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carebear45

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Debt VS. Savings
I inherited an IRA. I am trying to decide if I should withdraw the funds and pay the massive amount of taxes to just pay off all my debt and be free from everything?? I'm trying to afford a home soon. Should I leave the funds in the IRA and try to use the equity in the home to consolidate?

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Don't touch that IRA until retirement unless you want to pay a bunch of penalties, which is what would happen.  Let it continue building.  Do not take out a home equity loan to pay debts, either because doing so actually puts the house at risk if you should default on that loan repayment.  Instead,look up Dave Ramsey and follow his intelligent advice on debt repayment.  Also, re-read the articles here so you can better understand how credit works and how you can make it work for you. 

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You should consult a tax advisor.  This is an IRA, but you inherited it.  So the taxation might be under inheritance taxes and not investment taxes.  This means there might be very little in the way of taxes to pay.  The next thing you need to consider if how much interest you have in your debt, and what the long run compounding interest you will earn on reinvesting this IRA into one of your own if you decide to cash it out. Generally it is wiser to keep money invested and growing than to pay off debt with it.

You have not even bought a house yet, there is little to chance that you will get a mortgage with cash out for debt when you first buy a home.

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Never touch a 401k

Leave the money in the 401k.  Likely, their has been a company match as well as compounding interest growing your investment.  The penalties are far more than any interest you are paying on debt.  Don't touch the money and let it continue compounding.  You will be glad you kept it in there.

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RMD

Watch out for required minimun distribution! You must start taking distribution in the year following the death of the owner of the IRA. There are many good articles on the web that do a good job of explainingthe law. There are also online caculators that will give you a good idea of the amounts you will have to take out. Also be aware that the distribution will be subject to income tax asordinary income! Remeber that money put into an IRA was pretax so the IRS wants its "share" when the money gets takenout!

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