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I have 125,000 in a 403b and just retired. I plan on relocating to Florida and want to purchase a mobile home that costs 45,000. How can I finance the purchase? A mortgage with my credit union with payments coming from my 403b? Or just take a lump sum out of my 403b?

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Do you think your 403b will earn more than the mortgage interest rate? If so, then mortgage seems the way to go. Conservative investment strategies might not earn much more than a 3-4% mortgage, and if you're paying 5-6% it's more likely you'll be earning less than the mortgage.

From another point of view, though, I would probably take a loan anyway just from a security standpoint - you have more risk if you put a third of your retirement savings into one purchase directly, whereas if you do a 10-15 year loan, you'll have more of a cushion. Also, if you don't outlive the mortgage, you'll have had use of more of your retirement income than otherwise - though I do wonder if it puts you at some risk if you have significant medical bills (which might require you to liquidate your 403b but wouldn't require you to sell your house, so paying it off has some upside).

Also, as @chili555 notes in comments, you should consider the taxation of your 403(b) income. If you pull it out in one lump sum, some of it may be taxed at a higher rate than if you pulled it out more slowly over time, which will easily overwhelm any interest rate differences. This assumes it's not a Roth 403(b) account; if it is Roth then it doesn't matter.

  • What about the tax consequences of withdrawing $45,000 from the 403b? – chili555 Jul 28 '16 at 21:19
  • @chili555 Hmm. I guess I didn't really think $45k was likely to move the tax needle much (as it's small enough that, at least for me, in retirement I don't think it would end up in a higher marginal rate). But it's a good thing to consider - you might want to mention that in an answer. – Joe Jul 28 '16 at 21:39
  • It's not the marginal rate; it's the tax itself. If I have to pay say 6% in tax for a withdrawal from my 403b, then a 4% (possibly deductible) mortgage instead is by far the better deal, no? – chili555 Jul 28 '16 at 21:53
  • But you will always pay tax on the withdrawal. Only diff is do you pay it all now or over time, maybe you have lower marginal rate over time. – Joe Jul 28 '16 at 21:55
  • @chili555 - how can someone have a marginal 6% federal tax bracket? 10/15/25, not 6. – JTP - Apologise to Monica Jul 29 '16 at 1:16

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