He's 66, Retired, And Has $1.9M In An IRA — Should He Pay Cash or Finance a Vacation Home?
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A 66-year-old retiree is facing a dilemma that might sound familiar to anyone considering adding a little adventure to their retirement years: should he tap into his IRA to pay cash for a vacation home or take out a mortgage and let his nest egg keep growing?
He shared his situation in a recent Reddit post in the r/retirement forum. He's single, recently retired, and living comfortably thanks to Social Security and a pension. He has no mortgage and about $1.9 million in a traditional IRA.
Now, he's thinking about withdrawing around $400,000 to buy a second home outright, but he's not sure if that's the smartest move.
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Taking the Cash Route
"Can I afford to hit my ‘nest egg IRA' for about $400k?" the retiree wrote.
On the surface, paying cash might seem like the simplest option. No mortgage, no interest payments, and no monthly debt hanging over his head. And since he's not relying on his IRA for everyday expenses, he could technically afford the hit.
But here's where it gets tricky: withdrawing that much from a traditional IRA in one or two years could lead to a hefty tax bill. Because it's all taxable income, pulling out $400,000 could push him into a much higher tax bracket — and increase his Medicare premiums due to income-related monthly adjustment amount, or IRMAA, rules.
Still, some people in the Reddit thread pointed out a potential upside: by drawing down his IRA early, he could reduce the size of his required minimum distributions later. That could mean lower taxes in his 70s. For someone who doesn't plan to leave a large inheritance, that's something to consider.
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Financing Instead: Spread Out the Cost, But Pay Interest
The other option? Finance the home and just withdraw enough each year to cover the payments. That way, his IRA stays mostly intact and continues to grow for several more years. He wouldn't get slammed with a giant tax bill all at once.
But that plan comes with its own trade-offs. With mortgage rates around 6-7%, there's no guarantee that his investments will outperform that in the short term. Plus, there are still higher tax brackets and Medicare premiums to consider.
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