Published: Monday, Feb. 25 2013 12:20 p.m. MST
To each his/her own. If that works for you, then go ahead with confidence. If
not, then don't do it. The stock market and anything invested
in it, including 401ks, IRAs, personal brokerage accounts, will soon be worth
zero. Better to use it for something good now than have nothing to show for it.
A bird in the hand is worth two in the bush. Too bad we can't
use our own money as we see fit. Taxes are one thing, but penalties on
retirement account withdrawals are criminal.
Paying 50% tax and penalty seems an unreasonable hit, however if you need the
IRA to subsist, maybe thing about annuitizing it. If you take out payments
substantially over your lifetime you can avoid the penalties and minimize the
tax consequences, especially is your current taxable income is low. You could
take out monthly payments in the amount of your mortgage and possibly have no
tax consequence at all.
Paying off your mortgage should be a priority, but not at the cost of 10%
penalties and income tax. My advice would be to take a withdrawal from the IRA
equal to 6 months of payments just to give yourself some breathing room while
unemployed. But remember that your IRA will earn it's greatest returns in
the last years before retirement so it would be foolish to empty it out now,
when just the interest earned on the principal balance 10 years from now could
pay for most of your house.
For those that are saying to use the IRA dollars while they are worth something.
Sure $300,000 dollars may only get you a loaf of bread a few years from now,
but the balance due on the mortgage is based on the dollar value at the time the
mortgage was taken out. So when the IRA money is taken out, though it will not
buy a loaf of bread, it will be more than enough to pay off a fixed mortgage and
use what's left for toilet paper. (note: get payment in small bills,
you'll get more paper.)So, As this article points out keep the
money in the IRA until it can be withdrawn without penalty and interest.When I worked at Quest I accepted a layoff package which gave a few
months wages as severance. The company reported it to the IRS as a savings
withdrawal. I reported the money as earnings when I filed taxes. I got a major
tax ding for that. Thank you very much Mr. Nacchio. How's the karma, Joe?
Enjoying the big house?
Although it may be costly to pay off an existing mortgage with an IRA, the other
option is far worse. If someone is unemployed and has the possibility of paying
off their home, the 10 percent hit is far less costly than losing that home.
Financial advisers look at the issue from a tax standpoint. However, the human
side of the equation would tell anyone that the home will provide far more
security than any IRA which will be taxed at any time you take it out. If you
are homeless with an IRA, that does not bring much comfort when you consider the
cost of human suffering. With no home, you would have to rent with no
possibility of paying off the rent and the rent would likely be as expensive as
a home payment. With no job, making rent payments makes no sense either.
@Herbert Gravy said, "When did the truth become fear-mongering? This
economy is shakier than Elvis' hips, and getting worse by the
minute."That is your opinion, and it is only an opinion –
your claim is not based upon fact. You have no SOLID financially-based evidence
to back up your prediction.
Even if you do cash in your IRA, you still need to cover the taxes and insurance
or you will lose the home. You might be better off selling the house and buying
a smaller less expensive home. You need to do some financial analysis to decide
what would be best. Some of it will depend on how much equity you have in the
home. You need to visit a good tax accountant.
viejogeezer"You could take out monthly payments in the amount of
your mortgage and possibly have no tax consequence at all."Seriously WRONG advice.There is not an IRA (qualified plan) on the
planet that avoids ordinary income taxes at distribution. What you
might be eluding to is the ability to take a stream of payments through the 72t
provision that can avoid the 10% penalties if structured correctly. An annuity
is often used as an alternate financial vehicle to do this from as withdrawals
(depending upon the product and carrier) may be allowed.Tax-deferred
plans do not avoid taxes, you simply defer paying your taxes to some unknown
rate when you take distributions.Why on earth would anyone
participate in these plans when the common thought is that we will pay higher
taxes in the future is something to seriously consider. There are tax-free
alternatives.For all we know paying ordinary income taxes today with
a penalty might be a steal compared to future tax rates.In any case
avoiding the 10% penalties through a 72t provision would be a wise strategy if
the income stream was sufficient for the need.And yes... I'm
VST what financial advisor earns you. $50,000 a year?
@K,My financial advisor is with Ameriprise Financial. My retirement
investments are in the six-figure range.I could not have done that
well on my own.
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