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Maybe someone here can help me figure this out.

I turned 59 1/2, and I have an IRA with about $500K. My wife has recently semi-retired and has started taking her social security, but I am still working and plan to for 5 years. I have a mortgage, for about 320K on a house with about $750K value.

I also have a HELOC that I established to clear out the kids education expenses. It is about $175K, and currently I am paying interest only. Interest right now 5.75%, so payment is about $762/mo.

I'm thinking I'd like to clear it out, but of course, my traditional IRA means a hefty tax on it. Without a big withdrawal, we'd be with the 22% rate, but (by my calculation) with would soon be into 24% bracket with a big withdrawal. (Oh, yeah, and we live in CA, so 9.3% marginal rate.

Considerations:

  • I will need to pay minimum 1% per month in principal starting in 7 years, plus interest. If we don't pay it off, that'll be a tough payment to make ($2250).
  • HELOC rate is adjustable, and might be 6.50 in a couple of years.
  • HELOC interest is not deductible.
  • Paying an extra 2% tax
  • Market has been good to my IRA -- but, to me, it seems like it may be near a top.
  • Tax rates are comparatively low right now.

Without starting any fights, I'd say there is significant chance that party controlling the White House could change in 2020. This could mean both that:

  • the Market could drop, possibly very fast
  • the tax rate could be adjusted higher

My financial advisor has suggested that the conservative investments I should be in are likely to be less than 6% moving forward, so maybe a withdrawal makes sense. But the tax considerations make it difficult.

Anyone have any thoughts? Anything I forgot to think about?

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    The party controlling the White House cannot change in 2020. The election is in 2020, but Trump's term lasts until January 2021. So you at least have two tax years to play with (2019 and 2020) before any tax changes can happen, and if you take your withdrawal in the first half of 2020, the market won't be affected by (predicted) election results either. – Ben Voigt Mar 17 at 0:11
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    It's also quite possible that a change in the occupant of the White House could improve the economy. No way to tell at this point. – jamesqf Mar 17 at 4:28
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    Do you have to pay off the HELOC in one go? Could you e.g. withdraw enough to top out the 22% tax band each year and do it more slowly? Also can you keep the money in the IRA but shift it to something less risky? – Ganesh Sittampalam Mar 17 at 8:22
  • Is there a reason you haven't considered refinancing your mortgage, so that the (probably lower than HELOC) interest would be deductable? – jamesqf Mar 17 at 17:55
  • @jamesqf That's commonly misunderstood. Mortgages are deductible up to the limits to the extent they are used to "buy, build, or substantially improve your home". bobwki do you have enough assets to be able to afford the house and retire if you can't afford the heloc payments? – T. M. Mar 18 at 0:24

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