Today TaxMama® hears from Larry with this concern. “At age 64, I am still working full time. My hours and pay rate have been reduced so that I now have a $ 600 + per month deficit. My mortgage payment is $700 per month. (My wife is a full time student and my son is in high school.) I have enough money in my traditional IRA to pay off the mortgage. Would this be a good idea or are there other options?”
That’s a tough break. That’s got to be hard to budget around, after all this time.
Have you looked at refinancing your mortgage? Interest rates are very low right now.
The reason I ask is, even though you’re old enough to draw the money from your IRA without the early withdrawal penalty, you will pay federal and state income taxes on that money.
Another alternative is, instead of paying off the mortgage, how about drawing just enough money from the IRA to make the mortgage payments for the year? That way, you won’t pay as much in taxes as if you draw all the money at one time. Drawing all the money is apt to put you into a higher tax bracket.
Play around with the numbers and see what amount of draw gives you the best result AND the lowest taxes.
Another thing, dare I say this?
Discuss the situation with your family. Make sure they understand what’s going on. They may have some ideas that don’t involve depleting your retirement savings.
And remember, you can find answers to all kinds of questions about drawing money from IRAs, and other tax and business issues, free. Where? Where else? At www.TaxMama.com.
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