Ask an Advisor: I am 81 years old, have a $118,000 mortgage and a $110,000 IRA. Do I have to withdraw from my investment to pay off my mortgage?
I am 81 years old. I have a mortgage balance of $118,300. I also have an Individual Revolving Retirement Account (IRA) with $110,000 invested in a bank. Should I withdraw money from my investment and put money towards reducing my mortgage?
-Octavio
The best option for you will depend on what the rest of your money looks like and what your ultimate goal is. Regardless of why you are asking this question, I think you need to consider how it will impact your cash flow as well as your flexibility to accommodate unexpected expenses.
Ask an Advisor: I am 81 years old, have a $118,000 mortgage and a $110,000 IRA. Do I have to withdraw from my investment to pay off my mortgage?
Think about why you asked this question in the first place. The best choice for you depends in part on your personal “why.”
Do you want to do whatever will lead to the highest financial return? In that case, This is a more mathematical problem. Comparing your mortgage interest rate with the return you can expect on your investments – and the risks associated with them – will be a key element.
Want to simplify things? If so, and you could get rid of the mortgage completely, this would definitely do it. You can remove two accounts with payments, withdrawals and tax filing implications for both. I get it – I made decisions that weren’t completely justified in a spreadsheet because it would reduce complexity for me.
Do you have concerns about your heirs? I’ve had conversations with retirees who didn’t want to leave their beneficiaries with an unpaid mortgage for fear they might not be able to keep the home. If this is part of what drives you, talk to a counselor and attorney about planning your estate. They will help you understand your options and will be able to guide you.
What is the immediate impact on your budget and cash flow?
Ask an Advisor: I am 81 years old, have a $118,000 mortgage and a $110,000 IRA. Do I have to withdraw from my investment to pay off my mortgage?
Whatever the reason, make sure you don’t leave yourself without enough Liquid assets.
Do you make regular withdrawals from your IRA and use the funds as part of your regular budget? If so, how will depleting your IRA affect your cash flow? Do these withdrawals cover a significant amount of your spending?
The only thing that stands out to me about this particular point in your situation is that withdrawing the entire balance will not eliminate the mortgage completely. You can still pay but without the IRA paying it.
Assuming this is traditional IRA is tax deferredyou will owe taxes on the entire amount, so be sure to keep that in mind. But even if we ignore the tax impact, you’ll still owe about $8,300 on the mortgage. Will you be able to cover this amount with other savings to pay it in full? If not, can you comfortably cover the payment until it’s made without relying on an IRA? Whatever the case may be, make sure you don’t paint yourself into a financial corner where you have income Mostly Paid house but then struggling to keep up.
You may not rely on an IRA at all. If you can live comfortably on Social Security, pensions, or other savings, that’s great. It may be that you only take required minimum distributions (RMDs) because you have to from an IRA and don’t need the money to get by. If this is the case, of course, this is of no less concern.
Think about what makes you ask this question, as well as the cash flow consequences and tax ramifications of withdrawing from your IRA. These considerations will help make your final decision.
Brandon Renfro, CFP®, is a financial planning columnist for SmartAsset and answers reader questions on personal finance and tax topics. Do you have a question you want answered? Email [email protected] and your question may be answered in a future column.
Please note that Brandon is not a participant in the SmartAsset AMP platform, is not an employee of SmartAsset and was compensated for this article.
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Keep an emergency fund on hand in case you encounter unexpected expenses. An emergency fund should be liquid – in an account that is not at risk of significant fluctuations such as the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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