401K/IRA Withdrawals

[Mojo-NC]

Thanks all, I guess I was just looking for confirmation that although it would certainly be the easy way, it would not be the smart way to purchase a second mountain home. I'm coming up on 64, so I already qualify to be taking withdrawals from my account, but I'm not. Y'all are correct, with the returns we've been getting lately, it would be crazy to take out a lump sum. Heck, I checked my wife's account today and she has made over 18% on her 401K this year to date. That's crazy!!! Mine are spread out across different accounts, so it's not quite as straight forward; they're good but not that good. When will we ever see those kinds of returns again along with 2.25% mortgage interest rates on a new home loan??? That was a short-lived idea.

Originally Posted by Mojo-NC

When will we ever see those kinds of returns again along with 2.25% mortgage interest rates on a new home loan??? That was a short-lived idea.

Good decision.

Interest rates on a second home might be a bit more than the rate for your primary residence but they are still low enough that it makes sense to borrow as much as possible and keep the rest working for you. Keep in mind that the investment returns we're currently seeing will not last forever but the average historical returns of the stock market far exceed 3-4%.

On a side note, if someone has both a Traditional IRA and a Roth, you might think about moving some IRA money over to your Roth. Its call 'Recharacterization' and it allows you to move some IRA money over and you can exceed the normal annual contribution limit on the Roth.

You pay the taxes on the IRA withdrawal and move it to a Roth where it can continue to earn money tax-free and then you can withdraw later with no taxes due.

I've been doing it for the last 3 years, mostly because I don't think tax rates are going any lower and will likely increase soon. I'd rather pay today's rates than wait and see what Congress has in store for in the coming years. If you think otherwise, this is not for you. I keep my recharacterizations below the threshold of the next higher tax bracket but it still is significantly more than the traditional Roth contribution limit.

YMMV

[dvl2700]

I would take out a regular mortgage at the low interest rates. My WAG ( wild *** guess) is that inflation is going to rear its ugly head in the next few years. Then if you want to pay off the mortgage early you can calculate how much money to take out of the 401 to remain in a lower tax bracket so you don't get killed on taxes. You have the money growing at 5 to 10 percent in your retirement account baring the market taking a full crap on you. With a regular mortgage and money in your account to pay it off anytime, you have options.

[Mlaker]

Another option out there is you can get a line of credit using your IRA or investment funds as collateral at very low rates right now, although they are variable.

[SGPopp]

I'm a huge fan of using others people's money. I wouldn't take money out of any investment accounts right now and I'd borrow enough to not sleep easy with today's interest rates.

I just refinanced my house at 2.25% for 15 years. That's cheap money.
I just bought a new snowmobile I preordered in spring. After getting my out the door price, about $2500 under MSRP I was also offered 0% for 48 months. Even cheaper money.

I've never understood the whole "I don't pay interest crowd". My investments are far outpacing my interest payments.

[hnd]

leverage is great but being retired with no debt is great too.



401k/Trad Ira you'll pay taxes on what you withdraw. What I'd do is get the mortgage (like a 7 yr balloon), and then withdraw over the course of the next few years what it takes to not jump you into another tax rate.



you could either stash that money in a savings account, or throw it into another taxable vehicle and earn on it. once you work it out to where you don't mess with your tax bracket, write a check for the property.



If you are asking its likely that you do value being debt free.

[Woodhead]

Originally Posted by mk cant log in

Good decision.

Interest rates on a second home might be a bit more than the rate for your primary residence but they are still low enough that it makes sense to borrow as much as possible and keep the rest working for you. Keep in mind that the investment returns we're currently seeing will not last forever but the average historical returns of the stock market far exceed 3-4%.

On a side note, if someone has both a Traditional IRA and a Roth, you might think about moving some IRA money over to your Roth. Its call 'Recharacterization' and it allows you to move some IRA money over and you can exceed the normal annual contribution limit on the Roth.

You pay the taxes on the IRA withdrawal and move it to a Roth where it can continue to earn money tax-free and then you can withdraw later with no taxes due.

I've been doing it for the last 3 years, mostly because I don't think tax rates are going any lower and will likely increase soon. I'd rather pay today's rates than wait and see what Congress has in store for in the coming years. If you think otherwise, this is not for you. I keep my recharacterizations below the threshold of the next higher tax bracket but it still is significantly more than the traditional Roth contribution limit.

YMMV

The other beauty of Roth IRA's is that there is no required distributions (RMD's) at age 70. This allows you to adjust your distributions as you see fit.

Originally Posted by Mlaker

Another option out there is you can get a line of credit using your IRA or investment funds as collateral at very low rates right now, although they are variable.

The IRS does not allow the use of an IRA as collateral for a loan.

However, you can use other investments as security. Schwab has a line of credit called a Pledged Asset Line where you put stocks/bonds into a separate account and borrow against them but the interest rate is higher than current mortgage rates.

There may be other options available at lower rate.

[Burr]

It would make more sense to take out a mortgage for a second home, and leave your money in your IRA where is will make you 3 times what the mortgage will cost you.

Let alone your second home will probably appreciate more than the mortgage interest will cost you anyway. RE is an appreciating asset, things like trucks and snowmobiles are depreciating assets.

[wmd]

Had a discussion with my financial advisor yesterday about purchasing a second home. His advice was to fund a separate "cash" account 2-3 times per year from investments and given instructions to make the monthly mortgage payment automatically. I was dreading the thought of having to write a monthly check.
Our son and daughter in law had twins in November and are probably going to build a house and we will purchase their current home. We have a camper on a year round pad close to them but my wife detests the camper. They live 4 hours from us and my son and I own a boat together, it is on the Missouri River by Glenham SD.
We want to enjoy our grandchildren wile we can.
wmd