- 1). Request a payoff quote from your lender so that you can withdraw the precise amount of money that you need to settle your debt. You should ask for a payoff quote that includes a per diem. Interest accrues on a daily basis so the per diem enables you to see how much extra money you need to add to the payoff quote on a daily basis to cover the accruing interest.
- 2). Provide your SIMPLE IRA custodian with the loan payoff quote and instruct the custodian to liquidate a portion of your account proceeds so that you can access sufficient funds to pay off the debt. Although SIMPLE IRAs are funded with employer contributions, the accounts belong to you from the outset so you do not have to seek your employer's permission before you make a withdrawal. On other types of pension plans, participants can only access money with the plan sponsor's consent.
- 3). Instruct the plan custodian not to withhold any money to cover federal income tax. If you make no such request, then the plan custodian must withhold 10 percent of the withdrawal amount to cover taxes.
- 4). Payoff your debt with the SIMPLE IRA withdrawal proceeds. You must replace the borrowed SIMPLE IRA funds within 60 calendar days of the withdrawal date. If you redeposit the money within this time frame, then the withdrawal has no bearing on your tax liability. If you do not repay the money within 60 days, then you cannot return the money to the SIMPLE IRA and you must report the event as a taxable withdrawal.
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