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Old 11-27-2017, 11:44 AM
 
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I was able to convert all my regular IRAs to a ROTH ~5 years ago. I will be 59 1/2 in early January. I have debt ($17k at 4.99%) related to my wife's illness who passed away three years ago. My question is, should I take money out of my ROTH and payoff the debt? I'm retired and doing well financially but the monthly payment going to the bank would be better off in my cash flow/savings. Also, I start collecting Social Security Survivors Benefits based on my wife's earnings (in July) which will increase my income by a third and could apply that to the debt paying it off in 18 months or so. I'm leaning towards taking a withdrawal from the ROTH to pay the debt off. Any advice would be appreciated.
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Old 11-27-2017, 12:22 PM
 
Location: Ypsilanti, MI
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How much are you making on your ROTH investments? If greater than the 5% loan interest you would likely be better off by not withdrawing the money to pay-off the loan. But emotionally it may be better to have this debt behind you rather than the monthly reminders of your wife's illness and early death the loan repayments create.


The best answer would come from your Financial Advisor who knows your situation in detail.
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Old 11-27-2017, 08:39 PM
 
Location: Florida
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Probably not.
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Old 11-27-2017, 08:57 PM
 
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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I would make periodic payments on the debt, and keep the ROTH working for you.

I typically stash my highest returns into my Roth’s (no taxes due on earnings or withdrawals.)

Much depends on your total financial picture, but $17k is not a lot to pay off. Can you renegotiate a lower rate by drafting and presenting a repayment plan? (Very likely in these circumstances). If the creditor knows you are not gonna default, they may forgive the interest, or possibly reduce the balance. Hospitals / medical offices are very happy to get Anything, knowing they often get nothing.
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Old 11-28-2017, 12:44 AM
 
Location: Washington State
18,512 posts, read 9,574,204 times
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Quote:
Originally Posted by Bill1958 View Post
I was able to convert all my regular IRAs to a ROTH ~5 years ago. I will be 59 1/2 in early January. I have debt ($17k at 4.99%) related to my wife's illness who passed away three years ago. My question is, should I take money out of my ROTH and payoff the debt? I'm retired and doing well financially but the monthly payment going to the bank would be better off in my cash flow/savings. Also, I start collecting Social Security Survivors Benefits based on my wife's earnings (in July) which will increase my income by a third and could apply that to the debt paying it off in 18 months or so. I'm leaning towards taking a withdrawal from the ROTH to pay the debt off. Any advice would be appreciated.
I would pay the debt off but it depends on your financial situation. If you are still trying to build wealth, you may want to keep investing if you think you'll make more than 4.99%. I'm in position where I don't need to build more wealth.
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Old 11-28-2017, 05:56 AM
 
Location: RVA
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Makes very little sense financially to pay it off with a Roth, which earns tax free. But if you have a $500k+ Roth, and it is your only savings and only used for discretionary spending, then why not, its a drop in the bucket. Many people are earning 15%-20% invested in say an S&P fund, so the net gain is far greater leaving it there.
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Old 11-28-2017, 08:05 AM
 
Location: Philadelphia/South Jersey area
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How are you with making the payments? generally my feeling is always leave my money where it's make the most effect.
So if you're not struggling with making the payments, I would continue to make the payments and let my money grow.

But... I do know some folks are simply debt averse. look at it this way, every three months see how you feel, the money will still be in the ROTH if you find later you want to be done with it.
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Old 11-28-2017, 09:33 AM
 
Location: Phoenix, AZ > Raleigh, NC
15,070 posts, read 19,008,543 times
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Quote:
Originally Posted by Perryinva View Post
Makes very little sense financially to pay it off with a Roth, which earns tax free. But if you have a $500k+ Roth, and it is your only savings and only used for discretionary spending, then why not, its a drop in the bucket. Many people are earning 15%-20% invested in say an S&P fund, so the net gain is far greater leaving it there.
Ex accountant here who retired at 52 and live primarily off IRA's. Perry makes a reasonable argument for taking the funds from a $500k IRA.

But personally, I detest taking money out of IRA's before it is required due to RMD'sor for basic living expenses. Use an online calculator to see how much that $17k will be worth in a tax sheltered vehicle in 20 years. Even if invested conservatively, it will probably make you say "what was I thinking."

If you can comfortably pay this off in 18 months, I'd leave the money in the IRA. WITH ONE BIG EXCEPTION: If the emotional drain of dragging out that repayment is a concern, use the IRA. I suspect you've had enough emotional strain in the last few months (or longer) and have some difficult adjustments to make.

One last point to consider. If you plan to leave an inheritance to your children or others that are significantly younger than you, read about the huge benefits to them if you use the 'stretch rules of designated beneficiaries of IRA accounts. In that case, leaving the money inside the IRA will also benefit them.

I am sorry for your loss.
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Old 11-28-2017, 10:12 AM
 
Location: Florida -
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Assuming taxes have been paid on your Roth IRA's and you otherwise have sufficient income, the trade-off is mostly a mathematical comparison of the historical (probable) gain versus the cost of your $17K in debt.

If your Roth IRA's are still tax-deferred, you might want to consider a HELOC or some other non-taxed source.
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Old 11-28-2017, 05:27 PM
 
Location: Southern California
23,721 posts, read 8,251,498 times
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I was just talking to my friend this morning and IF I wanted to pay off some debts which include credit card (4.49%) and a couple medical bills from an unexpected medical saga, I could take my annunity savings and pay these off, BUT from where I am and I'm not a high income earner nor a high savings person, I will NOT pay off the debt but make my payments. I would rather I owe them and keep my money for who knows another rainy day, I have a lot of life left. At 79 no income but SS and small pension.
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