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My wife & I are 80 years old and planning to move into an over 55 age community.
We will sell our current home to purchase a home in the new community, however, the difference between selling and purchasing will leave us with about $200,000 shortfall.
Our combined total investments are:
$2.5 million in our IRA
$1.4 million in our Roth accounts
$2.1 million in our taxable brokerage accounts
Which would be the best source(s) for us to take the money for our new home purchase concerning taxes and additional financial points you are aware of?
Thank you
Martin in South Carolina
Nice work on your nest eggs. I actually did this recently, I am 78. Use the $134,000 from your IRA that you have to take anyway for your RMD, and yes you will have to pay tax on it, unless you have some large medical deductions and the like. The other $66,000, I took from my cash account. If you do not have the cash, sell some stocks, winners and losers to make up the $66,000. And as some have recommended, there are many factors, if you are unsure, get a highly skilled fee only advisor to help you make the call. Best of luck and enjoy your new home.
Over two years the RMDs from the IRAs will come very close to covering the shortfall of $200,000.
I know you don’t want to borrow the money, but with the size of your investments, you should be able to generate a significant amount of cash each year from dividends. I no longer roll my dividends into new stock purchases, but keep it as cash so I can withdraw it as desired (fun money). It might just make sense to use that cash to buy your new house. If you don’t have enough sitting in your account right now, borrow what you need and plan to pay it off in three or four years. Depending on how you are invested, you should be able to generate well over $50,000 a year in dividend returns on your $2.1 million in your regular brokerage account.
If you can take the money from your taxable brokerage without incurring capital gains taxes (losers offset winners), then do that. If you can’t and wish to keep your present tax situation as it is, then pull the money from the rIRA.
If you don’t care about your tax situation, then pull the money from either/both your taxable brokerage or/and your tIRA.
The juice may not be worth the squeeze… In other words you could spend a lot of time and energy to find the optimal solution but it may not be worth the work and anxiety. So split it up… take $66,666.66 from each. It is not the best solution but it is easy and quick. At 80 with the resources presented I don’t think you should worry about squeezing that last nickel. You have enough to start flying first class and you should.
Martin, thanks for an interesting question, and congratulations to you and your wife on your financial success. As Jonathan mentioned in his comment, I think that questions like this are a great opportunity to think about your overall financial goals, and how this decision fits into that framework. You then make the best decision based on yours and your wife’s choices.
You’ve already received great advice, so I won’t repeat much of what’s been said. However, one strategy I didn’t see mentioned is the possibility of carrying a small mortgage for 2-3 years and paying it down in three installments. This approach would allow you to avoid withdrawing too much from your taxable accounts and potentially moving into a higher tax bracket. To summarize: after selling your home and purchasing a new one, the current balance is $200k. In the first year, you could withdraw around $70k to pay down the balance, leaving it at $160k. Then, in years two and three, repeat the same process. This strategy helps you avoid using Roth accounts and minimizes the tax impact, while the interest on the $160k over two years won’t be a significant burden.
My advice is that you should find a fee only advisor to determine how to fund this purchase. Even though people on this website provide excellent advice on most matters, in your case there is not enough information disclosed here, nor do I think you would want to disclose enough information to make a a well informed decision. I believe there are too many factors to consider, many of them addressed here such as RMDs, taxable brokerage, vs traditional/Roth IRAs, IRMAA, potential inheritance, and I think I have read some of the purchase price may be deductible for healthcare. Spending the money to get investment professional to evaluate all the factors will be an excellent investment.
If you have spare taxes-paid cash available from your taxable accounts or annual RMD distributions or assets with minimal capital gains, I would use these three first. I would also always try to save & protect Roth IRA moneys until your last dime spent or to pass onto your heirs who get an additional 10 years of tax-free earnings. In other words, Roth would be my money source of last resort.
Then, I presume you are in the 22% marginal tax bracket or possibly just into the 24% tax bracket – RMD on $2.5MM – ~$125K/yr, Taxable Dividends & Interest on $2.1MM – likely $40-80K/yr, and Social Security – possibly $50-70K/yr. In addition, you might be starting to climb the first IRMAA Medical Premium bracket with income maybe just over the first standard bracket threshold estimated to be around $224K of 2025 MAGI for IRMAA in 2027.
I would probably at least withdraw from your conventional IRA up toward the top of your current IRMAA bracket threshold projected for two years hence (possibly $282K of 2025 MAGI). By reducing your IRA balance up to at least the top of your IRMAA threshold, you reduce future RMDs, save marginal tax implications from either your taxable account (selling gains) or Roth (giving up future tax-free earnings), and protect against future growing RMD taxes from a continually growing IRA balance.
The amount to the second IRMAA bracket might only provide $40-60K of cash. If it were me and I still needed additional money, I would likely still take it out of the conventional IRA up toward the top of at least the projected next (second?) tier of 2027 IRMAA which is estimated at a 2025 MAGI of $352K. These two IRMAA brackets will be in the 22% or 24% federal income tax range, so IRMAA threshold cliffs will likely be a larger driver than marginal federal income tax. I’ve also assumed no change in marginal state income taxes.
Paying taxes on IRA withdrawals may seem counterintuitive to pull taxes forward, but you or your heirs are eventually going to pay these taxes at some point anyway. However, you and your heirs may not have to pay any taxes on capital gains (step up basis) or on all the future gains in the Roth accounts. If the 2017 Tax Cuts are not extended, you have an even bigger incentive to withdraw monies from your IRA in 2025 before tax rates increase in 2026.
Here is a link providing estimated 2027 IRMAA bracket thresholds based on 2025 MAGI which will be impacted by the additional IRA withdrawals to gather the required downpayment:
https://thefinancebuff.com/medicare-irmaa-income-brackets.html#htoc-2027-irmaa-brackets
What a great question. We might encounter a similar situation someday, except that we are far from 80 and have no current home to sell. If we ever buy again, the entire cost will need to be paid from our portfolio.
If it were us, I think we would probably take a portion from Traditional IRA, as much as we could without going into an excessively high tax bracket.
We would also likely take a portion from taxable accounts. We have no holdings there we could sell at a loss, but even so, we would only be paying tax on the gains, versus paying100% on Traditional IRA distributions.
We aren’t concerned about leaving a legacy to someone, but the ability of the other spouse to benefit from increased cost basis would keep us from taking too much from taxable accounts. And the ability to reduce future RMDs by taking some from Traditional accounts now would also influence our thinking. At this point we would incline not to taking from Roth, but if this were happening much later we might consider that as well.
Finally, we would consider a short term loan using assets as collateral, such that we could spread the tax impact over two tax years.
Jonathan’s observations about your estate plan are on-target.
My thought: Based on your ages, you’re both already taking RMDs, and likely have both qualified and non-qualified dividends that you’re paying taxes on each year. Look at your 2024 tax return and see how much you can take from your IRA (or liquidate from your brokerage accounts) to see how much you can withdraw without bumping yourselves into the next tax bracket. Then take the balance from your Roth.
Also consider tax on any capital gains from your home over the $500K exclusion.
Two questions immediately come to mind. First, are there investments that can be sold in your taxable account without triggering significant capital gains? Second, if your taxable account doesn’t offer the chance to sell without generating a large tax bill, what’s your plan for your estate — and hence are you hoping to bequeath your Roth to family members? The Roth would obviously offer the chance for tax-free money.