So, you have been struggling to save for retirement.  You qualify to have an IRA account and you have been faithfully putting money into it each year. Great job! Life happens, as they say, and you find yourself with a credit card debt that just won’t go away. You figure that you have enough in your IRA to get rid of the debt. Then, you reason, you will have more to put in your IRA since you won’t have to make a credit card payment. Think long and hard before you make that withdrawal.

First, if you withdraw your funds from your IRA before you are 59 ½ you will get hit with a 10% tax penalty (there are a few exceptions). Don’t forget, you still must pay regular taxes on the money as well. If that regular tax puts you in a higher tax bracket that just compounds the problem.

You have a Roth IRA, you say? Yes, the Feds allow you to withdraw those funds without penalty or taxes. Just make sure you are nit withdrawing earnings on those Roth contributions or you will pay a penalty and taxes.

Another often overlooked downside to withdrawing money from an IRA early is that the funds cannot be replaced. That’s right, there is no catch-up provision. Remember you are restricted to a specific amount that you can contribute each year. So even if you withdraw a small amount, you will forego the benefit of compounded interest for those years until retirement. While it may seem like a small amount, it can have a significant impact on your retirement years.

So, what to do instead of withdrawing from your IRA? There are several choices depending on how dire your situation is. First, you are wise to be motivated to eliminate debt as you approach your retirement. The most difficult yet practical way is to pay down as much as you can each month. By this I mean more than your minimum payment. The first step is to know what you spend each month. My Budget Tracker can help you get started. Once you know how much you are spending then you can find where you can cut back on those expenses.

Once you have figured out where you can cut back i.e. dining out, entertainment, buying coffee out, eating lunch out instead of packing a lunch, etc., then you can use those funds to add to your existing credit card payment. You will be surprised at how quickly you can find $50 or $100 extra each month to pay down your debt quicker.

It’s always best to try to manage your debt “organically” i.e. from your current income and expenses, before you consider taking on debt such as with a home equity loan or borrowing against your 401(k).

Good luck! Please let me know in the comments or email me at mark@myrp.me if you have any questions or want to share your own experiences.