I'm thinking of this plan but have not implemented it yet. I retired 1 year ago. To date, I have not taken any funds from my tax exempt retirement accounts.
I have a large Home Equity Line of Credit (HELOC) that I have not used. Interest presently is 2.75% if I borrow from this HELOC.
I also have a large IRA in a 10 year CD at Penfed which pays 5%.
I need $12,000 net per year as a supplement for some of my living expenses. My effective total tax rate is 8%. So the $12,000 withdrawal from my IRA would cost me $960 in taxes.
Here is my thought: When the time comes when I've exhausted my funds in my taxable accounts, why not take the $12,000 from the HELOC, pay the 2.75% interest and pay no taxes; and continue to let the IRA grow at 5%. I would be ahead 2.25% (5-2.75) and not pay the tax until later.
Any flaws in this scenario? Thanks.
I have a large Home Equity Line of Credit (HELOC) that I have not used. Interest presently is 2.75% if I borrow from this HELOC.
I also have a large IRA in a 10 year CD at Penfed which pays 5%.
I need $12,000 net per year as a supplement for some of my living expenses. My effective total tax rate is 8%. So the $12,000 withdrawal from my IRA would cost me $960 in taxes.
Here is my thought: When the time comes when I've exhausted my funds in my taxable accounts, why not take the $12,000 from the HELOC, pay the 2.75% interest and pay no taxes; and continue to let the IRA grow at 5%. I would be ahead 2.25% (5-2.75) and not pay the tax until later.
Any flaws in this scenario? Thanks.