Information on Converting 401K into an IRA to Pay Debt - The Bills.com Blog

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Information on Converting 401K into an IRA to Pay Debt

Question: I have private student loans for about 85K. I have about 45K sitting in my 401K. Can I convert the 401K into an IRA and use it to pay off the student loan without the additional penalty?

Answer: This may not provide the best benefit for you. You must convert the 401k to a traditional IRA, then to a Roth IRA in order to draw on the account. However, whenyour funds are converted from the traditional IRA to the Roth IRA, you must pay taxes on them. The amount taxed will be dependent on what tax bracket you are in. There is a good chance that the amount left over will only cover about 30% of the student loan balance

due. Moreover, you are eliminating the 401k, which probably took you more than 5 years to accumulate. Depending on where you are in the retirement stage, the $45,000 401K could be worth exponentially more when you retire even if you added no money moving forward.

If you have other means or options for paying back the student loan, I would suggest exhausting those first.

I hope the information provided helps you Find. Learn. Save.

Best,
Bill
www.bills.com/blog/

Also, make sure to get a free financial health check-up with Bills IQ!

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Bill has answered all sorts of questions and has been able to provide those in need of financial guidance with helpful and valuable advice and information on their specific financial area of interest. If you need specific guidance on any of the above mentioned financial areas, feel free to Ask Bill your financial questions and get better informed. Also, make sure to get a free financial health check-up with Bills IQ!

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