Roth IRA

[puck36]

Should I take money out of my ROTH IRA to pay off a debt?

Roth IRA $44,944.88
401k $142,294.96
ESOP $201,407.00

My contributions to the Roth IRA is $22,000 and I have $16,000 left on a car loan. I've had the Roth IRA for 14 years now.

[corn18]

My first reaction is heck no. That is Roth space you will never get back. What is the interest rate on the car loan?

[kork13]

Definitely no. What's your income? judging from the numbers, I'm guessing $80k-$90k? Just cut the budget down to the bone for a little while & knock it out in 6 months or less. The compounding power in your Roth IRA is WAAAAY too significant & important to blow it all on a car loan.

[disneysteve]

Absolutely not! Can you tell us why you're even considering doing that?

[puck36]

4.99% on the car loan

$50,000 - $55,000 income

[puck36]

I been told that I can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free.

[disneysteve]

I been told that I can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free.

That's true, but that doesn't mean you should. It's a lousy idea.

Are you having difficulty making the car payments?

[puck36]

No just want to be out of debt. I could be debt free but the house, have fully funded E-fund by the end of 2020. Then save that car payment so in 4-5 years I can pay for school for my daughter.

[Petunia 100]

No. If the interest rate on your car loan is high, look into a refinance. If the car payment is difficult to cough up each month, sell the car and buy something less expensive. Other than that, just pay down the loan as quickly as you can.

[corn18]

The reason for all the no's is the loss of tax free return. You could be missing out on 30+ years of tax free returns. I love my Roth account and protect it at all costs. Once you pull anything out, you can never put that amount back in, just new amounts.

[disneysteve]

No just want to be out of debt.

Don't sacrifice your future to pay for your present.

If you can comfortably afford the payments, keep making them. If you have extra money each month, you could pay a little extra but since you don't have a fully funded EF, I'd suggest any extra money go to that instead.

There's no benefit to pulling money out of your retirement account to pay off a 5% loan. What you'll lose in growth over your lifetime isn't worth it.

[jIM_Ohio]

Should I take money out of my ROTH IRA to pay off a debt?

Roth IRA $44,944.88
401k $142,294.96
ESOP $201,407.00

My contributions to the Roth IRA is $22,000 and I have $16,000 left on a car loan. I've had the Roth IRA for 14 years now.

I would pay off the car using cash flow, not assets

[Petunia 100]

No just want to be out of debt. I could be debt free but the house, have fully funded E-fund by the end of 2020. Then save that car payment so in 4-5 years I can pay for school for my daughter.

Being debt free is a fine goal, but it is but one part of your financial picture. Your Roth IRA contributions can serve as your E-fund for a true, life or death emergency. Paying off a car loan is not a life or death emergency.

Instead of raiding your Roth, consider other areas you might cut back to increase your car payments. You might even consider reducing new retirement contributions. (I am currently doing something similar, so yes, this is for sure what I would do.)

You have 7-8 years of your current salary in your various retirement accounts. Depending on your age, you are potentially doing quite well in that area.

[myrdale]

Let's do the math!!

For this we will only consider the $16,000 as your principle amount P.
We will assume a rate of return, r of 10%.
Compounded n = 1 times annually.
And lets look at a time span of t = 20 years.

A = P(1+r/n)^nt
A = $16,000 x (1 + 0.1/1)^(1x20)
A = $107,640

Assuming you do not put another dime into the account, just that $16,000 will be worth $107,640 in 20 years.

Cost of a house? $100,000
Cost of say 5 years of living expenses? $100,000
Cost of paying off your car with the IRA? $87,000 !

While your mileage may vary, hopefully you get the over all point.

[ryan_themoneyguy]

In short, no. For all the reasons other people have outlined previously. Roth IRAs are fantastic savings vehicles and you should not dip into those retirement savings for non-emergencies.