Student loans vs. Roth IRA...HELP!

[Anonymous]

I'm hoping some savvy financial wizards can give me a bit of advice.  Last year I contributed $5,000 towards a Roth IRA through E*Trade.  However, I've recently been thinking about using what I currently have in there to pay off a couple small student loans.

I have 8 SL total...5 are under $2,000.  I know I'll be subject to a 10% withdrawal penalty from the IRA, but I'd feel better financially if I cashed out what I have in there ($4,360) and paid off 2 more of those small loans. 

I'll restart an IRA or 401(k) when I get a full-time teaching job, but for now I'd feel more comfortable putting what's left in the IRA towards the SL.  Any ideas? 

I'd really appreciate the advice.

[Anonymous]

Since Roth IRA/401(k) contributions are made using AFTER-TAX dollars, you can withdraw principal from your Roth IRA without penalty or tax. Capital gains and dividends on the other hand, cannot be withdrawn without penalty until retirement age. If you itemize deductions, you can claim a deduction for any net realized losses within your Roth IRA.

The early withdrawal penalty is only incurred if you withdraw funds from a Traditional IRA/401(k) since these are BEFORE-TAX dollars, but since you have a Roth IRA, you don't need to worry about Traditional IRAs/401(k)s.

So yeah, feel free to withdraw the money; there won't be any negative tax implications.

[Anonymous]

You will have to pay taxes on the earnings related to the withdrawn contribution.  The earnings are only tax free when the contribution is not withdrawn.  In the case of only 1 year, that will be minimal....or depending on the investments maybe nothing if the fund lost value.