Liquidating Assets to Fund Your Home Purchase? You have other options.

Liquidating Assets? You Have Other Options!

If you are considering liquidating assets from a traditional retirement account for your housing needs, read this document first! Low mortgage rates can save you tens of thousands of dollars in taxes and lost opportunity cost.

Consider this example:

$100,000 net funds needed for down payment or cash purchase

$133,333 gross withdrawal required if you are in a 25% income tax bracket

Withdraw $133,333, pay taxes and walk away with $100,000

$138,889 gross withdrawal required you are in a 28% income tax bracket

$149,254 gross withdrawal required you are in a 33% income tax bracket

$153,846 gross withdrawal required you are in a 35% income tax bracket

Instead, borrow $100,000 @ 5% and keep your $133,000 - $153,000 invested

Avoid drawing down retirement accounts after loss

Participate in market gains after bear market

After all, if you avoid paying 5% interest on the $100,000 mortgage, you would actually be losing 5% interest (or more) on $133,000-$153,000 that you withdrew from the retirement account. This is called the "opportunity cost" of money. The $100,000 mortgage would cost you interest, but the $133,000-$153,000 withdrawal would also cost you "lost interest", or, interest that you could be earning if you would have kept those funds invested:

Opportunity Cost Mortgage Interest Cost

Funds Needed $100,000 $100,000

Funds Used (25% tax bracket) $133,000 $100,000

Opportunity Cost % 5% -

Opportunity Cost $ $6,650 -

After-tax Mortgage Cost % - 3.75%

After-tax Mortgage Cost $ - $3,750

Savings