Taking withdrawals from an IRA before you’re retired is something you should do only as a last resort. There are a few reasons why.
If you withdraw money from a traditional IRA before you turn 59 ½, you must pay a 10% tax penalty in most cases, in addition to regular income taxes. Plus, the IRA withdrawal would be taxed as regular income, and could possibly push you into a higher tax bracket, costing you even more.
Though the federal government allow you to withdraw contributions from a Roth IRA without incurring a penalty, you will owe a penalty (and taxes) if you withdraw the earnings on those contributions.
In addition, money you take out of an IRA cannot be replaced, since you would still be restricted to yearly contribution limits for future years. So even if you withdraw only a small amount, factor in the years of compounding interest you would be forgoing, and that small withdrawal could end up costing you a small fortune in your golden years.
In both Chapter 7 and Chapter 13 bankruptcies, IRAs, 401(k)s, and most retirement accounts are protected. This means you have the possibility of discharging your debt while still having a nest egg for your retirement. Before you cash out your accounts to pay off debt, set up an appointment with Hoglund Law Office where an experienced bankruptcy attorney will meet with you to discuss the possibility of bankruptcy as a viable option rather than losing the money you’ve worked hard to set aside for retirement.