Currently I have a traditional IRA that has about $3,000 in it. It was rolled over from a 401k two years ago and has been sitting ever since (due to various reasons). It's not making any money and I'm pretty sure it's only lost money since I started it. I currently have a Roth IRA (with another bank) that I max out every year, so I have no plans to contribute to the traditional IRA again (at the very least, not for another 10+ years). In addition, I incur a yearly fee of $100 just for having the account open. Finally, I have student loans totaling about $7,500 that average about 5.5% interest. I'm making a hard run at the loans this year — I'd like to have them paid of ASAP.
Given all of that, should I cash out the IRA to put it towards student loans? I'm in the US and I'm in the 25% tax bracket, so after taxes and the 10% penalty, I'm guessing I'll get around $2,000 cash. That is quite the penalty, but considering that the money will be sitting for many years to come, and that I have loans accruing interest, it seems like it might be a good idea. Does this decision make financial sense?
Note: I'm aware that there are similar questions to this, but I feel like this one is a bit unique for two reasons:
- I don't plan on contributing to the IRA any more.
- The account has been losing money since I opened it.