Debt Dumpers - 2019

[Shughart]

Okay. Talk me into or out of this.

I want to take $4500 of my Roth IRA contributions out to pay off my remaining CC debt, and then increase my Roth IRA contributions to $500 from $100/month immediately.

I need the cc debt to be wiped out for my mental well being. I hate having it hanging over us.

Here's the deal. My Roth IRA had a NEGATIVE return last year (-2%). It is currently losing me money. My debt is at 0% (most of it) and I have a balance of around $1k on a cc with a 14.9% interest rate. I don't have much in there. Just about $8k at the moment. This account is pretty low priority, to be honest. We will have a nice pension at retirement that is guaranteed (military pension) and my husband has a quite large TSP balance that we continue to fund using 7% of his income (no matching for his military branch, unfortunately). My Roth IRA will be "fun money" or we will just continue to let it grow and it will become part of our children's future inheritance.

I mean, the money will be replaced in 9 months time anyway. I feel much better about having my Roth IRA contributions be $500/month instead of putting $500/month towards debt payment for the next 5 months. Mentally, it is a more positive thing to see the $500 going towards that. Seeing how the market currently is, I'm not going to miss out on too much growth of that small amount of money, right?

Should I just do it?

Will you incur any fees by pulling the money out? Realistically how long would it take you to pay off the balance if you kept paying on the CC debt otherwise?

Given the fact that it's affecting your mental health (it does mine too, that's why I'm here too!) and you are not relying on this as your primary retirement, but you still plan on replacing it anyways I would go ahead and do it anyways. Even if you take a small hit with fees, it's important to consider your well being into your financial health.

 

[DLgal]

I'd say if it's not going to really affect you negatively and you won't have any fees/penalties for pulling the money out, go for it. It'll make you feel better and you'll put it back in there over the next few months.

There won't be any fees. It would all be contributions that I'd be taking out, and since it's a Roth, no penalties for doing that. I had to do this a few years ago due to our move and needing to pay first month's rent and a security deposit (total of $7500) at a time when we didn't have that much in savings. I put it back within 6 months, so it wasn't a big deal.

 

[DLgal]

Will you incur any fees by pulling the money out? Realistically how long would it take you to pay off the balance if you kept paying on the CC debt otherwise?

Given the fact that it's affecting your mental health (it does mine too, that's why I'm here too!) and you are not relying on this as your primary retirement, but you still plan on replacing it anyways I would go ahead and do it anyways. Even if you take a small hit with fees, it's important to consider your well being into your financial health.

No fees to do this. It's a Roth IRA. No fees or penalties for taking out contributions anytime.

I will have the debt paid off in July otherwise. I've had it hanging over my head for the past 4 years and I need it gone.

 

[Shughart]

No fees to do this. It's a Roth IRA. No fees or penalties for taking out contributions anytime.

I will have the debt paid off in July otherwise. I've had it hanging over my head for the past 4 years and I need it gone.

That's what I *thought* but I'm just starting to learn about things like Roths, so I didn't want to start spouting facts yet I'd say do it then. Especially if you have experience doing it!

 

[barkley]

My Roth IRA had a NEGATIVE return last year (-2%

that's nuts, now i'm feeling better about the 3% i get on my little bank cd's.

yeah, if there's no penalty and you don't get any tax hit i would say go for it so you can earmark the former c/c payments to whatever suits your needs.

 

[jen7233]

Okay. Talk me into or out of this.

I want to take $4500 of my Roth IRA contributions out to pay off my remaining CC debt, and then increase my Roth IRA contributions to $500 from $100/month immediately.

Is there anywhere else to pull money from, or can throw any extra at this to get it gone by cutting back something? Or, even taking the checking account down each paycheck lower than a usual comfortable cushion point? I wouldn't touch it. For me, I put a mental off limits on my IRA unless really needing it or I'm 59 1/2. I cut back investing in our kids' college ESAs right now so that we can frontload and focus on Roth IRA investing.

 

[DLgal]

Is there anywhere else to pull money from, or can throw any extra at this to get it gone by cutting back something? Or, even taking the checking account down each paycheck lower than a usual comfortable cushion point? I wouldn't touch it. For me, I put a mental off limits on my IRA unless really needing it or I'm 59 1/2. I cut back investing in our kids' college ESAs right now so that we can frontload and focus on Roth IRA investing.

Yes, I could use money that is earmarked for savings, but considering I can earn 2% in an Ally account, I'd rather put my money there. We are focusing on building up savings at the moment. Right now, it's at $500 and the money for savings is going to be coming from cutting back on a lot of unnecessary expenses.

