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Old 07-30-2020, 12:50 PM   #21
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In these uncertain times, I would not be rushing to pay off a mortgage. Cheap money and inflation hedge.

Paying taxes for the privilege of doing it would be a complete non-starter for me.
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Paying off Mortgage with Taxable IRA
Old 07-30-2020, 04:16 PM   #22
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Paying off Mortgage with Taxable IRA

Quote:
Originally Posted by gauss View Post
A bit off topic (but I think not too much) --

Do people understand that you can have an IRA invested in stable-value assets (such as an FDIC bank account)? It seems many equate "IRA" with "stock market investments."

Probably has something to do with the Wall Street/ retirement industry marketing campaigns.

I have seen others "cash out" their IRAs when the stock market took a dive because they didn't want to take the market risk any longer.

Unfortunately they did this via taxable IRA distributions of the funds -- all in the same year.

-gauss


Yeah I think they do realize it but itís ok to repeat. I implied as much way back in post #8. People are terrorized by these awful rates for bank savings accounts. One of the best ways to take advantage of crazy low rates is holding a mortgage. Thatís no help if someone wants out of the market completely.
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Old 07-30-2020, 06:18 PM   #23
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Maybe the right answer for us is to double up on the payments (additional going to principal only) for the immediate term. This allows us to stay liquid while at the same time keeping us in a lower tax bracket.

I have an appointment with our FA in a couple of weeks and our CPA that same day. Maybe they will like this plan a little better ..

I do appreciate the varied inputs to my inquiry. Ultimately, its our decision. We just want to get it right.
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Old 07-30-2020, 07:12 PM   #24
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I would recommend you ask your FA to set up a new/special account within your IRA. Put the entire mortgage amount in that account. Then have the mortgage bank, or your FA, set up the monthly payments...for however many years that 3.5% is supposed to be.
From a mindset standpoint, you have paid it off. You do not have to write a check each month...but at the end of your mortgage term, you will probably have a large sum of money to spend, give to charity, or pass on to your heirs.
You should be able to sleep well, and have a smile on your face each morning.
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Old 07-30-2020, 07:15 PM   #25
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^^^ Interesting sleight of hand!
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Old 07-30-2020, 11:12 PM   #26
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Originally Posted by pb4uski View Post
Where do you park your cars when you go to the property by boat? I'm guessing on a town road or parking lot or a piece of land that you own that is accessible by car.... so your rationalization is BS.

Also, if you don't pay your income taxes they wil throw you in jail too... if you don't keep paying you lose your freedom... so I guess the way you think that there is no freedom.
Not sure why this bothers you.

I park on private land and pay the owner for the parking. I bet the owner pays property tax to pay for the road to his land. Nobody pays tax for driving on the road.

The oddity of property taxes has nothing to do with income tax, so bringing that up is just adding another topic.
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Old 07-31-2020, 04:39 AM   #27
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Quote:
Originally Posted by levindb View Post
I would recommend you ask your FA to set up a new/special account within your IRA. Put the entire mortgage amount in that account. Then have the mortgage bank, or your FA, set up the monthly payments...for however many years that 3.5% is supposed to be.
From a mindset standpoint, you have paid it off. You do not have to write a check each month...but at the end of your mortgage term, you will probably have a large sum of money to spend, give to charity, or pass on to your heirs.
You should be able to sleep well, and have a smile on your face each morning.
A DIYer could do it with a virtual account they track on a spreadsheet or, if really wanting to lock in the payoff, rollover the amount needed to a separate IRA and setup payments there. They would still need to keep the amount in a stable fund, treasuries, or something to guarantee the payoff but the tax savings would be worth the hassle.
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Old 07-31-2020, 05:58 AM   #28
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Not sure why this bothers you.

I park on private land and pay the owner for the parking. I bet the owner pays property tax to pay for the road to his land. Nobody pays tax for driving on the road.

The oddity of property taxes has nothing to do with income tax, so bringing that up is just adding another topic.
The real oddity is the way you view property taxes. It bothers me because claiming that you don't really own land (or property) because you have to pay property taxes is such an ignorant way of looking at it that is foolish to perpetuate.

In our town, and I suspect yours, the cost of maintaining the public roads that you use to get to where you park to get to your island is funded by property taxes... all property owners share in the cost of maintaining the roads, contributing towards that cost based on the relative value of their properties since the tax rate is the budget (which includes the cost of maintaining the roads) divided by the grand list.

I have a very similar situation at my summer home. We are in a remote corner of the town and pay a boatload in property taxes and services are negligible... the only real services the town provides is to grade the road a few times a year and plow them in the winter.

Actually, many states have annual taxes on cars based on the cars' value... similar to a property tax... while they won't take your car if you don't pay it you just can't drive on public roads.

And technically they don't take your property away if you don't pay your property taxes... they sell it at public auction, reduce the proceeds from the sale for the property taxes in arrears and then you would get a check for any excess of the sale proceeds over the property taxes in arrears... then same as if you didn't make your mortgage payments and were foreclosed on and the sales proceeds exceeded the amount of your mortgage.
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Old 08-03-2020, 11:25 PM   #29
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Quote:
Originally Posted by levindb View Post
I would recommend you ask your FA to set up a new/special account within your IRA. Put the entire mortgage amount in that account. Then have the mortgage bank, or your FA, set up the monthly payments...for however many years that 3.5% is supposed to be.
From a mindset standpoint, you have paid it off. You do not have to write a check each month...but at the end of your mortgage term, you will probably have a large sum of money to spend, give to charity, or pass on to your heirs.
You should be able to sleep well, and have a smile on your face each morning.
This idea is pretty cool. However, I wonder if stock is a part of this special account (?) If so, if the market drop 50%, how does the OP sleep well then? Also, there would be on-going tax calculation to be worked out every year (I understand that the total tax to be paid is less than the "lump sum" withdrawal OP has planned). If stock is not part of the special account, then the remaining $ may not be that large.
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Old 08-04-2020, 12:25 AM   #30
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Let me address the tax situation first:

1. If the OP takes a large distribution to pay off the mortgage, then there is a significant likelihood that the amount withdrawn can push the OP into higher tax bracket(s) since the balance is so large.

