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Does it ever make sense to take money out of a SEP-IRA prematurely? For example, to avoid bankruptcy?


Expert Thomas Graham iii's Answer:

It can make sense in certain circumstances but very rarely.  The reason for this is that the taxes and penalties that will apply are normally extremely high.  Depending on your current income level and tax bracket you would be talking about paying 35%-40% in taxes and penalties on the withdrawal. 


Bankruptcy and it's repercussions aren't eternal.  Depending on how you file they could go away as soon as 7 years.  It will take time to repair your credit however though.  But if you truly change your financing ways you might not need a "good" credit score though. 


Taking money from your SEP-IRA prematurely could punish you for years by taking away funds that are growing tax free in your IRA.  I would be very cautious about doing this.


I obviously don't know all the circumstances involving your personal finances and the possible bankruptcy.  It would be very beneficial to go talk to a CPA or CFP who can get the full picture and give you a better response.

Thomas Graham iii, CPA, CFE


7 yrs experience

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