I am going to be retired next year and will be 65 years old. I’m considering paying cash for a new single-family home in a lower-cost-of-living community. I have little cash but substantial funds in 401K and IRA accounts. Instead of qualifying for a mortgage with limited retirement income, I might withdraw about $300K to buy the house outright. I know the tax hit would be high, but I would prefer owning over renting. What do you think?
You’re not just facing a tax hit; you’re removing money from a tax-advantaged account permanently. Think this through carefully. There are lenders who will consider your assets, which could help avoid the withdrawal.
I did what you’re considering at 59 1/2. I moved my funds to an IRA and draw a small amount monthly to supplement.
Can you take a loan from your retirement? It’s like borrowing from yourself, and you repay with interest.
It depends on your retirement savings. Ideally, you should be able to cover expenses by withdrawing 4% a year. If you can maintain that after the withdrawal, then go for it.
This will also increase your Medicare payments due to the higher AGI.
Pulling $300K sounds tempting, but the tax implications might outweigh the benefits. Have you considered a smaller withdrawal plus a modest mortgage?
Does your $300K plan include taxes? Check the IRMAA impact on Medicare too. Staying under your marginal tax bracket while financing the rest could minimize your tax hit.
Look into asset depletion programs where you can use your assets as qualifying income without immediate withdrawals. There may be better options to explore.
If you decide to proceed, consider spreading withdrawals over multiple years to reduce the tax impact.