Dave Ramsey says: Keep money in Roth IRA, pay down debt another way

The worst thing you could do is cash out an Roth IRA unless it's necessary to pay off debt to avoid bankruptcy or foreclosure.

BY DAVE RAMSEY

Feb 25, 2020, 11:30 AM

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Dear Dave,

I have around $15,000 in a Roth IRA.

I just recently started studying your advice, and I was wondering if it would be a good idea to cash it out and put the money toward debt.

— Sarah

Dear Sarah,

I teach people to stop investing temporarily while they attack their debt.

So, I wouldn’t add anything to it at this point, but the worst thing you could do is cash it out.

If you do, taxes and penalties will steal a huge chunk of that cash. The only time I take money out of a retirement account to pay off debt is to avoid bankruptcy or foreclosure.

Start working the Baby Steps from the beginning.

Baby Step 1 is saving up $1,000 for a starter emergency fund. Baby Step 2 is paying off all debts from smallest to largest, except for your home, using the debt snowball method. This will free up a ton of money!

Then you’re ready for Baby Step 3, which is increasing your beginner emergency fund to a fully-loaded emergency fund of three to six months of expenses.

Now you’re ready for Baby Step 4, which is 15% of your income going into retirement!

— Dave