Use IRA Money to Pay Off Mortgage?
REM #F825
By Ilyce R. Glink
Summary: A ThinkGlink reader asks about withdrawing IRA (individual retirement account) money to pay off his mortgage early. Is this is a good idea? What are the tax consequences to withdrawing IRA money? Ilyce discusses the pros and cons of paying off the mortgage with money from an IRA.
Q: I'm 63 and retired. I have a good pension and have $200,000 in an IRA that I did not plan on using until age 70 1/2. But now I'm thinking about withdrawing $100,000 to pay off my mortgage. Is that a good idea or not?
A: You have several options, but taking out a bulk of your money might not be the best thing for you to do.
First, you'll pay taxes on the cash you take out of the IRA. When you take out a large sum of money from an IRA, that money will be considered ordinary income and might boost your income into a higher overall tax bracket. You would not only pay more in federal income taxes but you might also have to pay more to your state in income taxes.
Second, if your money is invested in cash, that money may not be making much money now. But you have to compare what you are earning in your IRA account on that money with what you are paying on your mortgage.
If your mortgage is at a low rate and you still have some time before the interest rate resets or before the loan is due, you might be better off taking out a small amount each year to help with your mortgage payments. You could even consider paying down your loan a bit at a time without taking too much out of the IRA to cause you to pay taxes at a higher income tax bracket.
The only way to know for sure is to pull out a piece of paper and pencil and work through the numbers on all sides.
NOTE: Ilyce R. Glink's latest ebooks are "The Clutter Collector: How to Get Rid of Clutter Everywhere in Your Home" and "How to Save $50 a Month," which are available at her new, all-video website, www.expertrealestatetips.net. If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST. You can also write to Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact her through her website, www.thinkglink.com. © 2008 by Ilyce R. Glink. Distributed by Tribune Media Services.
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