I am 81 years old. I have a home mortgage balance of $118,300. I also have a $110,000 rollover Individual Retirement Account (IRA) invested with the bank. Should I withdraw the money from my investments and put the money towards reducing the mortgage?
-Octavio
The best option for you will depend on what the rest of your finances look like and what your end goal is. Regardless of why you’re asking this question, I think you need to consider how much this could affect your cash flow as well as your flexibility to absorb unexpected expenses.
Consider these questions when considering your next move. ,Looking for help with a financial question? This tool can help match you with potential mentors,
What is your goal with this decision?
Consider why you asked this question in the first place. The optimal choice for you depends on your own personal “why”.
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Are you looking to do what results in the highest financial return? in that case, it’s more of a math problem, Comparing the interest rate on your mortgage to the return you can expect on your investment — and the associated risk — will be a key element.
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Do you want to simplify things? If so, and you can get rid of the mortgage entirely, definitely do it. You’ll delete the two accounts with the respective payments, withdrawals, and tax-filing effects of both. I get it – I’ve made decisions that weren’t strictly appropriate on a spreadsheet because they would reduce complexity for me.
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Are you worried about your successors? I’ve had conversations with retirees who didn’t want to leave their beneficiaries with an unpaid mortgage out of concern that they might not be able to keep the home. If that’s what’s prodding you, talk to an advisor and lawyer about planning your estate. They will help you understand your options and guide you.
These are just a few examples of common reasons you may be thinking of. In mentioning them I mean to suggest that you should first be firm with yourself why you are considering this and what you hope to achieve. This is an essential step in making the right choice. ,Looking for help with a financial question? This tool can help match you with potential mentors,
What is the immediate impact on your budget and cash flow?
Whatever your reason, make sure you don’t leave yourself without enough liquid assets,
Do you make regular withdrawals from the IRA and use the money as part of your normal budget? If so, how will downsizing the IRA affect your cash flow? Do those withdrawals cover an appreciable amount of your expenses?
One thing that sticks out to me about this particular point in your situation is that paying off the entire balance will not completely eliminate the mortgage. You’ll still have the payment but without the IRA to pay for it.
let’s say it’s a traditional tax-deferred iraYou’ll owe tax on the entire amount, so be sure to account for it. But even if we ignore the tax effect, you still owe $8,300 on the mortgage. Will you be able to cover this amount with other savings to pay it off completely? If not, can you comfortably cover the payment until it is paid without relying on the IRA? Whatever the case, make sure you don’t back yourself into a financial corner where you have mostly Paid off house but then struggling to maintain.
You can’t trust IRA at all. If you can live comfortably on your Social Security, pension or other savings, that’s great. It may happen that you only take your required minimum distributions (RMDs) because you have to from the IRA and don’t need the money to receive it. If that’s the case, then obviously, it’s less of a concern.
I suggest that you consider this idea carefully and give it significant importance in your final decision. ,Looking for help with a financial question? This tool can help match you with potential mentors,
next steps
Consider why you’re asking this question, as well as the cash-flow consequences and tax consequences of taking withdrawals from your IRA. Those considerations will help inform your final decision.
Brandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Have a question you would like answered? Email [email protected] and your question may be answered in a future column.
Please note that Brandon is not a partner of the SmartAdvisor Match Platform, and has been compensated for this article.
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Post Ask an Advisor: I’m 81 years old, I have a $118K mortgage and a $110K IRA. Should I Withdraw From My Investments To Pay Off My Mortgage? first appeared SmartAsset Blog,