This week I withdrew the money I put into my Roth IRA in 2012 and I’m going to use it to pay off part of my student loans.
To many personal finance people this will sound pretty stupid. Hey, it sounds stupid to me too!
I had to withdraw my money from my Roth IRA because I found out I was not eligible for a Roth IRA and all my contributions this year were excess contributions. I could withdraw the money free of penalty, or pay a 6% tax on it. You can now see why I withdrew the money.
So far I’ve only put 1/3 of the money toward the student loans. Another 1/3 has become my $1,000 emergency fund once again. The other 1/3? I’m not sure what I’m going to do with it. Probably put it toward my student loans.
Positives about withdrawing Roth IRA money to pay my student loans:
- my loans will disappear faster
- i’ll feel emotionally amazing when student loans are gone
- i didn’t have to pay penalties on the money
- it’s still contributing to my net worth
Negative about withdrawing Roth IRA money to pay my student loans:
- i’m losing out on compounding interest
- my $10,000 roth IRA is no more
- my future self is probably going to be pissed off
- it wasn’t a great financial move
Some negatives and positives about the situation. It does move me closer to being completely debt free, but it also hinders my retirement account growth.
However, I plan to contribute more aggressively toward “retirement” savings once my loans are gone. I just need to find a place to put that money since I’m not eligible for a Roth IRA and my work does not offer a 401k. Suggestions?