Dave Says: Cash out my Roth IRA?

Dear Dave,

I have around $15,000 in a Roth IRA. I just recently started studying your advice, and I was wondering if it would be a good idea to cash it out and put the money toward debt.

Sarah

Dear Sarah,

I teach people to stop investing temporarily while they attack their debt. So, I wouldn’t add anything to it at this point, but the worst thing you could do is cash it out. If you do, taxes and penalties will steal a huge chunk of that cash. The only time I take money out of a retirement account to pay off debt is to avoid bankruptcy or foreclosure.

Start working the Baby Steps from the beginning. Baby Step 1 is saving up $1,000 for a starter emergency fund. Baby Step 2 is paying off all debts from smallest to largest, except for your home, using the debt snowball method. This will free up a ton of money! Then you’re ready for Baby Step 3, which is increasing your beginner emergency fund to a fully-loaded emergency fund of three to six months of expenses.

Now you’re ready for Baby Step 4, which is 15 percent of your income going into retirement!

—Dave