New Home Construction Minimizing Roth Impact

[Badger19]

My wife and I are 62, comfortably retired and plan to start building a new home about this time next year. The budget is $700K. We have the money for the construction but it is in traditional and Roth IRAs. We expect our current property, a remote log vacation home on 3 acres, to sell for about $300K and would like to avoid the double move, storage then house along with temporary living. We plan to put this property on the market when we break ground on the new home. We have been doing Roth conversions for the past 3 years maxing out the 24% tax bracket. It would seem that not invading the Roths for the full $700K would be beneficial from a tax perspective. The real challenge as I see it is how to apply the proceeds from our current property to the new home if it does not sell at the appropriate time next summer. One option is a bridge loan with closing costs and a current rate of 4.25%. If that bought us 9 more months of selling time the cost would be around $12500. Meanwhile, the average long-term annual tax free return on the $300K Roth money would be around $33K. Of course, making concessions on our selling price and terms could be another option. If it sells early and we're not able to negotiate a delayed closing date or short lease-back agreement, we'd be looking for temporary living space and personal property storage. Anything else we should be considering for best financial outcome with least hassle?

 

[Sunset]

Are you having the house built, or actually in charge of the construction yourself ?

If you are actually in charge of construction yourself, you will have more flexibility, and can move in before the house is done.
How long will the house construction take ?

 

[Badger19]

No, I'll have a GC. Construction estimated at 6 months.

 

[COcheesehead]

No, I'll have a GC. Construction estimated at 6 months.

6 months?

 

[wallygator69]

Agree 6 months? There are dozens of houses being built around us in the $500 to $700k price range. Not one is going to be done in a year. There are several that are coming up on two years. I sincerely wish you luck. Try getting it in writing with penalties for GC for being late. Bet they won't agree to penalties after a year let alone 6 months.



Wally

 

[Badger19]

Interesting, I'll take that into consideration. Any thoughts on keeping my Roth impact to $400k by using the sales proceeds from our current property, depending on sale timing?

 

[Aerides]

Ask your GC for a list of 5 homes in your area and size range that he managed to build in 6 months. Before you sign a contract...

When he can't do that, ask him for ones built in a year.

 

[wmc1000]

6 months from start date seems to be the norm here in southern indiana for semi-custom homebuilders but the custom builders are more like 9-12 months.

 

[Philliefan33]

In terms of timing, I think you should plan for the worst and hope for the best. Expect to store your things and live in temp housing between selling your current home and the new house being completed. It’s rare that the timing works out on both ends.

I think a mortgage on the new house gives you the most flexibility. Use a mix of tIRA/Roth/ proceeds from the sale for the down payment and options*, and a mortgage at closing on the new home. If the old home sells early in the process you will have cash available and won’t need to do IRA withdrawals. If not, you can manage the tax hit by limiting how much you withdraw from the tIRA. If the old home sells after the move, you can use the proceeds to pay off the mortgage (early or not).

*We recently moved in to our newly-built home in the same price range as your new build. We had to come up with cash for a down payment and 100% of any upgrades/changes we made to the home. We paid about $120K cash before we got to the settlement table.

We signed the contract in March 2022 and we’re told that the house would be ready in January 2023. They broke ground in August 2022; the house was ready at the end of February 2023.

Our move was made financially easier because we sold our old house in June 2022 for about the same amount as the final cost of our new house. That allowed us to pay cash at settlement. It also meant storing our things and living temporarily at our small vacation home.

My advice in regards to moving/storing things: if you are not absolutely sure you will use it at the new house, get rid of it. We moved things from a 3800 square foot house to two, 10’x10’ storage units then into a 2400 square foot house. We purged a lot of furniture and deco. I don’t miss a thing; in fact we shouldn’t have bothered storing the one bedroom set that we kept.

 

[street]

Just amazes me how long it takes to build a home. I not trying to boast or anything like that, but I built my home and was the GC. I had the shingling, sheetrock and plumbing jobbed out. The rest my wife and I did with help from family and friends. I worked on it before I went to work after work till dark and spent all my vacation and weekends building.

The bank where I took the loan from was very impressed with the quality and timely manner of the build. The bank wasn't exactly thrilled with giving me a construction loan and me being the GC. They just didn't know me and my drive and commitment and work ethic I had.

Three months almost to the day we were living in the home. I did have some areas to finish but could do them as I was living in it.

The home is 2000 square foot home and still living in it today. I added a large two stall garage a few years after I built the home.

Sorry I can't help on the questions that you are looking for but wanted to comment on construction build time. I wish you the best and hope for a good build and a timely one that they offered.

 

[COcheesehead]

We built a semi custom home in 2020. Broke ground early May, moved in right at Christmas. So 8 months, but the process really started in the prior December so more like 12 months. Be prepared to make changes as supply chain issues arise. We had to pick out fans three times. Flooring twice. Bathtub twice, etc.

 

[Badger19]

Thank you for your suggestions and experiences. We are building in a town of 10k and GCs build between 6 and 10 new homes per year. We're waiting to start early next spring so we have a summer/fall build. They don't take on more than that to prevent protracted build times. Biggest threat is supply chain but that has all but rectified itself after COVID and with higher interest rates.

 

[street]

Thank you for your suggestions and experiences. We are building in a town of 10k and GCs build between 6 and 10 new homes per year. We're waiting to start early next spring so we have a summer/fall build. They don't take on more than that to prevent protracted build times. Biggest threat is supply chain but that has all but rectified itself after COVID and with higher interest rates.

I hope you keep us informed about the new house build. Sounds very exciting and going through the process will make it even better after completion.