What should we do with this money??

[blessedmama59]

My fiance had to cash in on a 401K he had with a previous job bc the stocks were plummeting and he had already lost close to $3,000. So now we have $5,600 that we're not sure what to do with. I have suggested that he should pay off the cc debt he has from his previous marriage ($5,400) and we also considered putting it in savings for a downpayment on a house. Then there's always the option of just putting it in checking and doing whatever with it (not smart, IMO). He is a little compulsive with money, so I know deep down he would love to just spend it on whatever. His response to using it for the cc is that his ex basically pays the payment on it monthly. She sends him a $100 check every mth and the payment is usually $150. The interest rate is 28% and I would personally just love to get rid of that debt so we're not paying on it for years to come. Also, the only other debt we have are two car payments, one of which could be paid off soon. Should we pay the entire thing off, put a big chunk of money down on it, put in savings for future?? I just want us to spend it wisely.

[sunnysandiegan]

Personally, I would roll it over to a Roth IRA and keep it under the retirement umbrella.

[GuildJenn]

I don't know how it works in the US but here if you take something out of a retirement savings plan you have to pay income tax on it. So if you haven't factored that in, it is good to find out - you may owe some back to the tax man.

[MyTwoAs]

Originally Posted by GuildJenn

I don't know how it works in the US but here if you take something out of a retirement savings plan you have to pay income tax on it. So if you haven't factored that in, it is good to find out - you may owe some back to the tax man.

This is what I was going to mention. An early cashout of a retirement plan comes with a 10% penalty + it is taxed at your tax rate. Sometimes the company that disburses the funds withholds the penalty and even a portion of the taxes so I'd look at that first. If nothing was withheld and it is too late to roll it over into another retirement account then the first thing I would do is set aside the penalty + tax funds.

After that I'd dump it onto debt if you already have a cash emergency fund. If you don't have an emergency fund I'd take some out for an EF and then put the rest on debt. If you just put it into your account it will disappear and in a year you'll have no clue what you spent it on and will be wishing you'd done something different. Trust me...I'm speaking from experience here hehe.