Tax Smart Refinancing

Key Takeaways

  • When you get to age 70.5, mandatory withdrawals can wreak havoc on your carefully laid retirement and savings plans.
  • There are many different things you can do with your assets, mortgage and loan arrangements to achieve legal, low-risk tax solutions.
  • Even in your early retirement years, refinancing your mortgage can be advantageous. See below.

*** Take advantage of our complimentary second opinion service and our popular workshop “Author a Book in 90 Days.”

A client recently asked if we could do a post about a financial challenge they were having, thinking it might be helpful for others who read this blog.

This client is a retired married couple, age 69. They have about one more year before they’re required to start taking mandatory withdrawals from their IRA at age 70.5. Throughout their retirement so far, they’ve been using money from their nonqualified funds–personal accounts, joint accounts and revocable trust accounts. They’ve been drawing them down, and paying low taxes all the way.

So far, so good, but this year, a year before they have to start taking mandatory withdrawals, they need another $50,000, which they plan to take from their IRA. Since they’re in the 30 percent bracket (federal + state combined), they’re facing $15,000 in taxes.

When they asked if there was a way to avoid that tax bite, I replied, “Well, you’re sitting in it right now. In your home.” A lot of people want their mortgage(s) completely paid off in retirement. But this couple was intrigued. I told them they could refinance their current home (at half a percent lower – 3.25% – than when they refinanced five years ago, incidentally), and they could take $50,000 cash out of the refinance. That money is not taxable, and they can use it to live on between age 69 and 70.5.

They were happy to learn they’d be saving $15,000, and even though their new mortgage would go up a little, they’d still be able to pay it off in 10 years as originally planned.

As a result, they’re saving $15,000 in taxes and they’re reducing the interest rate on their mortgage. As you might have guessed, there’s still that $50,000 in their IRA. Will that $50,000 still be worth at least $50,000 down the line? Can you make enough money to beat the interest rate on the mortgage?

The net is 2.5 percent after taxes that they’re basically paying to borrow that money. So could they make more than 2.5 percent on that $50,000 if they had drawn it out? Well, we would say generally the money needs to earn 6 percent over a 10-year period. But even if the interest rate goes all the way down to 5 percent, 4 percent or even 3 percent, it’s still better than 2.5 percent.

This is not a high-risk strategy, and it can solve a current issue right now. It’s not right for all of you right now, but there are a lot of different things you can do with assets and different kinds of loan arrangements to achieve real-world solutions.

Don’t hesitate to call if you or a loved one would like a creative solution or a second opinion about your financial situation. And don’t forget about our popular workshop “Author a Book in 90 Days,” offered next on June 30th.


800-480-7913 |

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