Liquidating an Asset so you can do a Cash Purchase? Read this First.

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 33% 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 - $2,900 / year

 

If you use cash from a non-traditional retirement account, you might not need to pay taxes when you use the money. However, a mortgage could still make sense in that situation. The bottom line is that you need to compare the after-tax cost of the mortgage with the after-tax rate of return you could otherwise be receiving on the money. It is always advisable to consult with licensed financial and tax professionals when evaluating strategies that impact your tax and financial situation. It is also advisable to consult with a Certified Mortgage Planning SpecialistTM(CMPS®) when navigating today's turbulent mortgage and real estate marketplace. As a CMPS® professional, I am committed, qualified and equipped to help you evaluate your mortgage options! Contact me for more information! Clint Hammond, CMPS® Mortgage Network, Inc. 7011 Garners Ferry Road Columbia, SC 29209 803-771-6933 direct 803-771-6944 fax chammond@mortgagenetwork.com http://www.clint-hammond.com