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Only 3-years into retirement, we're still living quite comfortably on our SS and Pension income -- and expect to do so in the forseeable future. We are fortunate enough to be able to leave our IRA/Investments alone (for now) ... and have LTC insurance, etc.
We are, however, looking at buying another condo (and moving there), but, will probably need to pull a chunk of cash out of our IRA investments to make that happen. I'm aware of the 60-day out/in provision to avoid taxes, and may use that for a 'bridge loan' (pending the sale of our existing condo). But, we will ultimately have to pull cash out of our IRA to avoid a large monthly mortgage ... on a continuing basis.
I'm trying to figure-out if there is a good, tax-related strategy that others have figured-out for avoiding a big, lump-sum tax hit. (Obviously, I will need to consult a good tax accountant, versus simply take my advice from the internet) ... BUT, I respect the input of many of the folks on this forum and am seeking input about 1). strategies, 2). problems I need to watch-out for and 3). creative solutions others have found.
I would avoid the 60 day loan. Too much risk that you will not complete the deal within 60 days. Also make sure your plan (might just be the 401k type) does not withhold 20% for taxes. I think most do so you would only get 80% of your money. You do get the 20% back as a tax refund if you stay within the 60 days but that can be a year down the road.
If your IRA is earning more than the interest you would pay for a swing loan and the mortgage you might want to get a mortgage and take the monthly payment out of the IRA. The object woudl be to keep your withdrawls low enough to avoid the next tax bracket.
Also remember inflation will not increase your mortgage payments but will, lets hope, increase your investment return. Thus you will be ahead with a mortgage, not without one.
I know it sounds good to be debt free in retirement, but that is not the answer if you can earn more on your investments than you pay for the mortgage interest.
If you consult with an accountant find a CPA that is also certified as a financial planner. I think I might have the person do a review of your entire retirement plan. BUT before you do that figure out what you think you want to do - both financialy and non financilay. This should help you make sure you tell the planner all he needs to know.
I will tell you what we did. We both have left the same company each with a 401k that allows us to "borrow" up to 50k and pay ourselves back. When we wanted the new car that is what we did. The only problem(?) I have with it they only charge us 3% "interest" which gos back into the 401k. I see this as the only way we can add to the 401k. There are no tax impaction that I know about. Anyone see any problems with this?
Larry - Hobe Sound, Fl
yeah , what happened to me once...out of left field the company started having cash flow issues. next thing i know we are out of business and i owe the 20k i borrowed and have to pay it back immeadiatly.
try getting a loan on your already used car from a bank after the fact...... you cant.. that personal loan will cost you a bundle. it turned out to be a horrible idea. you also will pay income tax 2x on that 3% interest....
your paying the tax on the money when it goes in and tax again later on when withdrawing. think about it.
I was not aware of the Tax issue as I have not taken any money out of the 401k, but I think I must start later this year as a 1940 baby. The other concern, if Fidelity gos under, we are all down the tube. Florida Power & Light picked a good company to admin the funds (I hope)
fidelity is only the managing agent. your funds are all seperate corporations backed by their undelying assets and those are insured against fraud.. they can in theory be moved and managed by any company in the world if fidelity was gone tomorrow. actually fidelity does do that .
some funds are moved outside fidelity to other companies to manage. state street in boston is an example of one such firm.
because your paying tax on the interest before you make the payment to the 401k and because that interest is retaxed as part of your withdrawl they get you 2x.. with auto loans as low as 1 or 2% you will save lots of potential grief and more money just taking one. dont listen to suzie ormann though. your not being taxed 2x on the entire 401k loan as she so fondly likes to say ,just the interest part..
Last edited by mathjak107; 03-19-2011 at 04:53 AM..
I would avoid the 60 day loan. Too much risk that you will not complete the deal within 60 days. Also make sure your plan (might just be the 401k type) does not withhold 20% for taxes. I think most do so you would only get 80% of your money. You do get the 20% back as a tax refund if you stay within the 60 days but that can be a year down the road.
If your IRA is earning more than the interest you would pay for a swing loan and the mortgage you might want to get a mortgage and take the monthly payment out of the IRA. The object woudl be to keep your withdrawls low enough to avoid the next tax bracket.
Also remember inflation will not increase your mortgage payments but will, lets hope, increase your investment return. Thus you will be ahead with a mortgage, not without one.
I know it sounds good to be debt free in retirement, but that is not the answer if you can earn more on your investments than you pay for the mortgage interest.
If you consult with an accountant find a CPA that is also certified as a financial planner. I think I might have the person do a review of your entire retirement plan. BUT before you do that figure out what you think you want to do - both financialy and non financilay. This should help you make sure you tell the planner all he needs to know.
Thanks! -- That's what I had in mind and will look into several issues you raised.
I will tell you what we did. We both have left the same company each with a 401k that allows us to "borrow" up to 50k and pay ourselves back. When we wanted the new car that is what we did. The only problem(?) I have with it they only charge us 3% "interest" which gos back into the 401k. I see this as the only way we can add to the 401k. There are no tax impaction that I know about. Anyone see any problems with this?
Larry - Hobe Sound, Fl
Thanks Larry, I looked into 'borrowing against my IRA', but discovered that once one has rolled-over from a company sponsored 401K, the rules about borrowing change. As I understand, one cannot borrow against an IRA.
This won't help you with your current issue, but I'm planning on withdrawing from my IRA, enough to get me to the top of my then current tax bracket every year prior to age 70. The funds beyond what will be needed for current expenses will be converted to a Roth IRA each year. The idea is to pay taxes now with the hope to avoid future taxes at a higher tax bracket resulting from RMDs. My current plans indicate that we won't need income resulting from RMDs, so it would be of benefit to us to reduce the size of my IRA, thus reducing the size of the RMDs.
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Thanks for the reply
