I'm seeking guidance on the trade-offs involved in withdrawing a lump sum from my retirement accounts for a home purchase. I'm 63 and plan to retire within two years, at which point I will sell my current house and move to a more expensive home in a new town. I prefer not to take out a mortgage in retirement, so I anticipate the need to remove at least $100K from either my 401K (current value $1.25M, containing both pre- and post-tax contributions) or my Roth IRA ($120K). What issues should be considered when deciding to withdraw from the 401K vs. the Roth IRA? (Just in case it's relevant, my other assets include non-retirement savings & investments amounting to $220K and my current paid-for home worth about $200K). Thanks in advance.
Advice on lump-sum retirement withdrawl?
Nov 18, 2013
1 Replies
I'd run the number through a tax software package. TurboTax for 2013's return will be out soon. The Roth should be a zero tax withdrawal, but the 401(k) not all tax free, so I'd first consider what bracket you are in and what an incremental $1000 costs you in taxes. I'd suggest that a taxable lump sum should be avoided, at worst, break it up over 2-3 years if you can.
Keep in mind, regardless of what bracket you fall into or what tax you will have paid, a 401(k) withdrawal requires a 20% withholding. And you reconcile the following April.
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