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Try to Avoid Using Retirement Savings for Debt

July 23, 2019

Tip of the Week

Consider other options before using your retirement savings to pay off debt.

1 min read

We know it might be tempting to use your growing retirement nest egg to pay off worrisome student loan or credit card debt. But that money is for the future you, and an early withdrawal* can seriously reduce what you’ve saved.

Strategies:

Example1:

Let’s say you have $7,000 in a traditional IRA.* You decide to cash out early to pay off a credit card balance.**

Penalties and fees can eat up $3,080, or about 44% of your nest egg.

Jargon Hack

What is a Traditional IRA?

Traditional IRA

It’s a retirement savings account that lets you put money away on a pre-tax basis. IRA stands for Individual Retirement Account.

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What is a 401(k)?

401(k)

A workplace-sponsored retirement plan that lets you put money away on a pre-tax basis.

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Find out

Jargon Hack

What is a Roth IRA?

Roth IRA

It’s a retirement account that lets you contribute money after you’ve paid taxes on it. IRA stands for Individual Retirement Account.

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Find out

*Different rules apply to Roth IRAs. Generally speaking, account holders can take out what they’ve put into a Roth at any time.
**Typically, early withdrawal is before you turn 59 1/2
1Example is a hypothetical illustration of mathematical principles, and is not a prediction or projection of performance of an investment or investment strategy

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By Stash Team

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This material has been distributed for informational and educational purposes only, represents an assessment of the market environment as of the date of publication, is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice or opinion. Stash assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective.

Furthermore, the information presented does not take into consideration commissions, tax implications, or other transactional costs, which may significantly affect the economic consequences of a given strategy or investment decision. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. There is no guarantee that any investment strategy will work under all market conditions or is suitable for all investors. Each investor should evaluate their ability to invest long term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented. Before investing, please carefully consider your willingness to take on risk and your financial ability to afford investment losses when deciding how much individual security exposure to have in your investment portfolio.

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