Transcript:
Easan Arulanantham:
Should I take money out of my Roth to pay for pay to pay off my mortgage or pay off a car note?
Tom Vaughan:
Yeah, okay. So let’s say you’ve got your mortgage, and you’re just trying to get rid of it, it’s kind of an irritant, and you’ve got this money in a Roth IRA. Right. So that’s kind of the scenario. And you’re looking at that. And one thing about a Roth IRA, that’s kind of ironic is that it’s very easy to get money out of, because there’s no tax consequence. If it’s in an IRA, and I pull 200,000 out to pay off my mortgage, you know, you’re gonna have to pull probably 300,000 out to pay the other portion in tax. If it’s in a, you know, regular taxable account, if I have a big gain on that, then I’m going to pay tax on that gain. And that really hampers the ability to pay down that mortgage. Whereas with a Roth, if I have a 200,000, I can take 200,000 out, it’s tax free, right. And I could pay off that mortgage, I would not do that. Personally, it is so hard to get money into tax free growth, especially this type of tax free growth that can be invested in the stock market. I would not give that up.
And in fact, we recommend that you leave that asset alone until the last time, what you know, take your money from all of these other sources leave the Roth for the long term. First of all, it’s a great inheritance, it’s better inheritance, and you know, most things. So if you don’t use it, that’s good for whoever your beneficiaries are. But regardless, it still allows you to have tax free growth. So if you’re averaging 10% A year or something in your Roth IRA over the long term, that’s tax free, that’s unbelievable. And to give up 200,000 of that, and, you know, maybe live another 2030 years, or whatever it might be, you know, especially since these rates on mortgages, you know, are fairly low, you know, kind of in that 2.75 to 3.75 range, you know, depending on situation. And I think, you know, I would figure out, maybe refinance, if you’re at that 3.75 range and try to get lower, use that extra money to pay to the IRS to pay off the mortgage faster, there’s just there’s a lot of different things that I would look at, I would really, really, really recommend strongly protect the Roth IRA assets that you have, don’t use those unless you absolutely have to, if you’re out of money and other areas, that that’s what it’s for, use it. But if you have money in other areas, and there’s some other way to do it, then to do that, first, the Ross should be the very last thing that you take money out of.
Easan Arulanantham:
So would you say taxable accounts first option, then maybe your IRA, and the last option is your Roth?
Tom Vaughan:
Yeah, in general, that’s exactly right, as you know, can be a little bit specific to people. But the general recommendation is that a sequence of withdrawals is taxable tax deferred tax free. So exactly right, you’d go after your taxable assets first have any, and then you’d look at your tax deferred assets, again, but you got to be careful there because if you’re under 59, and a half, that can be really expensive, it pay tax plus penalties. And so you know, there’s maybe there’s a loan option that you can use against your 401k, or something like that, to get around that aspect of it, if you need to take out a loan of your 401k to pay off a loan in your house doesn’t make a lot of sense to me. But, you know, if you needed it for something else, but yeah, that in general, speaking that that’s the lineage. But that’s why we’re here, honestly, you know, these rules of thumb that people are trying to grab on to and do their own financial planning and their own work, are difficult to apply to your specific situation. And you could make some mistakes, honestly, pretty easily by not knowing all the things and, you know, as you know, we’ve done over 6000 financial plans and meet with clients constantly. And so we got this feedback loop that’s coming, hey, this is really working. And this isn’t working. And that helps. And that’s something that you know, you pay for as far as that goes. And if we’re doing our job or paying for ourselves, that’s that’s the key. It shouldn’t be an expense to you to hire a financial advisor. If they’re doing their job. You know, if their rates of return for us we manage assets are good, and then all of the other things, saving taxes, saving you from these tax time bombs, like these big IRAs and things, you know, we’ll pay for ourselves and that’s why people stay with us, because we do pay for ourselves so that you know, that that’s the object that’s what we try to do constantly.