Paying off Home Equity with IRA

[cologolfer]

We are retired (77 & 70). We have a Home Equity loan of 64K. Monthly interest is $265.
We have $150K in IRA. We get $3.65 a month interest. Should we take money out of IRA to pay it off? Taxes are what worry me. How can we keep them low?

[MakeAStash]

Your loan's rate is only 2% over the 3% US long term inflation average. You should be able to invest the IRA to earn more than 2%, while pacing inflation too, so if your tax bracket is low you will be ahead financially by not paying off the loan early.

[Petunia 100]

We are retired (77 & 70). We have a Home Equity loan of 64K. Monthly interest is $265.
We have $150K in IRA. We get $3.65 a month interest. Should we take money out of IRA to pay it off? Taxes are what worry me. How can we keep them low?

There isn't enough info here to have an opinion. Do you need the IRA for income? Do you have other savings? Is the interest rate on the home equity loan fixed or variable?

I understand not wanting to take a lot of risk with your IRA money. But for goodness sake, why are you leaving it where the interest is so low? Online savings banks are FDIC insured. MYsavings Direct is currently paying 1.24% on savings. That would be $155 per month of interest, far better than $3.65. You could get 2.25% on a 5 year CD at Capital One 360, which is $281.25 per month. Even if you end up paying a penalty if you need to break it early, you'd still be far ahead of what you are doing now.

If you pull out 64k from your IRA, you will pay income taxes on 64k plus your other income. If you are not currently paying income taxes on your SS benefits, brace yourselves. This withdrawal will make your SS benefits at least partially taxable. Are you willing to share a bit about your income situation?

[corn18]

Definitely need more info.

Current income and expenses
Do you need the IRA for income?
Is the IRA pre-tax or post tax?
Do you have a mortgage in addition to the equity loan?
How much is the home equity payment?
What other debt do you have?
What is your total savings?

This will be required to make a good recommendation.

Tom

[bjl584]

not enough info, however my gut tells me that there is a better way to pay off a HELOC than by using an IRA.