I’ve been going back and forth with myself over whether I should write a post about how I am withdrawing money from an IRA. It’s not something that is recommended, and certainly not something that most people who write personal finance blogs talks about. In fact, it’s somewhat embarrassing that I am doing it at all. And, I had decided that I might not talk about it. Until I saw this post on my friend Sandy’s blog, Yes, I am Cheap. For those of you who won’t click through the link, I’ll give you the quick rundown. One of Sandy’s readers lost her job a while back. Since then, the reader has used all of her savings to pay bills, and her unemployment status is in a sort of limbo. The reader has 21k in her 401(k), and she asked if she should take that money out to help pay the bills until she can find work.
What that post did for me, and the reason that I’m writing this post, is remind me that I’m not an island in the personal finance ocean. When I started this blog, I didn’t have a 401(k), or really even know what one was. I was up to my eyeballs in debt, and contemplating bankruptcy. As I searched the internet for information about that and other personal finance related topics, I decided that I wanted to share what I was learning, in an effort to help others who might be in a similar situation. Sometimes, when writing post after post, here, I forget that I’m not the only one who has the same questions, or who is in the same situation. There are other people who’s circumstances might make them cringe when bills show up at the door. It’s for those people that I write here and share here. And it’s for those people that I am writing this post. I think this may be the longest introduction to a post I’ve ever written. 🙂 Let’s get on with it, shall we?
Why I needed to withdraw from an IRA
I then spent about 7 months working part time while trying to rapidly build my blogs, here and elsewhere, to a point where they might sustain my without having to get another full time job. I didn’t succeed. And I ran out of savings about a week and a half after I had taken a new full time job. It’s a good job, and I enjoy it quite a bit. But, it doesn’t pay nearly as much as my other job had. When I started there, our finances were still bleeding. They continued to as we continued to try and make ends meet.
Sometime last fall, it became apparent that the ends were going to begin to not meet. If you’ve ever been there, you know that looking forward to a month where you might have to decide which bills to go delinquent on isn’t a very comfortable spot to be in. It became very apparent, after several hours going over our budget, that we had a cash flow issue. Too much going out, not enough going in. The problem wasn’t with discretionary spending, however, although we did find some places to cut there too. The problem was that we had too many payments taking up too much money. If we wanted to survive, financially, we needed to find a cash flow solution.
I should say that it wasn’t an easy decision to tap into my IRA. At the time, I’d only recently rolled my 401(k) from my old job into it, so I’d just taken a hit by doing that. But, I needed a way to create some cash flow, and an infusion of money would do it. So, I called my adviser and had him issue a check for the amount I needed.
It’s my money.
There will surely be a few naysayers who come upon this post. Most of them will tell me (and you) that what I did was a terrible thing to do. That I’ve permanently set myself back for retirement, and that there had to be other ways to accomplish the same thing. But, there weren’t. Trust me when I say that I know my finances.
Yes, it will set my retirement saving back by quite a bit. Yes, I’ll have to save more in the future to achieve any sort of retirement nest egg. I know all that. But, I feel that remaining current on my bills, and not having to potentially declare bankruptcy is more important than that.
There’s also a rebellious part of me that would like to just say that it’s my money and I’ll do with it what I want. 😉 In all honesty, it is my money. Just so much as the money in your IRA or 401(k) is your money. And, in my opinion, our money is only worth anything when it is improving our situation. My situation needed improving now, not in 40 years. (not that it likely won’t need improving then too)
Using the withdrawal from my IRA
For those of you who are thinking to yourselves that if I made a withdrawal from my IRA, it’s ok for you to do it too, just stop. This was a last ditch effort to stop us from going into delinquency on several accounts. Would it have bankrupted us eventually? Maybe. I’ll never know, and I didn’t want to find out. But, what I will tell you is it took a good deal of thought to make the decision, and it took a good deal of determination to use the money properly when I did get it.
When the check arrived, I cashed it and went to the casino.
Just kidding! Ya’ll were looking so dang serious! I deposited it. Directly into our checking account. During the decision process, I’d taken a full audit of our bills each month and determined the ones we would need to, and could, eliminate in order to get ourselves back on the right track. So, even before I asked for the withdrawal from my IRA, I had a list of the things that I was going to pay off. Over the next several weeks, as those bills came in, I send them payment in full. Until all but one of them was completely paid off. The one remaining was a bonus bill. I didn’t have enough to pay it off in full, but was hoping that I could get them to negotiate the amount down. I wasn’t able to. So we still have that payment. But, once it was done, we eliminated several hundred dollars worth of monthly payments. More importantly, we cut our monthly payments by enough that we have enough each month to pay the remaining bills while still having enough left over to pay a bit extra. We’re on the right track again, and making strides to keep it that way.
