I have a lean on my Solar Panels, which I purchased in 2016. I have roth and ira to pay off. My income is $42k. Would I be qualified for no penalty withdrawal?

[prathibhak9]

I pay it currently on my property taxes and the loan is about 17k, if I pay it off. Would it impact my income and adds penalty on top of it?

[xmasbaby0]

Which do you mean?  A lien?  Or a loan?

[prathibhak9]

loan

[SweetieJean]

"roth and IRA"  You have both a Roth IRA and a Traditional IRA, and want to cash these in to pay off that loan?

[prathibhak9]

No. I am asking if I do which one is better ROTH or Trad IRA? Which has less impact on penalty?

[SweetieJean]

Age 59.5 and under: You can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. However, you may have to pay taxes and penalties on earnings in your Roth IRA. withdrawals you've had less than five years.

Traditional IRA is taxable and subject to penalty.

[prathibhak9]

Oh! This is very helpful. Thanks a lot!

[prathibhak9]

But, I first have to report on my tax returns, right?

[SweetieJean · Accepted solution]

I advise against doing this.  Retirement funds should never be used to pay current expenses, except in an emergency.. 

You will owe Federal and states taxes on the Trad IRA withdrawal. Paying off a loan does not exempt you from the 10% penalty.

[dmertz]

Even taking a tax- and penalty-free distribution of contributions you made to your Roth IRA would be ill advised.  You would be giving up the potentially large tax-free growth potential of the $17k just to save a small amount of loan interest now.

[prathibhak9]

No no.. it is a lot of interest I am paying right now.. But, decision definitely based on all other factors. It is not final yet..

[dmertz]

Leaving the $17k in the Roth IRA could result in tax free earnings of something like $50k of tax free growth over 40 years, assuming the average stock-market annual gains.  Think of it as giving up $50k of future net worth to avoid the interest payments on the $17k loan.  (Of course a little bit of that is offset by the savings from not paying the interest, plus any taxable growth on those savings.)

[prathibhak9]

🙂 thx