An IRA is considered to be one of the best options for you to save money for retirement. There are various benefits of saving money through IRA’s, and the main one is the tax benefit. However, the question is can the IRA account help you with managing debts? Does it in any way affect your debt settlement ability? You will be required to know all of the details regarding the IRA accounts. You will also need to know your total debt situation. Who you owe money to. How much you owe and how long it will take you to repay these debts.
IRA and debt
There mainly are two types of IRA accounts and these are the simple IRA and the Roth IRA accounts. Both of these have some forms of tax advantages, but the benefits differ on the basis of account type. Put money into your IRA account so that you can go on to lead a stress free retired life. However, can you use the money from the IRA accounts to manage your debts? First of all, if you aren’t aware of the complexities, the most obvious fact is reduction in the amount saved. When you will be withdrawing money from the IRA or the Roth IRA account, it is going to result in loss of the total amount saved. Another disadvantage is that if you withdraw money from the IRA accounts, you will have to pay tax on that.
Still, if you are too deep in debt, and all other sources have been exhausted, using money from IRA accounts can help you avoid bankruptcy. The IRA accounts can help in improving your credibility to settle the debts. The IRA accounts have the capacity to stay put with the different types of retirement investments carriers like that of bonds and stocks, the money market funds and so on. Therefore, reaping the benefits becomes easy with the IRA account.
Debt Settlement Process
Debt settlement is the process through which the outstanding debt amount gets settled. So, if you can settle the debts, it becomes easier to become debt free, as the amount gets lowered. Although, not all creditors agree to settle the debts, you still can get some to settle debts. If you have been missing payments for quite a long time, and if you can exhibit that you are in serious financial hardship, and that there’s no way the creditor can get more than what you are offering; they may agree. Managing payments on a small debt is easier than a large debt. Therefore, if you can go on to let the money grow from the beginning in the IRA account, you can use some of it to make the debt payments, even after settlement.
However, if your debt problems are minimum and if you think that there are still other options, it would be better to try out those, rather than withdrawing money from IRA accounts. This is mainly because, there are tax consequences of the withdrawal. So, weigh all of the options, and the pros and cons before opting to use the IRA account.