early withdrawl of ira to pay off mortgage?


M

matt

let's say i own 100k on my home and let's say i have 250k in my ira.
if my monthly mortgage payment are about 60% of my take home, does it
make sense to pay off the mortgage with my ira and take the 10% hit?
i'm anticpating a baby or two in the next few years and am concerned
about the debt load. we love the house and would prefer to remain.
any other options?

thanks.
 
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R

Rich Carreiro

let's say i own 100k on my home and let's say i have 250k in my ira.
if my monthly mortgage payment are about 60% of my take home, does it
make sense to pay off the mortgage with my ira and take the 10% hit?
It's more than just a 10% hit. The amount withdrawn is fully included
in income and thus taxable, and then you get hit with the 10% penalty
on top of that. Don't forget about state income tax as well (if your
state has one), the possible loss of various tax credits due to your
income being too high, and so on.

It's quite possible you'll lose 50% of what you withdraw to taxes
and penalties.
 
C

cal-lester

Rich said:
It's more than just a 10% hit. The amount withdrawn is fully included
in income and thus taxable, and then you get hit with the 10% penalty
on top of that. Don't forget about state income tax as well (if your
state has one), the possible loss of various tax credits due to your
income being too high, and so on.

It's quite possible you'll lose 50% of what you withdraw to taxes
and penalties.

AND, although you do NOT give your ages, since you mention
the posibility of a Baby in the near future, I must assume that you
are probably under 35. If so, why prey tell would you want to
"pay off the mortgage"??
In most cases, the interest portion of your mortgage payment is
a fully taxa deductible factor.
In addition, the probability of your staying in "that house" for more
than 7 years is very low. Most married couples (those that stay married)
tend to change or upgrade their homes about 7 times throughout thier
life time.......

Cal Lester CLU
 
M

matt

AND, although you do NOT give your ages, since you mention
the posibility of a Baby in the near future, I must assume that you
are probably under 35. If so, why prey tell would you want to
"pay off the mortgage"??
In most cases, the interest portion of your mortgage payment is
a fully taxa deductible factor.
In addition, the probability of your staying in "that house" for more
than 7 years is very low. Most married couples (those that stay married)
tend to change or upgrade their homes about 7 times throughout thier
life time.......

Cal Lester CLU
understand the possible penalties, just am concerned about being able
to juggle the expenses. not sure why paying off the mortgage has
anything to do with moving/selling the house in the future? can you
elaborate? are you saying it's better to readjust our home then tap
the IRA fund? what if we know we are going to stay in the house until
the kids go to college (say 18+ yr time frame?)

thanks.
 
C

cal-lester

matt said:
understand the possible penalties, just am concerned about being able
to juggle the expenses. not sure why paying off the mortgage has
anything to do with moving/selling the house in the future? can you
elaborate? are you saying it's better to readjust our home then tap
the IRA fund? what if we know we are going to stay in the house until
the kids go to college (say 18+ yr time frame?)

thanks.
I guess that I am a bit old fashioned. I personally do NOT
see ANY reason to put money "into the ground". I prefer
to utilize any extra funds that I might have, either for my
personal enjoyment, or for investment purposes.

Second, I personaly have always wanted to keep the
loan as high as possible, so that the mortgage payment
would be mostly "Income Tax Deductible interest".

Cal Lester CLU
 
H

HW \Skip\ Weldon

Second, I personaly have always wanted to keep the
loan as high as possible, so that the mortgage payment
would be mostly "Income Tax Deductible interest".
I agree that if a loan is necessary, a deductible loan is preferred.

But if there is a choice between deductible debt and no debt, I
consider the "deduction" overrated and would prefer no debt. Here's
why.

1. For '03, the first $9,500 of deductions don't count (MFJ), because
the standard deduction would have given the same benefit WITHOUT ANY
OUT-OF-POCKET cost.

2. For deductions over the standard deduction amount, the dollars
spent do not reduce the tax, they reduce the taxable income. So if
you spend a dollar of "tax-deductible expense", you don't save a
dollar IN TAXES, you reduce your taxable income by a dollar. Thus you
save the TAXES ON that dollar. For most, this results in spending a
dollar to save around $.25.

***Here's a better deal. Send ME the dollar. I'll send you back
twice the tax benefit. <grin>





-HW "Skip" Weldon
Columbia, SC
 
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S

Sgt. Sausage

Second, I personaly have always wanted to keep the
loan as high as possible, so that the mortgage payment
would be mostly "Income Tax Deductible interest".
This is the biggest line of horse-hockey that I continue
to hear from folks.

Here's how it works. You pay a dollar in interest to save, say
thirty cents (depending on tax bracket). How does that work?
The way I see it you've lost seventy cents of every dollar you
pay in "Income Tax Deductible interest".

Taken, in and of itself, this is a losing proposition and makes
no sense for most people's financial situation.
 
C

cal-lester

Sgt. Sausage said:
This is the biggest line of horse-hockey that I continue
to hear from folks.

Here's how it works. You pay a dollar in interest to save, say
thirty cents (depending on tax bracket). How does that work?
The way I see it you've lost seventy cents of every dollar you
pay in "Income Tax Deductible interest".

Taken, in and of itself, this is a losing proposition and makes
no sense for most people's financial situation.

Both of you seem to have ignored the fact that those
dollars that were NOT "buried in the ground" (aka
paid to reduce the loan amount) might have been
invested to earn.............
cal lester

btw: the original post was simply my personal opinion.
 
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S

Sgt. Sausage

cal-lester said:
Both of you seem to have ignored the fact that those
dollars that were NOT "buried in the ground" (aka
paid to reduce the loan amount) might have been
invested to earn.............
cal lester
Umm ... no I didn't. Hence the comment "Taken, in and of
itself ..."

The fact of the mater is, that for 90% of the American
population, if that money is not "buried in the ground",
the average Joe will simply spend the money rather
than invest it. For most of America, they're far better
off to bury it and pay off the mortgage.
 

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