We Are Using Money From Our IRA to Pay Our Bills. – Sandy
March 12, 2009
Sandy wrote to me through the GetOutOfDebt.org site and asked the following question. If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.
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“Dear Steve,
This is going to sound like we are are sleeze bags. Wife and I age 60. We owe $170K on credit cards and $295K on house that is worth at best $250K. We have about $110K in it. House was huge mistake… We have just under $500K in our IRA’s and zero in personal assets, other than Honda Civic worth about $8K and a Ford van worth about $10K..both free and clear.
Household stuff maybe worth $10K (a couple nice antiques). My wife was “right sized” from a fortune 500 after 33 years (hence part of the IRA). I sold my accounting practice after 19 years, in 1999 because my wife and my children were divorcing me if I didn’t. Was working 60 plus hours per week…(had good SEP IRA that was rolled too as part of the $500K) Since 1999 I have sold real estate (or not) tried to re-start my practice (have gotten clients, but most are in financial trouble themselves).
In July of 2006 we got involved in trying to take a company public…total cost about $50K and about 3,000 hrs. of my time so far. The whole idea of company was to set up it up and sell it. Timing was not good, due to market collapse. Better timing would have netted us $600K to about $1.5M. Current value is about $135K at best, which I am working on.
So you know, the credit card thing has been going on since our daughters hit college in 1990 or so. We tried the student loans, but were denied because we made too much money!
Also, we have both sent a bizillion resumes to no avail.
Last week, we decided to stop paying all credit cards and mortgage. We have have been withdrawing from IRA’s to live…Credit card companies have slowly but surely increased our rates from 6 ish% to 24.99% because we have so much debt…We have NEVER, EVER, EVER made a late payment (until this week).
So now we’re plotting running away, declaring bankruptcy or worse…
What would you do?
Sandy (a guy)”
Steve’s Answer:
Dear Sandy,
You are a CPA and living through this mess. The main issue here is that you are looking at your own situation with your heart instead of your ledger pad.
I think the die has already been cast if you are having to take money out of your IRA to make it month-to-month right now. It is a clear indication that your current setup is not sustainable. So what has to change?
What we run into next is that if we let one ball fall here then they will all eventually tumble. If you stop paying your credit cards, which you should, because you can’t afford them, then you might as well resolve the rest of the debt as well right now.
Now one argument is that you should pull enough money out of your IRA to settle or pay your credit card debt in full. I don’t think that makes any sense right now. If you did that you would significantly deplete your retirement money and with your age, that would not be wise.
Sandy, look at this situation from what is best for you rather than what other people want or what you worry that they will think.
Right now your IRA is protected from creditors. It is a bad economy, it is hard to find a good job, or even a job. I think your observations about trying to find new customers is very telling what other businesses are going through.
The business that you are trying to create and sell is worth only what someone would pay for it and at this point that isn’t much.
I don’t think you guys are sleaze bags at all. I think you are just good people that got caught in a tumbling bad situation that was beyond your control. If the economy took a different turn we would not even be having this conversation.
If you were a farmer and it did not rain, does that make you a bad farmer?
I think that before you decide to do anything, you must go and talk to a local bankruptcy attorney and get yourself educated about the protections bankruptcy will give your IRA and what bankruptcy will mean to you.
Once you’ve done that, come back, and give me an update.
Big hug.
Source: We Are Using Money From Our IRA to Pay Our Bills. – Sandy
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Tags: accountant, cpa, ira, retirement, sleaze bag, sleeze bag, stopped paying credit cards
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