We all have heard of the saying that desperate times require desperate measures (Hamlet) but in these tough economic times many should re-consider liquidating their IRAs.
Prior to making the rash decision of liquidating your IRA, first consider these other options
1. If you still have a job try SAVING – Cutback on expenses you do not NEED such as restaurants, cable, movies, gifts, cleaning services etc. Scan your credit card & bank statements and go down the list of transactions and ask yourself this question, “Do I really need this to live?” Unless it is a necessity, buying an item at a discount is NOT SAVING or increasing your bottom-line.
2. Sell certain possessions that you can live without – I’m sure there is a video camera, bicycle, stereo or other material possession that you do not need. I can guarantee you that unlike hard cash, these items will only decrease in value over time so you should get rid of them now.
3. Request more responsibility at work – We are all in agreement that it is very difficult to get a pay raise now, let alone a bonus in this difficult economic environment. However, there maybe ways you can provide a convincing argument for your boss to pay you more. For example, by working longer hours or taking on more responsibility you could make a strong case for improving the company’s bottom-line.
4. Earn supplemental income – There may be a way you can utilize your skill-set to earn extra cash online (i.e. writing articles, consulting, selling). There are several online resources out there that allow users to make extra cash on their own time without having to deal with the hassles such as travel, face-time etc. Search to see what’s available.
5. Re-evaluate your existing portfolio – Outside of your IRA there maybe certain assets in your portfolio that may make more sense from a tax perspective to liquidate, so you should most likely consider that first.
If you ABSOLUTELY believe you need to liquidate, keep in mind this TAX CONSEQUENCE – If you are under 59 1/2, the penalty (subject to exceptions) is quite unforgiving. Precisely, 10% in addition to the taxes you already have to pay on the proceeds from liquidation.