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Where to pull remodeling money from?
Old 05-06-2013, 01:18 PM   #1
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Where to pull remodeling money from?

In view of recent medical news, I've pretty much decided to have most of the repairs & updates I had in mind for my house done immediately rather than waiting. FireCalc says I've got enough money to last 30 years or more even if I take out a large sum to pay for the work. What I'm wondering now is how to get the money out without creating a huge tax hit. Possible sources are:
  1. remaining cash left from sale of former residence
  2. withdrawal of contributions from Roth IRA (I'm uncertain exactly how much I can withdraw--how do I find this out?)
  3. use "12 months same as cash" option, available through house painting service
  4. use "no interest for 12 months" credit card I opened to pay for some of the work
  5. withdrawals from tax-deferred 457b retirement account--before I retired I verified with on-site rep that once I'm off the payroll there is no penalty for withdrawing this money even though I am not yet 59-1/2.
I'm thinking I should tap the sources in the order they're listed. Comments?
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Old 05-06-2013, 02:02 PM   #2
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You need to be at least 59 1/2 to take Roth withdrawals without penalty, so that doesn't look promising. The interest free card looks ok, especially if you have cash to cover the entire balance. Assuming you have an emergency fund, I would start with # 4 followed by #1.
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Old 05-06-2013, 02:06 PM   #3
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I would use the credit (3&4) first, knowing that you could pay off much of the balance with 1&2 if needed. Since you've got 12 months to pay it off, it'll allow you to spread the tax hit over 2 years. I'd want to keep some of the easily accessible money around for emergencies.

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Old 05-06-2013, 02:28 PM   #4
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You need to be at least 59 1/2 to take Roth withdrawals without penalty, so that doesn't look promising. .
Michael.....what you say is true.........for the earnings. However, contributions can be withdrawn at any time and conversions can be withdrawn once their 5 yr clock (for each converson) has been met.

By the ordering rules, first withdrawals are considered contributions, then conversions (oldest first), then earnings last.
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Old 05-06-2013, 02:39 PM   #5
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Michael.....what you say is true.........for the earnings. However, contributions can be withdrawn at any time and conversions can be withdrawn once their 5 yr clock (for each converson) has been met.

By the ordering rules, first withdrawals are considered contributions, then conversions (oldest first), then earnings last.
OK. Learned something new today - thanks.

I'd still leave the Roth untouched as long as possible. This comes from doing my mother's taxes for many years, where she has no real way to manage her income and taxes because all the mandatory distributions.

A question that did come to mind .. can a loan be taken against any of those accounts?
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Old 05-06-2013, 03:31 PM   #6
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OK. Learned something new today - thanks.

I'd still leave the Roth untouched as long as possible. This comes from doing my mother's taxes for many years, where she has no real way to manage her income and taxes because all the mandatory distributions.
I think most of what's in the Roth is probably earnings and I would not withdraw that money, since it would be subject to the 10% penalty. It only occured to me just now after reading your post that I probably don't really need to concern myself very much about RMD's. And if I do decide I need to think about them, I can also do Roth conversions up to the top of my tax bracket in future years, right?

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A question that did come to mind .. can a loan be taken against any of those accounts?
Loans...hmmm that's an interesting idea. I could have applied for a loan against my tax-deferred account before I retired, and did think about doing so to pay for the repairs/remodeling, but I'd've had to pay interest on the borrowed amount and, if not paid back in full by my retirement date, it would have been considered a distribution and therefore ordinary income for this tax year. It might even have been a premature distribution since it would have come out of the account while I was still on the payroll. I don't know if I can borrow against that account now that I'm retired. I also don't know if I can borrow against my Roth. The idea of loans doesn't immediately appeal to me, since borrowing would add interest expense to the cost of the remodel, and that interest might not be deductible. But maybe the cost of the interest would be less than the tax hit if I withdraw enough all at once to pay for the work. I think I need some more exact numbers on costs of the work and costs of borrowing in order to pin this down.
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Old 05-06-2013, 03:43 PM   #7
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I was thinking borrow from as well as borrow against. Perhaps you can the money to yourself, pay the interest back to your own retirement account. Some types of retirement accounts allow this.
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Old 05-06-2013, 05:08 PM   #8
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I think I need some more exact numbers on costs of the work and costs of borrowing in order to pin this down.
I think this is a good idea and should be done first. Besides, I found when doing some remodeling that the payments weren't all expected at once. Even though I wrote a check to pay in full after each project was done, it took several months before everything was done. They were used to homeowners living on a budget and were willing to spread out the payments also. It wasn't like they expected a check for the whole thing when they started.

So, I guess what I am saying is that your remodeling payments might slop over into 2014 without even borrowing any money, for example if you happened to start on it this fall.
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Old 05-06-2013, 05:23 PM   #9
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I think this is a good idea and should be done first. Besides, I found when doing some remodeling that the payments weren't all expected at once. Even though I wrote a check to pay in full after each project was done, it took several months before everything was done. They were used to homeowners living on a budget and were willing to spread out the payments also. It wasn't like they expected a check for the whole thing when they started.

So, I guess what I am saying is that your remodeling payments might slop over into 2014 without even borrowing any money, for example if you happened to start on it this fall.
I am in the process of getting a bid from the contractor, so I should have a more exact idea of the total cost soon. His terms are 50% down and the other half on completion. Heaven forbid the work should take until next year to finish! I'm not waiting until fall to start, either. I want to get it done ASAP so I can (finally) move into my house.
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Old 05-06-2013, 05:26 PM   #10
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I was thinking borrow from as well as borrow against. Perhaps you can the money to yourself, pay the interest back to your own retirement account. Some types of retirement accounts allow this.
Now that I am retired, I'm pretty sure that any withdrawal counts as ordinary income the minute it comes out of the account. And now that I'm not working I have no earned income so I can't make contributions, either. At least I don't think so. But I can ask.
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