I would appreciate some advice.
I currently have a good paying job that I am contributing to a retirement account.
I had a retirement account at a previous job and when I move here my current position uses a different company to service my current retirement from my previous job. Therefore, the current company helped me roll over what I had accrued in retirement from my previous employer into a new IRA that is NOT linked to my current retirement. So this rolled over IRA has $30,000 sitting there with no further contributions.
My wife now stays at home with our 3 children and has no income. She had a teachers retirement plan at our previous location and that money is literally just sitting there (~$10,000).
We have significant student loan debt and $16,000 in credit card debt from our graduate school days.
We currently pay ~$850/month to credit cards but with the student loan debt and a new mortgage we seem to be in over our heads. We start to make a dent then something happens like car repairs (I have a 10 yr old car that I have no payments on). We just can't get ahead.
What would be the penalty to withdraw the entire teachers fund, $10,000? We are in the 25% tax bracket. Would it be 35% penalty so net would be $6,500 that we could apply toward CC debt?
Then would I be able to withdraw the rest from my IRA that is sitting there to pay off the rest? Would is be as simple as taking $15,000 out (assuming 35% of tax + penalty) to pay the remaining $10,000?
I know this would essentially be paying 35% interest to pay off credit cards.
The pros to us are start fresh. That $850 can now go into saving for a rainy day fund or to help make ends meet each month. We could wash our hands of credit cards. We could then focus on our student loan debt next.
Cons are on obviously paying essentially $9k fee to pay off $16k debt. However, this money is really essentially unusable for us. We are both 25 years from being able to withdraw from it with no penalty. And we have my new retirement account that is being contributed toward monthly and growing well. I could also increase my contribution to that retirement.
So, long story short. Is it as simple as expecting a 35% penalty on any withdrawal? Would we be expected to pay that tax burden immediately to the IRS or report the withdrawal as income and pay the $9k at tax time?
Just trying to get out options straight.