IRA For Debt Consolidation
If you have an individual retirement
account and you have had it for some time, then you probably
have quite
a bit stored away. Sometimes when facing a lot of debts, you
may be tempted in a situation like this to dip into that IRA.
But many advisers will tell you not to do this. There are several
reasons why they will say this is not a good idea, least of
which you could be left with nothing after retiring and therefore
even deeper in debt than where you started. Besides this obvious
reason, you can incur penalties unless you withdraw money from
the IRA at certain times. These times include when you are
59 ½ and when you are 70 ½. In fact when you
are 70 ½ you must start withdrawing money or you can
face penalties also. The government wants to give you plenty
of time to spend all of your IRA and therefore pay taxes on
it. Taxes is what you will owe on any money you take out at
any other times besides these two points.
There are some reasons with strict and rigid rules that will
allow you take money out early but this is more of another
reason why you should not take out of your IRA to consolidate.
The rigid rules make it your responsibility to produce clear
and substantial evidence of what you spent the money on. Some
of the reasons that qualify include higher education or home
ownership. If you do not have this evidence you can definitely
and will face IRS penalties. Having to document everything
and follow strict rules may also be a good reason to avoid
taking money out of your IRA to consolidate. If the rules are
not followed carefully, you could cost yourself even more money
in the end.
You should set up two rules for yourself to follow if you
are considering tapping your IRA for debt consolidation. One
of these rules is looking at IRA with a financial planner or
after some substantial research into it. This will help you
make the best decisions and save you money in the long run.
The second rule you should follow is looking at how people
are living longer and healthier in more recent years. This
could be tricky because you have a better chance of living
broke later in life if you take money out now. Is it really
worth it? Take this into careful consideration before you decide.
Another thing you should take into consideration is any beneficiary
you may have named to your IRA. Taking money out now to help
in consolidation can greatly and negatively affect the well
being of your future beneficiaries. This holds especially true
if you are not responsible and disciplined enough to continue
to keep your debts to a minimum or completely eliminated. Also
the older you are, the less time you will have to replenish
your now reduced IRA.
Besides penalties and the possibility of not having enough
time to replenish your IRA you also must be very disciplined
to successfully tap into your IRA and not completely lose your
entire IRA or incur penalties. This includes keeping very careful
records and saving any extra money you may be able to get through
debt consolidation. If you continue your old spending habits
you will fail and are better off not trying to borrow money
from your IRA. Being irresponsible will also not help in avoiding
penalties if you do the wrong thing in borrowing.
Now that you are fully aware of the penalties that can be
incurred and the disadvantages of borrowing from your IRA it
is up to you whether or not that money sitting in the IRA is
something you want to take advantage of or not. If you are
the responsible type and someone who is willing to work hard
to make things work out you may not have as many of these problems
to overcome in borrowing money from your IRA for consolidation.
On the other hand if you are not very responsible and are the
type who will continue to spend no matter what you are better
off not borrowing from your IRA and leaving it where is and
trying to find other ways of consolidating your debts or paying
them off.
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by SolveYourProblem.com
: 2007
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