I have an IRA that I haven't paid into for over 10 years. I also have a State retirement plan that I have paid into for 10 years and will continue until I retire. Besides the penalties, any reason I shouldn't use the old account to pay off bills before we buy a house?

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    Maybe you'd prefer your future self to not be eating cat food in retirement? Honestly, aren't the penalties disincentive enough? – JohnFx May 5 '15 at 2:13
  • If this will be your first home, you could avoid penalties on $10K of early withdrawals by using the money towards the purchase of the home (and using the cash that you have saved for the down payment to pay off the bills). – Dilip Sarwate May 5 '15 at 11:56
  • What kind of IRA do you have? If it's a Roth IRA, you can withdrawal contributions you made at any time tax and penalty free. However, taxes and penalties will apply to any EARNINGS on those contributions that you withdrawal. That being said, this is Retirement savings, so I'd avoid cashing out if at all possible. – zanussi May 5 '15 at 17:10

Generally I wouldn't recommend taking the penalty, since it's pretty steep, but there are some situations where it might be a good idea. In particular, you should take the penalty if the money could save you from something even worse than the penalty.

You mention paying off bills. If you mean high-interest debt that you otherwise can't pay off quickly, then you might consider using the IRA. Examples might include credit cards or payday loans where, despite your best efforts, you can't make more than minimum payments. If there is another way to pay them off in some sort of reasonable amount of time, though, it might be better to do that.

On the other hand, if you just have your heart set on a house and the bills are somehow getting in the way, it's probably better to delay your dream for a little while until you can pay off the bills another way. Every little bit of saved money counts, and, as I said, the penalty for early withdrawal is pretty steep.

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    Borrowing from -- never mind cashing out -- retirement saving should be considered an absolute last resort. – keshlam May 5 '15 at 13:49
  • Yes, depending on tax rate you may only see 60% of it. – AbraCadaver May 5 '15 at 15:14

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