nbr-financial question

mlc92404

I have two different 401k's that have been rolled over into IRA's that are like CD's (I am no longer working...SAHM).  Right now they are both set to mature in 2011.  Right now they total over $10k and are earning over $100 every 3 months (that amount grows as the balance grows).  Should I reinvest them once they mature or should I use them to pay off debt?  I should add that when I quit working I opened a Roth IRA and I am contributing to that twice a month. 

DG1

What kind of debt? 

If it's CC debt, I'd reduce or eliminate the retirement contributions and put more effort toward the CCs.  I promise you're paying more in interest and finance charges than you're making in the investments.

If it's a mortgage or something, then I'm not sure.  $100 every 3 months isn't really the greatest return on $10k. But would you have some kind of penalty if you withdrew from an IRA before retirement age?  I'm unfamiliar with any retirement product that is like a CD, so I can't speak to the specific terms of your investments.

Ask on the Nest's Money Matters board - those people know their money stuff inside and out.

Shell24

I think it depends on how much debt you have.  Are you talking about using the whole amount?  How much every month are you paying towards your debt?  Is that the minimum?  The amount you are paying towards debt now could then be turned around and put towards the Roth.  Are you maxing out the Roth every year already?  I can't remember what the max. amt is.  I know my DH and I put away about $800 a month towards our Roths ($400 each) and then write a check at the end of the year to complete it.  So it's got to be 5k, unless it increased recently to 6 and I just don't know.

You may want to cross post this on the MM board as well.

mlc92404

DG1:

What kind of debt? 

If it's CC debt, I'd reduce or eliminate the retirement contributions and put more effort toward the CCs.  I promise you're paying more in interest and finance charges than you're making in the investments.

If it's a mortgage or something, then I'm not sure.  $100 every 3 months isn't really the greatest return on $10k. But would you have some kind of penalty if you withdrew from an IRA before retirement age?  I'm unfamiliar with any retirement product that is like a CD, so I can't speak to the specific terms of your investments.

Ask on the Nest's Money Matters board - those people know their money stuff inside and out.

If we put it towards debt it would either be vehicle or credit card.  I'm not sure how it works either.  I'm no longer at the company and had to do something with my 401k and its in a CD now so I would think that I could use it??  Not sure.  I will have to look into it more.

anna7602

There's usually a penalty for withdrawing from IRAs, even if the investment is structured like a CD right now with a specific maturity date. You should schedule a consultation with the company where you have the IRA. They usually have people who can tell you exactly how much you would be withdrawing once all the fees, etc. are deducted.

mlc92404

anna7602:

There's usually a penalty for withdrawing from IRAs, even if the investment is structured like a CD right now with a specific maturity date. You should schedule a consultation with the company where you have the IRA. They usually have people who can tell you exactly how much you would be withdrawing once all the fees, etc. are deducted.

So even if I waited till the maturity date there still could be withdrawal fees?

MainelyFoolish

The maturity date of the CDs within your IRA has nothing to do with penalties for early withdrawal from retirement accounts.

If you take the money out of a rollover IRA before you are 59-1/2 years old, you will owe ordinary income taxes on the amount plus a 10% penalty (there are a few exceptions to the penalty, but paying down debt is not one of them).  Between federal and state taxes, plus penalties, you'd probably only net about 60% of the money in that account.  You would be much better off to keep the money invested until retirement.  Personally I would invest the money in something more aggressive than a CD, like a total stock market index mutual fund or a lifecycle mutual fund.

DG1

What they said. I don't think you can take that IRA money OUT without a penalty. But you may well be better off NOT investing in your Roth for a while and paying down that debt.  CC debt is very very very bad and accumulates quickly.  Depending on how much you have, it may or may not be worth completely stopping additional retirement contributions until that is taken care of.

Again, the MM board would be most useful.