Early IRA Withdrawal - kind of long

[disny_luvr]

Before I begin my post I want to say that my sister is going to be asking her financial planner for advice. After talking to my sister I was just curious how others would handle this situation, so that's why I'm posting.

My sister is currently in the middle of a messy divorce. She has completely wiped out her savings from trying to start over, lawyer fees, etc. She currently has about $100,000 (+/-) a little in an IRA in her name only. She'd like to withdrawal about $15,000 to cover the rest of her lawyer fees and to pay off a cc that has roughly a $2,000 balance. After paying the penalty, she knows she'll only have about $9,500 left, but feels this is enough to cover those expenses, plus maybe put a little into savings. So my question is, would you withdrawal early from the IRA or just keep chugging along paying as much as you can each month? She asked me what I'd do and I honestly have no idea. DH would probably NEVER withdrawal early, but if I were in this situation maybe I'd have a different opinion. Also, is her husband going to be entitled to any of her money in this IRA?

TIA

 

[meggybear17]

Is there any way that she would be able to put any or all of the money back within 60 days? You can take a withdraw from your Ira and if the money is returned within 60 days of receipt than she would not have to pay the taxes or penalty on what she puts back. Also watch the tax implications, that $15k withdraw added to her yearly income could bump her into a higher tax bracket and thus more in taxes paid.

Before becoming a stay at home mom I worked in finance and often saw clients who due to the divorce settlement had to give a portion of their IRAs to their exspouses, so yes it is possible that her soon to be ex would get some of those funds. I would def have her consult her lawyer and financial advisor as often times settlement amounts are based on separation date balances meaning if she has 100k now and takes the balance to 85k and court says her ex gets half, it may be half of the previous balance, meaning $50k, not $42,500.

 

[mom2pandc]

But the only factor that would maybe change my mind on it would be her annual income now. If she's making a decent salary, she could chug through $10K of debt relatively quickly if she cuts her lifestyle and lives frugally while she works through it.
If you take the penalty plus the income tax and say it's approximately 40% of what she's withdrawing, would she take out a credit card and consolidate those bills if the interest rate was 40%? Probably not. It's the same question except in reality she is the lender instead of a credit card.
Now if she is only making $15K per year then a $10K debt will rack up more interest in the time it would take her to pay that off than what the penalty would be.
I also think in this situation she's hurting, scared, and is going through emotional hell. It probably isn't a good time to make a rash decision on money. I would say just chug along with the payments on these for a couple months until her life settles down. Then if she feels like she can't get traction, then reevaluate the situation.
Hugs to her! What a tough thing to go through!

 

[Pakey]

Is that IRA going to be a part of the marital property? Where I live, even if the IRA is in one person's name alone, it would still be part of the marital property at time of divorce settlement. So I'd first want to make sure it's okay to take that money.

I probably wouldn't do it as long as I could make the payments on my current income.

 

[tlh0726]

Is that IRA going to be a part of the marital property? Where I live, even if the IRA is in one person's name alone, it would still be part of the marital property at time of divorce settlement. So I'd first want to make sure it's okay to take that money.

I probably wouldn't do it as long as I could make the payments on my current income.

here too.
Anything contributed/gained in this account during the marriage would be considered joint assets.





Hugs to your sister OP.

 

[neatokimmo]

I would think if she is in a community property state, the money accumulated during the marriage would be half his. Non-community property, he'd have to prove he was entitled to it.