Would you withdraw from your IRA?
There are only a handful of reasons that most people will tell you that making a withdrawal from an IRA is a good idea. Most of them involve exemptions from the tax penalty. Would you ever take a withdrawal from your IRA? In my situation? In any situation?
I started this blog to share what I know and what I was learning about personal finance. Along the way I’ve met and found many blogging friends. Please feel free to connect with me on the Beating Broke accounts: Twitter and Facebook.
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While leaving your job seems to have reduced stress and anxiety, if you’re to the point where you’re unable to pay bills, it sounds like you’ve traded one stress for another. I can’t say I agree with taking from your 401(k) but there’s no need to let your finances fall to ruin either. In any case, it sounds like you need to evaluate and be realistic about your income, meaning you either need to find a way to replace it or make some serious lifestyle changes to reduce your expenses. Even as things go, the 401(k) money would just be a band aid and you’d be in the same place you are now at some point. Avoid that at all costs.
What steps have you taken to avoid getting back into that debt hole, so you don’t have to take such extreme measures to make ends meet? cancelled credit cards? cash system? funding repair fund? set aside emergency funds? What’s to keep the next big “unexpected” financial event from sending you back into debt?
Absolutely. The root of the problem was that there was some lifestyle inflation that had taken place before I quit and the drastic reduction in income caught up to us over the 7 months I was only working part time. Taking the money out of the IRA allowed us to pay quite a few of those bills off, and reduce the expense side of the equation.
We’ve since made a lot of changes to how things work in our finances, and been able to squirrel away some money for emergencies so that we don’t end up in the same place. We’re still a long way off from “sound” finances, but we’re making strides towards that.
I can’t say I disagree with the decision as it seems like it may have been the only reasonable action left. I will simply wish you all the best in rebuilding the money you withdrew AND in scaling back your expenses that forced your hand in the first place.
All the best,
…Tim
I never encourage family and friends from withdrawing from their IRA. However, there are situations that we cannot take control of and withdrawing from IRA is the only ooption left. But I hope that you could repay it as soon as possible. You can still continue to work on your blog while working full time. Most of us were able to do it so I believe you also can.
Tremendous amount of courage required to make this decision; I certainly think that you did the necessary research and self-evaluation required prior to such a step. Good luck with the continued changes and your future prosperity!
I totally understand. It is a tough decision. I pulled money out of my 401(k) to eliminate a tax debt that just kept weighing on me. It didn’t seem like there was any other way and I couldn’t borrow enough to get it done. So I sucked it up. My monthly cash flow improved because I paid off some other debt. Now I hope to keep making progress.
@JT Sounds like a somewhat similar situation. I’m hoping our situation continues to improve as well. Good luck!
This is tough one! If you need the money, you need the money. Your family still has to eat and your bills still have to get paid! Since I’m now unemployed as well, I’m taking my own advice and not expecting the blog to sustain me. I’ll be looking for a new job soon. Good luck and I hope things turn round.
I am also thinking of withdrawing my retirement funds, and here’s why: Please, someone, give me some advice! I work for local government in a low-level position and I absolutely hate going to work. It is making me very depressed and sick. The turnover rate is very high. The main source of trouble is the bullying supervisor. Management has slapped her hands but basically done nothing else of substance to stop her.
I have tried to transfer departments (so many of the departments are similar to this one) but nothing better has come up yet and each day is agony. I have enough money to last me a few months (if I draw out my retirement). I would like to attend school in the fall to gain more marketable skills. I’m mid-fifties and don’t have too much else financially speaking. But, as everyone says, “life is short” and this job is shortening it even more. I would welcome any and all advice. Thank you
@ C.M. As I mentioned in the article, everyone’s situation is different. Withdrawing from a retirement account really should be the last resort of ways to attain extra money. Based on what you’ve said, I can’t say that I would recommend taking the money out. Yes, it gets you out of the situation you’re in, but what happens in a few months when it runs out? If you haven’t gotten something new, you could very well be in a far worse situation. You’ve also got to account for the loss of any benefits you might have, like health insurance, should you quit. Having been in a similar situation, where I truly didn’t care for my job anymore, and it was adding stress and unhappiness to my life, I really do know what you’re going through. But, without a backup plan of some sort, I would fear that you’ll end up burning through what reserves you have and end up in a terrible situation that will add it’s own stress and unhappiness to your life.
I’m not going to judge your decision. Like you said, it’s your money.
I do think it would be wise to think about how you’re going to change things so you don’t have to do this again. You just took a loan out– on your future. How will you pay it back?