2. The smaller annual withdrawals over 10, 20 or even 30 years will has less of on impact on taxes. Taxes need to be paid no matter what.

3. One reason to accelerate the payoff of the mortgage may relate to the changes n the tax tables planned for 2026.

On the risk of a market collapse:

1. Yes, that is a possibility. The mortgage is not the only thing that will have to be dealt with...so will living expenses. Having a larger total portfolio because the mortgage funds were NOT removed early, should make life better for the OP because he would have more flexibility to decide how he pays for food.

2. If the overall nestegg value dropped by 50% there will probably be sleepless nights ahead, there is no doubt about it. Having paid off the mortgage may let him sleep better, but now he needs to figure out how to buy food...which could keep him awake all night.

Overall, one has to manage risk and manage taxes...if, however, the emotional side of things controls ones life, then maybe they should not retire early; maybe they should not invest in stocks; and, maybe they should buy an annuity
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Old 08-04-2020, 04:19 AM   #31
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Quote:
Originally Posted by levindb View Post
Let me address the tax situation first:

1. If the OP takes a large distribution to pay off the mortgage, then there is a significant likelihood that the amount withdrawn can push the OP into higher tax bracket(s) since the balance is so large.

2. The smaller annual withdrawals over 10, 20 or even 30 years will has less of on impact on taxes. Taxes need to be paid no matter what.

3. One reason to accelerate the payoff of the mortgage may relate to the changes n the tax tables planned for 2026.

On the risk of a market collapse:

1. Yes, that is a possibility. The mortgage is not the only thing that will have to be dealt with...so will living expenses. Having a larger total portfolio because the mortgage funds were NOT removed early, should make life better for the OP because he would have more flexibility to decide how he pays for food.

2. If the overall nestegg value dropped by 50% there will probably be sleepless nights ahead, there is no doubt about it. Having paid off the mortgage may let him sleep better, but now he needs to figure out how to buy food...which could keep him awake all night.

Overall, one has to manage risk and manage taxes...if, however, the emotional side of things controls ones life, then maybe they should not retire early; maybe they should not invest in stocks; and, maybe they should buy an annuity
The decision at this point is to double up on the mortgage payments and allow what we have to continue to grow over time. If at some point we feel/believe that things will go south economically, we will just pay it off and suffer the tax consequences. As far as how to pay for food, this is one of the things why we bought a farm - is to get to a place of self sustainment so we don't have to rely on the system to provide us with the basic necessities.
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Old 08-04-2020, 09:23 AM   #32
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Can I Retire Now,
I emotionally feel the same way you do. Regardless of financial logic, it is very satisfying to have no debt.



When my wife and I were still paying for our primary home, we started paying extra principle each month, and we did end up paying off a 30 year loan in about half the time. When it was paid off, we started maxing out our Roth accounts with the extra monthly money.



I believe if there is an advantageous time to pay down a mortgage, it is in the first third of the loan term, when each payment is primarily going heavily towards interest.



I'm in the same position as you. I recently purchased a second home, and took out a 30 year mortgage. I'm not paying it off immediately, but I did end up paying off a big chunk of it with money that I had in a Roth account. I still have a decent amount in my Roth accounts for liquidity.



It reduced the loan from a 30 year loan to a 11 year loan. My plan is pay the remaining amount monthly for the next 11 years. A compromised approach?



Take care, JP
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Old 08-04-2020, 03:58 PM   #33
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Quote:
Originally Posted by levindb View Post
Let me address the tax situation first:

1. If the OP takes a large distribution to pay off the mortgage, then there is a significant likelihood that the amount withdrawn can push the OP into higher tax bracket(s) since the balance is so large.

2. The smaller annual withdrawals over 10, 20 or even 30 years will has less of on impact on taxes. Taxes need to be paid no matter what.

3. One reason to accelerate the payoff of the mortgage may relate to the changes n the tax tables planned for 2026.

On the risk of a market collapse:

1. Yes, that is a possibility. The mortgage is not the only thing that will have to be dealt with...so will living expenses. Having a larger total portfolio because the mortgage funds were NOT removed early, should make life better for the OP because he would have more flexibility to decide how he pays for food.

2. If the overall nestegg value dropped by 50% there will probably be sleepless nights ahead, there is no doubt about it. Having paid off the mortgage may let him sleep better, but now he needs to figure out how to buy food...which could keep him awake all night.

Overall, one has to manage risk and manage taxes...if, however, the emotional side of things controls ones life, then maybe they should not retire early; maybe they should not invest in stocks; and, maybe they should buy an annuity
All your points are fair. I take the last paragraph as your personal view point which is fine. Personally, I slightly disagree with that as I think the emotional side of things is as important for someone's well being (particularly in retirement). I just want to add the above to color up the discussion (to be fair, you didn't ask for my opinion ). Thanks for your response.
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