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.