Using an IRA to Pay Debts
QUESTION 53: USING AN IRA TO PAY DEBTS
Let's say a person owes money to a variety of places (Yeshiva,
the person who takes care of the lawn, etc), and it is very
difficult to pay these loans from one's salary. Also let's
say the person has an IRA (Individual Retirement Account)
that has been reserved for one's retirement. Taking money
from the IRA incurs certain penalties, in addition to losing
the considerable benefit of the money accruing tax-free
until retirement. To what extent is the person obligated to take
money from the IRA to pay off his debts? To take the question further,
would a person be obligated to take out a second mortgage on one's
home to pay debts? What if a person's investments (in stocks or
real estate) are very illiquid, and currently at a depressed
value, would he be obligated to liquidate the investments at
a loss to pay such debts?
RABBI BELSKY
A person should think very carefully before touching an IRA,
because those funds are for the entire family. In some way,
the money is like a kesubah (marriage contract). A person
shouldn't take money that is reserved for a kesubah to pay
expenses, because a husband is responsible to keep it for his
wife's security.
On the other hand, a person must understand how much money
is really needed in an IRA account. I once talked with a
couple, and between the two of them they made $126,000 a year.
They were fighting like cats and dogs that they didn't have
enough money to live on. I asked them for a list of how they
spent their money. It turned out that they had so many retirement
plans, and so many investment plans, that it was three times as
much as was necessary. They were damaging their family life
because of their excessive concern with retirement funds.
It is a very serious thing to pay a Yeshiva. If the Yeshiva
is not paid adequately, it transgresses lo solin (the Torah
prohibition against delaying payment) because it then can't
pay its teachers on time.
Taking out a second mortgage is sometimes an advisable route
for someone who is in considerable debt. But there are two
critical considerations. The first is that the person should
first shop for the best loan, and do this very carefully. The
interest rate should not be high. Secondly, people should never
do such things unless they are financially responsible. A person
must be able to do an accounting to make sure he is assured of
paying the loan back, otherwise there's a risk of losing his house.
In addition, a person must limit his expenses. A person will
find there are many things that he can do without - for example,
expensive vacations, and so on.
Finally, if stocks or real estate are at a depressed value, a
person is not, according to Chazal (Torah sages) obligated to
sell, but can instead take tzedakah. A person can wait until
the value rebounds.
Yeshiva payments should not be considered a loan. People have
no right to take the money they owe a Yeshiva and use it to
buy personal items. It is used to pay salaries.
NEXT WEEK'S QUESTION 54: CHECK-OUT LINE IN SUPERMARKET
I was shopping at Pathmark with my wife and was ready to get
into a check-out line. I saw that the express lines that accept
12 items or less were fairly short, and the non-express lines were
very backed up, possibly because the store was short on help. I
counted 16 items in my shopping cart. I was extremely tired, it
was 10:30 at night, so I took 4 items and told my wife "We'll wait
in line and pay separately". She thought it was wrong, but I said
there's no rule that says we have to check out our items together.
She said it may not be literally wrong, but how does it look, and
if someone else notices they will be upset. Is it wrong? What
if we waited on separate lines?
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