Cashing in IRA

[Vriesea]

I have a conventional IRA with about 15k in it and am thinking about maybe cashing it in. I know there is a tax penalty, but my question is if I have no tax burden do I still have to pay the penalty. I'm just starting my internship, so I will only have half a year's salary combined with a non-working spouse and child, a tuition credit, and interest deduction from my mortgage.
Thanks.

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[proman]

Do you absolutely need the money? If so, and you have to pull the money out, it'll count as regular income + 10% penalty. You're an intern, so chances are you'll make about 20K this year. With the withdrawal, you'll be taxed as making 35K (which also means you likely haven't had enough withheld from your intern pay).

If you can possibly keep the money invested, I would roll it over to a Roth IRA and pay the tax now. All future earnings would be tax free. Oh, and I'd plan to put the maximum contribution possible into the Roth while in residency. It doesn't seem like a lot of money, but over the next 40 years it could represent retiring a couple of years early. You'll make a lot more money in practice compared to what you can contribute now, but you can't buy that time or tax advantage back.

 

[etf]

if you're really just "thinking" about it and don't really have an emergency or anything, I think it's best to either keep it in the IRA or convert it into the Roth as proman suggested. not having to pay taxes later or even just deferring them for later really helps your money compound.

 

[Stroganoff]

I know it's tough with a spouse and kid, but if you cash it in, you'd lose $1500 in the penalty, then you'd lose maybe $3750 in taxes, leaving you $9-10K. Definitely do a Roth conversion and hold onto all that money.

 

[Vriesea]

I know it's tough with a spouse and kid, but if you cash it in, you'd lose $1500 in the penalty, then you'd lose maybe $3750 in taxes, leaving you $9-10K. Definitely do a Roth conversion and hold onto all that money.

The question is do I have to pay the income tax if after calculating my tax burden, I don't owe any taxes. My thinking is if I'm going to cash it in this is the year to do it. I'll only have half a year's salary, a direct tuition credit from medical school, mortgage interest deduction, and exemptions for my wife and child, so my taxes owed will be minimal to none.
I know I should keep it, but the $13,500 would be much more helpful now than the 20-25k the ira will be worth when I'm done with residency. My residency is in one of the higher paying specialties so I'm not terribly concerned with having enough money 20 years down the road for retirement.
Any thoughts?

 

[etf]

i think how it works is that they withold the taxes when you take it out, and then you get that money back when you file a return that year.

 

[Jocomama]

Please discuss with your accounant. Despite both moderators on this forum having several years in banking, it is in your best interest to defer any such matters directly with your accountant.
Thanks

i think how it works is that they withold the taxes when you take it out, and then you get that money back when you file a return that year.

 

[Apollyon]

Please discuss with your accountant. Despite both moderators on this forum having several years in banking, it is in your best interest to defer any such matters directly with your accountant.
Thanks

"About my rash -- no, scratch that - about my Roth..."

SDN is not for medical advice, nor for financial advice!

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[Jocomama]

We do help with financial sharing of what we do, how we do it and provide some nice feedback.
Both moderators are very experienced in the banking sector regarding loans.
I have many years of experience with private equity/angel investing, trading options (no futures) and bank processes.
msheaddoc has experience in the bank loan underwriting, including credit, assets and income types (tax returns.
While we both have good experience with evaluating tax returns, partnerships, etc - accounting rules and regulations change yearly, thus accountants are your mainstay.

From these threads, LADoc, etf and Buckeye have good experience with fund and commodity investing.

Just take your advice with a grain of salt.

SDN is not for medical advice, nor for financial advice!

(Unless it is "Wall $treet and Gas"!)