Financing home remodel

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
bruination
Posts: 11
Joined: Thu Sep 25, 2014 11:20 am

Financing home remodel

Post by bruination » Fri Jan 11, 2019 5:26 pm

My wife and I are remodeling our kitchen to the tune of about $50K. We are both over 59 1/2. I am trying to determine the best way to finance the remodel. My first inclination was to withdraw $50K from our deferred compensation accounts (IRA, etc.) and take the tax hit. But would borrowing the money be better? (I've been looking for a calculator to help me here, but can't find one.)

One thing I just discovered that could help is to withdraw $ from my wife's Health Savings Account for the qualified health care expenses we (she and I) have incurred over the last few years since she established the HSA since we paid out of pocket for them at the time. That way, the withdrawals would be tax free and we could use the $ to pay part of the remodel cost. It's actually a tidy sum, but we still need to look at the IRA withdrawal vs. loan question for the balance.

Any thoughts?

Jimmie
Posts: 263
Joined: Tue Mar 07, 2017 7:05 pm

Re: Financing home remodel

Post by Jimmie » Fri Jan 11, 2019 5:51 pm

My GF and I are similar aged. We are considering a similar remodeling project, but probably "only" $25K. I am leaning toward a HELOC.

carolinaman
Posts: 3410
Joined: Wed Dec 28, 2011 9:56 am
Location: North Carolina

Re: Financing home remodel

Post by carolinaman » Sat Jan 12, 2019 7:40 am

I would prefer borrowing the money, ideally a HELOC. I find whenever I have used HELOC, for cars or home improvements, I am very aggressive in repaying the debt. For whatever reason, I am much more aggressive repaying debt than I am saving. A human behavior thing I guess. Also, once you withdraw from a tax deferred account, you will likely have limitations in getting the money back in such account.

Millennial
Posts: 199
Joined: Tue Mar 25, 2014 4:46 pm

Re: Financing home remodel

Post by Millennial » Sat Jan 12, 2019 7:48 am

This is very tough to answer without understanding your current retirement and non retirement savings, expenses, income, and home equity. I might revise this based on more information, but my gut is to put the options in this order (best to worst):

1 - save and wait on the renovation until you can pay for it

2 - heloc or similar

3 - don't do the reno

4 - withdraw from retirement accounts

Might have #2 and #3 swapped?

Topic Author
bruination
Posts: 11
Joined: Thu Sep 25, 2014 11:20 am

Re: Financing home remodel

Post by bruination » Sat Jan 12, 2019 1:01 pm

Thanks for the reply. I see that there are a lot of factors involved.

There is currently no problem with paying for the remodel. My wife and I are both retired and have adequate funds for the remodel and our future needs. (Of course, no guarantees!) Our house is paid off. We have been withdrawing the funds needed to meet our expenses from deferred comp for a couple of years now.

The issue is that virtually all our funds are in deferred comp and the remodel needs to be funded with a big chunk (i.e., about $50K).

My main concern is funding the remodel in the most cost-effective manner. So I'm struggling with deciding on whether to just withdraw the big chunk or borrow (HELOC or similar). I guess what it boils down to is how much withdrawing the funds would cost in taxes and lost earnings compared to how much a loan would cost in interest.

Thanks again for the reply....

Post Reply