what is the penalty for early withdrawl

[Guest skelly30]

I am 27 and have had a Roth begining in 01'. I would like to take a third of my balance and pay off my debt. What is the penalty for this? Does it make sense to do it? Am i able to write checks from a Roth like I am able to do with mutual funds? Thanks for any help!

[ElGuapo]

I am 27 and have had a Roth begining in 01'

Did the Roth come from annual contributions or was it converted from a traditional IRA? You can pull out the total amount you've contributed (not converted) without tax or penalty. Should you? Probably not.

My reason for saying so is part math but more human. From a tax and retirement planning standpoint, you always want to shelter as much money as you can from tax, so this is certainly a step backward in that regard. But my real concern is the precedent you're setting for yourself, and whether it will really solve the problem. Would you be willing to share more about your situation? For instance, what are the amounts in the Roth and the total debt? What do you attribute the current situation to? Is it credit card debt? A car loan? Anything else about your situation that you think might be relevant, or alternatives you have considered? For instance, it sounds like you're familiar with mutual funds, does this mean you have other investments outside of the Roth?

Am i able to write checks from a Roth like I am able to do with mutual funds?

That depends, do you have checks? I'm teasing, I doubt your financial institution would allow checkwriting unless you were over age 59 1/2.

[John G]

TY - I agree, probably not a good idea. And have many of the same questions you have posed: income, level of debt at what rate and payment, Roth amount, etc.

If the debt is student loans - ussually you have prefered repayment terms that are very attractive. I would never repay a student loan - consolidate yes, and put it on a monthly auto pay so it hits your checking account each month automatically.

Credit card debt? - money really is on sale right now. Almost everyone is receiving offers to roll over credit card debt getting 3-12 months zero % financing.

Auto loans - most auto loans are structured to have a higher interest component in the first two years and therefore it rarely makes any sense to pay off an auto loan early... in fact, it may trigger extra fees.

And I especially concur with TYs point - what caused the problem? If you don't address the cause of the debt, you are likely to have future problems.

While it is generally desireable not to have debt, a modest level of debt may be completely appropriate. A prudent home mortgage, medical expenses or a student loans come to mind. Bad debt is anything based upon either high interest rates, compulsive spending. You left us guessing on what might be your circumstances.