IRA Money To Pay Debt

[Clipper965]

What is the name of your state (only U.S. law)? Florida

I have about $8000 in my IRA. This past year I had several financial problems. My mom passed away she left her IRA in my name which I had to use entirely to pay funeral expenses but as it was in my name I am on the hook tax wise. I had to buy a new house and was able to so before the first time home buyer tax credit expired. I also had medical bills of my own and had charge in total $5000 or so on a credit card. I want to take the money out of the ira to pay off this 22% plus debt and be done with it but am scared what will happen tax wise. I take home about $1650 per month and drive a paid off car and am frugal but it takes all I earn to just to live. Given the local economy there is nothing I can see to earn extra money so I am stuck. Given my situation is it even tax wise to take out the money and pay the debt off?What is the name of your state (only U.S. law)?

 

[LdiJ]

What is the name of your state (only U.S. law)? Florida

I have about $8000 in my IRA. This past year I had several financial problems. My mom passed away she left her IRA in my name which I had to use entirely to pay funeral expenses but as it was in my name I am on the hook tax wise. I had to buy a new house and was able to so before the first time home buyer tax credit expired. I also had medical bills of my own and had charge in total $5000 or so on a credit card. I want to take the money out of the ira to pay off this 22% plus debt and be done with it but am scared what will happen tax wise. I take home about $1650 per month and drive a paid off car and am frugal but it takes all I earn to just to live. Given the local economy there is nothing I can see to earn extra money so I am stuck. Given my situation is it even tax wise to take out the money and pay the debt off?What is the name of your state (only U.S. law)?

If you take out the IRA to pay off the debt, you are going to have to pay regular income taxes on that withdrawal plus a 10% penalty if you are under age 59 1/2. On top of that you are going to have taxes on the IRA of your mother's that you withdrew.

Before deciding to withdraw that money to pay off credit card debt, it would likely be in your best interest to find out what your tax liability is going to be.
The IRS isn't going to charge you 22% interest rate if you have to make installment payments to them, but its likely going to take more than the 8k you have in the IRA to cover both the taxes you will owe and the credit card debt.

 

[Clipper965]

I forgot

I forgot to mention it is a TROWE PRICR Roth IRA

 

[tranquility]

How long ago did you buy the house?

 

[Clipper965]

May

Closed in MAY right before the first time home buyer tax credit expired

 

[anteater]

I forgot to mention it is a TROWE PRICR Roth IRA

If it is a Roth, then your regular contributions were after tax and can be withdrawn without tax or penalty. And the withdrawal ordering rules say that regular contributions are considered to be withdrawn first.