Can I Use Some of My IRA to Pay Off Credit Cards?
An Individual Retirement Account (IRA) offers tax benefits for retirement savings. The Internal Revenue Service does not stop people from withdrawing money from the account before age 59.5, but does impose penalties for those withdrawals.
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Function
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You can request a distribution from your IRA for any purpose, including paying off credit card debt. However, nonqualified distributions from an IRA will be hit with a 10 percent early withdrawal penalty on the taxable portion.
Considerations
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Depending on the size of your credit card debt and the interest rate, you may benefit from paying off the debt with funds from your IRA even though you would have to pay the early withdrawal penalty. You should weigh the potential return on your IRA against the interest and late payment fees your credit cards will charge.
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Features
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Roth IRAs permit withdrawals of contributions to be taken tax-free and penalty-free at any time. All Roth IRA contributions come out before any earnings are taken out. In addition, the IRS permits exemptions from the early withdrawal penalty in several circumstances, including if you have medical expenses that exceed 7.5 percent of your adjusted gross income or higher education expenses.
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