Honestly, the Roth isn't a big deal. It would be if we didn't have a military pension worth approx $4M coming our way starting next year...which, even if something happens to my husband, I will get half of, so retirement isn't a worry for us, financially. We are lucky in that respect. We are also just turned 40. There is still plenty of time for the Roth and the TSP to continue to grow.

The checking account goes down to about $100 twice a month after we get paid and allocate all the other funds. There is no more cushion there at all.

 

[DLgal]

that's nuts, now i'm feeling better about the 3% i get on my little bank cd's.

yeah, if there's no penalty and you don't get any tax hit i would say go for it so you can earmark the former c/c payments to whatever suits your needs.

I mean, my "all time" return is still 9.5%, so it's not all bad. But my 12 month performance is actually a whopping -8.6%. That is worse than I thought.

 

[Jen and Ashwin]

@DLgal Roth IRAs don't offer tax free or penalty free withdrawls for any reason. They have to meet certain guidelines.

To withdraw earnings without paying taxes or penalties, you must follow very specific rules. The first requirement is that the withdrawal must be taken five years or more after the account was opened. The IRS counts the five years from the first day of the tax year in which you make your first Roth contribution. In other words, if you open the account on Nov. 1, 2018, the IRS actually starts the clock at the beginning of the tax year, that is, Jan. 1, 2018 (when the IRS gives you a gift like that, you take it).

If you satisfy the time requirement, the IRS says distributions qualify to be both income-tax and penalty free if:

• the money is used to buy, build or rebuild a first home, up to a $10,000 maximum that is spent within 120 days of the withdrawal
• the money is withdrawn because you suffered a disability
• the money is distributed to your beneficiaries or to your estate after you die

When a withdrawal fits these requirements, it is called a “qualified distribution.”

ETA:

You can withdraw contributions at any time. Contributions are the funds that you deposit into your Roth IRA. Because your contributions are always made with after-tax dollars (you already paid income tax on that money), you can withdraw your contributions before retirement without having to fork over cash for taxes or penalties.

Withdrawing your earnings is a different matter. Any money in a withdrawal that exceeds the amount of your original contributions is considered “earnings” and is subject to possible penalties and taxes. The penalty for early withdrawal of earnings, except under certain specified conditions, is 10 percent of the earnings that you withdrew. In addition, you may have to pay income taxes on those withdrawals.

So do you have the necessary amount in contributions only in your Roth IRA account or do you need to also withdrawal earnings as well? If so, then you will incur penalties and possibly pay taxes on that money and I don't think it would be worth it.

 

[DLgal]

@DLgal Roth IRAs don't offer tax free or penalty free withdrawls for any reason. They have to meet certain guidelines.

To withdraw earnings without paying taxes or penalties, you must follow very specific rules. The first requirement is that the withdrawal must be taken five years or more after the account was opened. The IRS counts the five years from the first day of the tax year in which you make your first Roth contribution. In other words, if you open the account on Nov. 1, 2018, the IRS actually starts the clock at the beginning of the tax year, that is, Jan. 1, 2018 (when the IRS gives you a gift like that, you take it).

If you satisfy the time requirement, the IRS says distributions qualify to be both income-tax and penalty free if:

• the money is used to buy, build or rebuild a first home, up to a $10,000 maximum that is spent within 120 days of the withdrawal
• the money is withdrawn because you suffered a disability
• the money is distributed to your beneficiaries or to your estate after you die

When a withdrawal fits these requirements, it is called a “qualified distribution.”

ETA:

You can withdraw contributions at any time. Contributions are the funds that you deposit into your Roth IRA. Because your contributions are always made with after-tax dollars (you already paid income tax on that money), you can withdraw your contributions before retirement without having to fork over cash for taxes or penalties.

Withdrawing your earnings is a different matter. Any money in a withdrawal that exceeds the amount of your original contributions is considered “earnings” and is subject to possible penalties and taxes. The penalty for early withdrawal of earnings, except under certain specified conditions, is 10 percent of the earnings that you withdrew. In addition, you may have to pay income taxes on those withdrawals.

So do you have the necessary amount in contributions only in your Roth IRA account or do you need to also withdrawal earnings as well? If so, then you will incur penalties and possibly pay taxes on that money and I don't think it would be worth it.

I'm aware of all that. I would only be withdrawing contributions. My account is at Vanguard and they keep track of how much of the account is contributions and how much is earnings. They show separately in the account overview. When you go to sell shares, you can do so by number of shares or by a set dollar amount. If you enter in a dollar amount in excess of your contributions, it triggers a pop up window letting you know that you are about to withdraw earnings and makes you confirm that you understand that there will be taxes and penalties assessed.

I have more than $4500 worth of contributions in there right now, so I'm good.

