Ask Terry Questions Taking money out of retirement account

Taking money out of retirement account

By Terry Savage on May 10, 2018 | Credit/Debt

I have approximately $26K in an account that I would like to cash out. I am over 59 1/2 years of age. I want to apply $15K towards credit card debt, and the remaining spread out towards principal on a Mortgage to pay off sooner. Will I be charged for premature distribution?

Terry Says

You don't say what type of account this is!  Before I give you the possibilities, let me say that I think you might want to seriously consider whether you have an alternative before giving up all those future years of tax-deferred growth by taking money out of your retirement plan.  Yes, it's terrible to pay interest on credit card debt -- but are you sure there isn't a way you could take an extra, or part-time job on weekends to earn extra money to pay down your credit card debt?  At least your mortgage interest is deductible. Now, here are the possible answers to your question: If it's a company 401(k) plan, you can't take it out if you are still working for them.  If it's a traditional IRA, or an IRA rollover, where investments were made with pre-tax money, then you can withdraw after age 59-1/2 with no penalty -- BUT you will owe ordinary income taxes on the money.  And this size withdrawal may put you in a higher tax bracket, if you take it all at once. If this is coming from a Roth IRA, there are some different considerations.  As long as you are age 59-1/2 AND have held the account for at least 5 years, you have a qualified distribution that is not taxes. For specifics, and details, click this link to



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