The tough job market has hit me hard, but I have a job start in 3 months. That said, I am looking at having a hard time paying my next mortgage payment. I have $200+K in my IRA. I believe that I should withdraw money to insure that I pay my mortgage, however, a friend says NEVER withdraw from IRA. What is worse, missing my mortgage payment or withdrawing from my IRA. My credit is otherwise good at 755.
As a general rule, yes, your friend is correct about not using your retirement fund as an emergency fund; however, there are exceptions to the rule.
First, you didn’t say if this is a Roth IRA or a Traditional IRA. You can withdraw your Roth IRA contributions at any time, without taxes or penalty. So a Roth IRA withdrawal is a good option in this case. However, if we are talking about a Traditional IRA, you will have to pay a 10% early withdrawal penalty and income taxes on the withdrawal — so this means you will have to withdraw more than what you need to cover penalty and taxes.
You can read more about the penalty here: What is an Early Withdrawal Penalty? and be sure to read related articles.
If you do decide to go this route, withdraw the least amount possible to get by.
Alternatively, you may want to consider taking out a short-term loan (you did mention that you have a good credit score).
- Take a look at this article, The Best Places to Borrow Money, to get some ideas on where you might find short-term money to get you through the next 3 months.
- Your best option might be borrowing money from peer-to-peer lending networks. You can apply online and get the money relatively quick. The payment is fixed over 3 years or 5 years, the loan is unsecured, and you will likely pay less interest than borrowing from a bank or a credit card.
- Lastly, consider borrowing money from friends and family. Be sure to have the loan repayment term in writing so that they know you’re serious about paying them back — and be sure you can follow through with the repayment plan!
I hope this helps and good luck!
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Whether you choose to miss on your mortgage payment or withdraw from your IRA, they both have negative impact on your credit score and financial situation. Losing jobs is one of the situations that most people do not want to happen so we tend to forget that we should always have an emergency savings. At any rate, I would suggest that you ask your friends or family members to lend you the money you need.
the last thing you want to do is to withdraw from your retirement. make sure you exhaust all your options before touching your retirement account.
Borrowing money from family or a close friend is not a bad ideas. you can always set up a payment agreement.
@Squeezer – You don’t have to pay taxes to cash the credit card convenience check because you’re borrowing money from the credit card company; but you do have to pay a really really high interest on it.
I would be more comfortable paying a higher interest and borrowing from credit card convienance checks than borrowing from family. Just my take on it, unless it’s your parents money and you fully intend on giving it back. Just another reason to increase emergency savings in good times.