As I said, I did this 4 years ago when we needed some quick cash for moving. It was a non issue come tax time, because I only withdrew contributions. There is a form you have to fill out when you file your taxes.

 

[Jen and Ashwin]

I'm aware of all that. I would only be withdrawing contributions. My account is at Vanguard and they keep track of how much of the account is contributions and how much is earnings. They show separately in the account overview. When you go to sell shares, you can do so by number of shares or by a set dollar amount. If you enter in a dollar amount in excess of your contributions, it triggers a pop up window letting you know that you are about to withdraw earnings and makes you confirm that you understand that there will be taxes and penalties assessed.

I have more than $4500 worth of contributions in there right now, so I'm good.

As I said, I did this 4 years ago when we needed some quick cash for moving. It was a non issue come tax time, because I only withdrew contributions. There is a form you have to fill out when you file your taxes.

Well, then I don't see any problems with withdrawing the funds if that is what you think will help you. I personally have a rule that we will never take out retirement funds unless there is a true dire need, such as long term job loss, medical hardship, etc. I feel like it could be a slippery slope. But as you said, with a pension, your situation is very different from most in regards to retirement savings.

 

[DLgal]

Well, then I don't see any problems with withdrawing the funds if that is what you think will help you. I personally have a rule that we will never take out retirement funds unless there is a true dire need, such as long term job loss, medical hardship, etc. I feel like it could be a slippery slope. But as you said, with a pension, your situation is very different from most in regards to retirement savings.

Yeah, I get your point. I have that mindset with our TSP. I know a lot of people who take TSP loans and that is something we would never do, unless it was a true hardship. I know someone who did so to take a vacation, for instance.

 

[Jen and Ashwin]

Yeah, I get your point. I have that mindset with our TSP. I know a lot of people who take TSP loans and that is something we would never do, unless it was a true hardship. I know someone who did so to take a vacation, for instance.

That is just crazy to me.

 

[amalone1013]

Yeah, I get your point. I have that mindset with our TSP. I know a lot of people who take TSP loans and that is something we would never do, unless it was a true hardship. I know someone who did so to take a vacation, for instance.

Or 401k loans for vacation, or vehicles...

 

[ruadisneyfan2]

Or 401k loans for vacation, or vehicles...

I know people who borrowed from it to pay down debt and a single mom who splurged on a Med cruise for a milestone birthday. Both acted like the fees were no big deal and didn't mind having to pay extra to pay it back. Ugh.
I know they say to "Never say never" but unless I'm about to lose my house, I will never tap into that. There's just too many excuses we could come up with to justify why we need to keep tapping.



As for DLgal, my advice is that people complain about their funds "losing money" but truly, you don't actually lose anything unless you're cashing it out at a low value. If you do that, instead of 'buy low, sell high', you're buying high & selling low. If you can live with that, then go ahead. I can't even criticize it because sometimes when you're soooo close to the finish line, I swear it makes you want to do anything just to cross it!

When I paid off the last $2000 of credit cards, I borrowed from my car ins account and our emergency fund. I did this knowing that all I did was transfer who I was sending my next snowball payments to, but I didn't care. I just had to see that final cc bill show $0 balance. I couldn't stand another day. In 2 weeks I replaced the emergency fund and within 4 weeks had the car ins fund restored and luckily no emergencies happened (though we did and still do, have dh's slush fund to fall back on so it's not like our EF really was our last $1000). It all worked out but I completely understand how you feel.


Then later when we got a HE loan for our back porch conversion and the next year dh applied an installment from his inheritance leaving a balance of around $4500. By coincidence my new car fund had around $4800 and I knew that car savings could pay off the HE loan, I couldn't stand seeing interest accumulating one more day. It hit me like a brick and I had to get rid of it.

DLgal, sleep on it then follow your heart.

 

[MamaBelleRN]

Y’all the hits just keep coming Since Thanksgiving we have dealt with major flooding, three weeks of a GI bug, a broken dishwasher, a broken arm and now our furnace won’t stay on and has a burning smell

I have a call into our furnace guy, but am still waiting to hear back. I could just cry. If it’s major, that’s going to be another huge hit to our van fund. I’m trying to look at the bright side and be grateful we have the savings on hand, but ugh.

 

[DLgal]

Okay, this is totally spontaneous, but I'm now planning a girls trip to WDW for May. I let my sister know my husband is going overseas for a year and her response was "think you can fit in a mom-cation to WDW before he goes?" The truth is, we had been planning a trip for early this year somewhat last year, but it kind of fizzled out and we decided to postpone it to Fall 2019 or spring 2020. But, since I won't be able to go then, we have decided to go in late April/early May.

