- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Report Inappropriate Content
Retirement tax questions
There’s one other thing that comes in to my mind. You have 60 days from taking a distribution to return it without penalty. If you are past the 60 days, then there’s no point in reading any further. But if it is within the 60 days, you might consider returning some or all of the money and using a home equity loan to finance the remodeling.
You’re going to pay 35% federal tax on this income. If you could get your taxable income under $165,000, you will only pay 24% income tax. (Taxable income is your gross income minus your standard deduction or your itemized deductions.) suppose you withdrew enough money to make a down payment on the remodeling but keep your total taxable income under $165,000. Finance the rest of the remodeling with a home equity loan which might have an interest rate of 5 or 6%. By leaving the rest of the investments in the retirement plan, you probably are earning more than 6% so you will come out ahead on the investment income. Then, there is no reason to keep the equity loan for 15 or 30 years. You can pay it off in just a few years by making future withdrawals from your retirement plan, keeping each year‘s withdrawal just large enough that your total income remains in the 24% tax bracket and does not go into the 32% or 35% tax bracket. You would still have a debt-free house in a few years, and you would save maybe $30,000 in income tax. Best of luck either way.