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We have recently considered buying another property closer to family. Since selling our current home may take some time we were thinking we could possible use a retirement Roth account to come up with purchase price rather then take a bridge or other loan. We also do not have enough after tax money in regular accounts to cover the total purchase. We have been here for many years so it meets tax deduction for primary residence sale. I am thinking perhaps some other folks on this forum have considered this.
It seems like this may be a good solution to avoid borrowing money for some undetermined period and paying loan costs. This also does not raise taxable income as this Roth money has already been taxed and has been in place longer then 5 year. The money from the eventual sale of current property can then go back to replace monies used in the purchase of the new place. We also plan to do more Roth conversions into the future as planning suggests.
Are we missing something about this Roth use or is another way suggested to raise the money? I realize this does use some Roth money that is an advantageous account for growth but wondering what other items I may have missed.
I’m assuming you’re retired, and income verification for a loan may be challenging with some lenders for a HELOC or bridge loan. A thought might be to see if the institution where you hold your retirement accounts may offer securities lending. I would only leverage up to or around 50% of the assets you may secure the loan with (assuming you are paying the loan back in the near future when selling the property you are in?). It’s my understanding the institution could liquidate assets should there be a market correction of some sort. I’ve been meaning to look into a LOC from my institution since my HELOC recently expired.
I’d be hesitant to liquidate the Roth IRA given it’s tax benefits, but life is short, and if it’s the only option to get you to your goal of spending more time with your family, might be worth considering. Question- what % of your Roth are you liquidating? Some folks hold large Roths, and maybe your thought isn’t so bad…
Like DrLefty I’d also be wary and would probably take out a loan before raiding the Roth. I also agree with her that it depends on one’s own situation.
You might start withdrawing from your Traditional accounts to build up cash in your taxable account for a purchase. You could withdraw some this year and some more next year for the same tax it would have cost you to convert that amount to Roth.
I would probably take a loan for a short time to bridge the gap between your purchase of the new place and your sale. In fact, we just did this—we had a HELOC set up on our previous place, which we maxed out for the new purchase and then, when our old place sold, the HELOC was paid off. It depends on the timing, but I think the total cost in interest was under $400 for us.
I’d be wary of giving up the tax-free advantages of the money in the Roth. You can’t just “put it back” when you sell your current home. But it also depends on your financial big picture and how you might use those Roth funds in the future.
I agree. It’s really hard to say with the very limited info you provided. But I’d be very reluctant to give up the Roths.
HD community – any thoughts?