When to use retirement money to pay off a mortgage - MarketWatch check housing benefit claim

When to use retirement money to pay off a mortgage – MarketWatch check housing benefit claim

I am 77, still working full time as a professional engineer, salary about $135,000, get social security about $29,000 now, started S.S. At 65. Have no intention to retire any time soon. My wife is 63, works part time as substitute teacher, earning about $10,000-plus a year. I have an IRA worth $160,000.

Our house is two story, five bedrooms. Estimated value $500,000. Our house has three mortgages: 1ST — $186,000 at 3.99% – $920/mo; 2nd — $ 82,500 at 5.74% – $612/mo; 3rd — $65,000 at 6.90% – $497/mo.(interest not deductible).

I want to pay off the 3rd this year 2014: assume federal tax rate = 12% IRA disbursement: $73,000 ($65,000 + $8,000 IRA tax) so,$8,000 tax/$500 per month mortgage payment eliminated = 16 months payback!

A. J.H., taking money from a retirement account to pay off a mortgage can make a lot of sense when the tax cost is modest compared with the savings you get from eliminating the cost of interest.Check housing benefit claim

those interest rates are high but you aren’t just paying the taxes to eliminate the $500 expense. You are also repositioning a significant chunk of your net worth into an illiquid asset with limited growth potential. In addition, your tax calculation is off.

With your salary and social security, you are most likely approaching the 28% marginal tax bracket, if you aren’t there already. The first dollar of taxable income (after deductions and exemptions) over $148,850 is taxed at 28%.

At a 28% rate, to clear $65,000, you would need to distribute $90,278 and if that $160,000 IRA is your only funding source, you won’t have enough to do as you outlined. Have your tax preparer run a mock return and you will find out exactly what rate will apply.

If the home is worth what you say, I would explore refinancing as a way to reduce the interest cost and revisit paying down the mortgage from retirement plans after you stop working when the tax cost will drop.Check housing benefit claim if you are willing to crimp your current spendable cash flow for a bit, you could also make additional payments toward the outstanding balances to reduce your interest cost. The effective rate of return on such payments is excellent given the high interest rates on the loans.

Q. I am retired at 62 and drawing social security benefits. I have an IRA which I want to withdraw and apply to a down payment on a home (first time home buyer). Is this counted as earned income against my social security benefits? — C.W.

A. IRA distributions aren’t earned income. However, if you are just living on social security or otherwise have a low income, the taxable income from the distribution can trigger income taxes on your social security benefits.

Q. Hi there! My wife is almost 63, she began to receive her own social security check at 62.Check housing benefit claim both of us are healthy and plan to live another 20 years at least, unless the father takes us earlier. Our concern is whether we should return the money (around $9,500) received so far, so she can claim her spousal 1/2 at age 66. I’m looking forward to hear your advice. Thank you — louis

A. Without knowing the dates of death, you can never be certain of your decisions but we can talk basic strategy. Assuming your benefit is higher than hers, whatever she is drawing will stop when either of you passes away. So, delaying both hers and yours to later ages requires both of you to live as long as you think you will to get a payoff. If you are that confident about your longevity, you need to withdraw her application and repay everything within 12 months of her original filing to get a complete do over.”