$500k+ Too much in VMFXX inside IRA?

[Jade A.B.]

I apologize for a basic question.

I have $500k+ in VMFXX in my IRA? Not usually a worrier, but I have a lot in VMFXX because of a potential home purchase soon. I did a skim of posts --though not a deep dive --'and didn't see a previous answer. Should I move some to our joint taxable account with the incurring taxes now, though we haven't found a house yet.

I really appreciate your wise input.

Jade A.B.

[muffins14]

I would not incur the taxes until you are certain you will close on the house

[retired@50]

I would not incur the taxes until you are certain you will close on the house

Me neither, but I wonder how the OP wound up in the position of having house down payment money stuck inside an IRA?

Unless we're talking about a first time home buyer situation.
See link: https://money.usnews.com/money/retireme ... uy-a-house

Regards,

[Freeadvice]

Why house money in an Ira account? You can’t take out $500,000 all at once without a huge tax hit.

[muffins14]

They could already be retired and 59+

[Jade A.B.]

Yes, it wasn't the best idea to have moved so much into cash, , but we had a bid that fell through. And some taxable cash went into fixing up our current home for sale.

And yes, I'm fairly, ahem, mature. Should have said Rollover IRA at Vanguard.

I appreciate the suggestion to wait until a bid is accepted.

Jade A.B.

[mkc]

Yes, it wasn't the best idea to have moved so much into cash, , but we had a bid that fell through. And some taxable cash went into fixing up our current home for sale.

If you are selling the current home, is the pull from the IRA solely or mostly to cover you until it sells and you get the $ from the sale? If so, definitely consider a bridge/gap loan.

[retiredjg]

If you still have a good sum in taxable, you can buy the house from taxable and exchange some of the bonds in the IRA to stocks to replace the stocks you no longer have. This would avoid paying tax on a $500k withdrawal from IRA in a single year.

[Jade A.B.]

MKC, Thanks so much for your idea. I don't know much about bridge loan but will do some research!

Yes, the $ is for a hopefully short period. We have missed out on a couple of bids to cash buyers so thought we would go that way.

Jade A.B

[Jade A.B.]

RETIREDJG

That is an idea.we need to consider and compare numbers on, you're right. We do have a good amount, though the basis would incur a good bit of taxes also.

Thanks. Jade A.B.

[retired@50]

RETIREDJG

That is an idea.we need to consider and compare numbers on, you're right. We do have a good amount, though the basis would incur a good bit of taxes also.

Thanks. Jade A.B.

According to this link you'll be paying over $109,000 in income taxes for a $500,000 withdrawal from a tax-deferred IRA. Assumes Married Filing Jointly, for tax year 2023.

Regards,

[Jade A.B.]

Retire@50

Thanks for the link. I was actually calculating more. I'll have to play with this. We're in a low bracket for last year, sure won't be next

Jade A.B.

[retired@50]

Retire@50

Thanks for the link. I was actually calculating more. I'll have to play with this. We're in a low bracket for last year, sure won't be next

Jade A.B.

That website that I linked doesn't typically include what is known as the Net Investment Income Tax, which may come into play. Modeling the scenario in tax software (e.g. turbo tax) would probably be the most accurate way to get an estimate.

Regards,

[delamer]

Incurring all those taxes by withdrawing from a Traditional IRA is a huge mistake.

Have you looked into a cash-out refinancing or HELOC against your current home to give you the cash you need?

[Northern Flicker]

Talk to a mortgage broker to see what you can qualify for. A HELOC on your current property or bridge loan seem like better options. 100% financing or 5%-down financing on the purchase that is paid off and/or refi'd after the sale of your current home also seems like a better option than cashing out the IRA.

[riverant]

Retire@50

Thanks for the link. I was actually calculating more. I'll have to play with this. We're in a low bracket for last year, sure won't be next

Jade A.B.

There are surely better ways to fund this home than pay six figures in taxes. Any mortgage rate offered would surely save you a significant sum.

[Freeadvice]

They could already be retired and 59+

But still subject to income tax.

[Jade A.B.]

Thanks for all the great ideas and thoughtful responses, Retire@50, Riverant, Delamer, Northern Flicker, and Freeadvice

I had not considered a HELOC or bridge loan. I will indeed talk to a mortgage broker before we move forward.

Jade A.B.

[Northern Flicker]

Good luck with the transactions. You also may be able to sell your house with occupancy after closing in the contract and be able to use the cash from the sale to close the purchase of a new house and then move into it.

[Artsdoctor]

Bridge loans are very common and I would strongly encourage you to look into them. It will cost you a pretty penny to take everything out of your IRA all at once.

[Jade A.B.]

Riverant and Artsdoctor, thanks for emphasizing an unexplored direction I need to focus on! I appreciate the input.

Jade A.B.