However, we are ALL on a budget this time, and the goal is to keep the whole trip around $1000 per person, which is do able with the military discount tickets, sharing a value room, and using points for free flights (we all have enough points for free flights). So, I'm in full deal searching mode right now and trying to figure out the best set of dates with the lowest airfare point requirements and availability of hotel discounts. Surprisingly, it seems like the week after Easter will be our best bet. But, that seems scary! We don't like crowds. The following week will be better, crowd wise, but rooms are sparse and higher priced, so we have some decisions to make. I am hoping that the late Easter will mean that crowds that week aren't awful. Is that wishful thinking?

Anyway, I have decided to go ahead and pull from the Roth and pay off the cards. I have actually been thinking about it for like 3 weeks now, it wasn't something that I just though of yesterday, so I've had time to mull it over.

I am also going to fund this trip by cutting back on my own personal expenses over the next few months. So, I know I will have to make some sacrifices, but it's worth it.

 

[Katie Little]

Y’all the hits just keep coming Since Thanksgiving we have dealt with major flooding, three weeks of a GI bug, a broken dishwasher, a broken arm and now our furnace won’t stay on and has a burning smell

I have a call into our furnace guy, but am still waiting to hear back. I could just cry. If it’s major, that’s going to be another huge hit to our van fund. I’m trying to look at the bright side and be grateful we have the savings on hand, but ugh.

Sending love your way!!

 

[jen7233]

Y’all the hits just keep coming Since Thanksgiving we have dealt with major flooding, three weeks of a GI bug, a broken dishwasher, a broken arm and now our furnace won’t stay on and has a burning smell

I have a call into our furnace guy, but am still waiting to hear back. I could just cry. If it’s major, that’s going to be another huge hit to our van fund. I’m trying to look at the bright side and be grateful we have the savings on hand, but ugh.

I'm sorry! You are going through one thing after another it sounds like!

Okay, this is totally spontaneous, but I'm now planning a girls trip to WDW for May. I let my sister know my husband is going overseas for a year and her response was "think you can fit in a mom-cation to WDW before he goes?" The truth is, we had been planning a trip for early this year somewhat last year, but it kind of fizzled out and we decided to postpone it to Fall 2019 or spring 2020. But, since I won't be able to go then, we have decided to go in late April/early May.

However, we are ALL on a budget this time, and the goal is to keep the whole trip around $1000 per person, which is do able with the military discount tickets, sharing a value room, and using points for free flights (we all have enough points for free flights). So, I'm in full deal searching mode right now and trying to figure out the best set of dates with the lowest airfare point requirements and availability of hotel discounts. Surprisingly, it seems like the week after Easter will be our best bet. But, that seems scary! We don't like crowds. The following week will be better, crowd wise, but rooms are sparse and higher priced, so we have some decisions to make. I am hoping that the late Easter will mean that crowds that week aren't awful. Is that wishful thinking?

Anyway, I have decided to go ahead and pull from the Roth and pay off the cards. I have actually been thinking about it for like 3 weeks now, it wasn't something that I just though of yesterday, so I've had time to mull it over.

I am also going to fund this trip by cutting back on my own personal expenses over the next few months. So, I know I will have to make some sacrifices, but it's worth it.

You said you pulled from Roth contributions before and it worked out, so on the plus side is annoying debt can be out of your way. I just look at it as investing is all the effort to make those monthly contributions over time. But, sounds like you have the plan in place and if you focus after the debt payoff to come back around to the Roth investing, then your plan is in place. We all have our plans that work best for each of us.

Yeah on Disney!! We are going to WDW in April and we are staying at SOG. I have my tickets already I bought from them, first time I've ever tried it (I mean buying the tickets not the resort!), and it worked out fine, and magic bands are bought. Plane tickets done with points and paid extra for early bird. Now I'm seeing lots of talk on another part of the board I'm in with EMM and DAH, and it's so VERY tempting but I'm trying to stay grounded and not do it so I can keep the budget I had in mind. We aren't prepaying the lodging, but I've got it earmarked and set aside in a vacation savings account along with dining, etc., which I have to think through some more how to cut costs there.

I hate crowds, too, and I know I'll be dealing with them when we go but I am SO looking forward to going anyway. Looking forward to the weather, too, and it better not go raining on me! I can't stand winter, I'm done with it before it even gets into full gear, although winter where I'm at near DC isn't too awful and April won't be too horrible, it's leaving winter behind and happy to get away.

 

[pblack]

My DH and I are headed to Disneyland for a quick weekend trip this weekend for his birthday and in the area I live it's been stormy and cold. On Saturday in Anaheim it's supposed to be sunny/partly cloudy and around 75. I'm soooo excited for a day of warmer dry weather.