[JahRose]

I have recently decided to get of frivolous credit card debt which is around $7,000.
I decided to deduct the money from my IRA as I still have a good amount of money there and I have time to save more as I'm only 32 yo.

I'm kicking myself :eek: for not thinking about doing this last month, so I wouldn't have to think about my tax penalty for this withdrawal. So, now I'd like to know, is their a way to get this over and done with and pay the Federal, State, and 10% penalty now? :confused:

Side Note: I elected to have the taxes withheld, and transferred the penalty to my money market account so its not "accidently" spent.

Thank you for you help!

[AtlantaTaxExpert]

You will have to reconcile the withdrawal when you file you 2009 tax return. You cannot do it before that.

As for paying credit card debt with IRA money, I have four words:

DO NOT DO IT!!!

You will pay AT LEAST 25% in taxes on this withdrawal, and maybe as much as 50%. If you can, send the money back to your IRAaccount , plus add whatever was withheld to "undo" the early withdrawal. You will get the withheld money back when you file your 2009 tax return, and you can adjust your W-2 withholding to compensate.

Then, put yourself on a budget and live within your means!

You can pay down the credit card debt if you properly budget your money and eliminate all the unnecessary spending. It may mean doing things like cutting up your credit cards, or putting them in an a plastic canister of water and FREEZING the credit cards so you cannot get to them for impulse buying.

It will be HARD, because you are used to buying things as you need them without going through the thought process of deciding what you want versus what you NEED!

But raiding your IRA is NOT THE ANSWER, because, unless you learn to budget and make the HARD decisions outlined above, I guarantee that, by this time next year, you will have run up the credit card balances again and will be right back where you started, except THIS time your IRA account will be depleted.

If you do not think you can do this, then look up the local office of the Consumer Credit Counselling Service (ignore the TV ads; those are rip-off organizations) and make an appointment to get the financial counselling you obviously need.

[JahRose]

Thank you very much for the response and helping me answer my question. I've looked into Consumer Credit Counselling Service previously, but it turns out, I don't have enough debt for them to help me.

I do want to add a few additional comments about my situation, as I'm not sure if part of your response was copy/pasted. Only half kidding! :p

Then, put yourself on a budget and live within your means!

You can pay down the credit card debt if you properly budget your money and eliminate all the unnecessary spending. It may mean doing things like cutting up your credit cards, or putting them in an a plastic canister of water and FREEZING the credit cards so you cannot get to them for impulse buying.

It will be HARD, because you are used to buying things as you need them without going through the thought process of deciding what you want versus what you NEED!

This was truly funny, as you don't even need a physical card these days to use your credit card... but its okay, I forgive you of that lapse! :D Its actually a HORRIBLE rumor that's its hard to get on a budget. Its hard when you have to pay someone to help you get on a budget! I have been on a very good budget within the last several years, and I stick to it. I actually use a separate account for paying bills, and I have 3 months of excess money to cover bills in case of emergencies. It took me almost 6 months to save money to pay 3 months worth of bills... but its was worth it.

I guarantee that, by this time next year, you will have run up the credit card balances again and will be right back where you started, except THIS time your IRA account will be depleted.

Oh heck no! Not everyone with credit card debt is irresponsible. The only reason why I have this credit card debt is because I was on FMLA in my 2nd trimester due to complication with my pregnancy in 2003, big bills to pay, little money coming in.

Also, its even harder to pay off credit card debt when the credit card companies are raising the interest rates on everyone, including those like myself, who have excellent credit. Paying minimum gets me no where. I prefer to choose good debt over frivolous debt. Then I can use the money I was sending to the credit card (usually 50% over minimum) to my IRA.

[ebaines]

To answer your question about paying the taxes and penalty now, rather than wait for next April: yes, you can most certainly do this, and it's a good idea so that you don't find yourself owing a lot of money next April. First: determine your tax bracket (your marginal tax rate) and multiply your marginal tax rate by the amount you withdrew. Your tax bracket depends on your adjusted gorss income and filking situation - see: 2009 Tax Rate Schedules: Marginal Ordinary Income Tax Rates for 2009

Then add 10% of the withdrawal to account for the penalty, and you have a rough estimate of the amount you owe the IRS for the early withdrawal in taxes and penalties. You can pay this now easily enough - just submit an estimated tax payment to the IRS now for your 2009 taxes. The form is here: www.irs.gov/pub/irs-pdf/f1040es.pdf

Then repeat this process for your state and/or local income taxes - you should be able to find what your tax bracket is and locate the right estimated tax forms by doing an on-line search.

Finally, in defense of what AtlantaTaxExpert said - his points about budgeting are certainly valid, and it's great that you are indeed on a strict budget and have built up a 3-month cushion. He was probably reacting to your own description of your credit card debt as "frivolous" - so read his advice in the spirit it was intended and not as a personal attack. For most people there are better alternatives than raiding the retirement account.