60 Minute Finance
Born and raised in Virginia, John passed the CPA exam before graduating from Virginia Commonwealth University and beginning his career at a “Big-8” accounting firm in 1987.
After two years in public accounting, he accepted employment with a client and rose through the ranks in private industry. Desiring to work in a more diversified environment, John started his own accounting practice in 2000 and added financial coaching services in 2013.
John resides in Hanover County, Virginia with his wife and children. He is active in his church, enjoys finishing a good run or workout at the gym, and leads personal finance classes in the community.
In addition to 60 Minute Finance, John is also the owner and president of Riverpine Services, Inc. Riverpine Services, Inc., provides freelance accounting services to a select number of small businesses throughout the region. In 2016, John moved to a part-time roll with Riverpine to focus his attention and energy on his personal financial education efforts.
BS, Accounting, Virginia Commonwealth University
The recommendations provided on 60 Minute Finance are educational in nature and not intended to be specific recommendations for any particular individual. Our goal is to educate and inform our readers and clients of available options, with the ultimate decision being theirs. Please consult the appropriate tax, investment, insurance or financial planning expert before making any final decisions.
Based on the numbers you've provided, you will owe tax on $9,934. The amount you will owe depends on your marginal tax bracket. Be sure to also consider any state tax liability.
I'd recommend setting aside an appropriate amount of the $20,303 proceeds to cover the tax bill. You certainly don't want a nasty tax surprise next April 15th! It may be appropriate for you to make an estimated tax payment, but it would depend on your exact situation. A converation with your tax professional may help determine the amount of taxes you will owe, as well as if you'll need to make a estimated tax payment.
Your contribution limit isn't reset by moving your existing Roth IRA balance to a new account. I'd recommend calling American Funds to determine how much you've contributed toward the 2017 contribution limit of $5,500. You will eventually get IRS Form 5498 providing your 2017 contributions, but you most likely won't receive it until after the 2017 contribution deadline of April 17, 2018.
Give them a call. I'm sure they can provide you the information.
Great question. Without the specific numbers for your situation it's hard to give a complete answer. In general, though, it rarely makes sense to take a lump sum out of your retirement plan to pay off a mortgage.
- How much is in your plan? And how much would be left after paying off the mortgage?
- What is your taxable income expected to be this year? Next year?
- What tax bracket would you be pushed into if you took out a lump sum?
- What are your other forms of retirement income? Would they enough to cover your expenses if you took a lump sum out of your 401k?
- How much is the short-term debt? How/when would this be paid off?
- Do you itemize? Will you continue to do so under the new tax law?
I really like the idea of being debt free in retirement. The elimination of the debts will reduce the amount of available cash you'll need each month, extending the life of your retirement stash.
I'd recommend working a bit longer to eliminate the short-term debt and make more progress on your mortgage. If you'd still like to use your 401k to pay off the mortgage, consider spreading the payoff over several years to reduce the taxes due on the withdrawal.
Enjoy your retirement!
The only options I'm aware of are:
- Work out a payment plan with the current lender, or....
- Take out a personal loan elsewhere and make the payments.
If she falls behind with the current lender - and if she is able to collect up some cash - she may be able to settle for a discounted amount.
Best of luck.
No, the Roth IRA would not have an RMD like the Roth 401(k) does. That's a great feature of Roth IRA's! Of course, any non-spouse recipient of a Roth IRA would have to take an RMD, but at least it would not be taxable to them either.