Two years into what you’ve dubbed Retirement Stage One (the first six to seven years when you do your long-planned European and South America biking and hiking vacation trips while still keeping up some income flow through part time work), you’ve become concerned about Stage Two. You’ve read numerous reports about the fact that, twelve years from now (by which time you’d planned to be fully retired and focused on hosting gatherings in your home rather than on traveling), Social Security benefits are scheduled to be significantly reduced. In fact, while neither of you has yet claimed benefits, the plan was to start them year after next; your careful calculations don’t work well if, in fact, there is to be a 22% reduction in benefits.

One option to consider by way of “insuring” against that projected future cut in Social Security benefits is a reverse mortgage refinance. By using your housing wealth to build a reservoir of funds that can be used later on to supplement reduced social security income, you will be able to seamlessly execute your “Stage One-Stage Two” retirement plans. As you continue your Stage One biking/hiking adventures (keeping up your property taxes, insurance, and regular maintenance of the home) not only will no payments be due, but your reverse mortgage line of credit will actually be growing.

With a reverse mortgage, your home itself will function as insurance against future reductions in social security benefits.

https://mutualreverse.com/david-garrison/

David Garrison
Home Equity Retirement Specialist
NMLS # 1595194
Serving the State of Indiana
p (317) 644-2595 c (765) 516-0130
e [email protected]

2169 East Rutland Lane, Martinsville, IN 46151
Corporate NMLS #1025894

While the two of you had long ago made clear that your children were expected to manage their own affairs once they’d graduated and left the nest, life has not followed the expected pattern. Because of some mental health issues, one of your daughters has been forced to give up her full time employment. With her companion having abandoned her, moving out of their apartment, you have been helping your daughter financially. What appears to you to be the best course of action is having her live with you for awhile as continues her therapy and her part-time work. Six months remain on her apartment lease, and in that time you want to convert one area of your home into a studio “apartment” for your daughter.

No, this is probably not the picture you’d had in mind when you retired seven years ago, but you’re ready to “step up to plate”, knowing your daughter deserves the chance for a new start. After much research, you believe you’ve found contractors who can complete the project within the six month timeframe. However, the cost estimates indicate you’d need to liquidate a hefty chunk of your savings and investments.

Instead of tapping into your invested assets, consider using your housing assets to meet your home remodel needs. A reverse mortgage set up as a “line of credit” will enable you to make tax free withdrawals to pay the contractors as the remodeling work progresses.

Sometimes moving forward requires approaching matters in reverse!

https://mutualreverse.com/david-garrison/

David Garrison
Home Equity Retirement Specialist
NMLS # 1595194
Serving the State of Indiana
p (317) 644-2595 c (765) 516-0130
e [email protected]

2169 East Rutland Lane, Martinsville, IN 46151
Corporate NMLS #1025894

At a recent social gathering, friends of yours mentioned that they’d narrowly succeeded in winning the bid for their new home only because they’d been able to make a cash offer. The only way they’d been able to raise that cash before selling their prior home, they revealed, was that they’d. borrowed money using the stocks in their brokerage account as collateral.

Since the two of you are planning to relocate within the year, this tactic sparked your interest. You became quickly disabused of the notion after discussing the possibility with your own financial advisor. He explained that, if the assets you’d be using as collateral were to fall in value, you’d be forced to sell those holdings (possibly owing tax) to satisfy the debt. What’s more, you realized, you don’t have nearly enough in assets (other than investments in retirement accounts) to make a big difference in your home-buying plans. You’ve both retired ten years ago, and the goal is to downsize to a smaller, but more updated home in a 55+ community.

A HECM (Home Equity Conversion Mortgage) might offer one way to accomplish your goal. The concept – you would be financing the purchase of your new residence with a combination of a one-time down payment and a Lifestyle Loan (another name for a HECM for Purchase). The pre-qualification process for the HECM will ensure that your offer will be treated seriously, and remember – as long as the new house remains your primary residence, there will never be a requirement to make mortgage payments.

Meanwhile, in order to finance the cash down payment, you might consider a short term draw from your IRA or 401(k). Subject to IRS rules, if you replace the funds within a 60 day timeframe, you can avoid paying tax on the withdrawal.

This combo may not have the power of an all-cash offer to the home seller, but your pre-approval on the reverse mortgage will be a strong sign of your serious intention to buy the new home. In a way, you’ll be approaching the home-buying process in reverse!

https://mutualreverse.com/david-garrison/

David Garrison
Home Equity Retirement Specialist
NMLS # 1595194
Serving the State of Indiana
p (317) 644-2595 c (765) 516-0130
e [email protected]

2169 East Rutland Lane, Martinsville, IN 46151
Corporate NMLS #1025894

The hot topic in income tax and estate planning is converting traditional IRAs to Roth IRAs. When this occurs, the IRA is income taxed at the time of the conversion at the IRA owner’s ordinary income tax rate. Typically, the income tax is paid out of the traditional IRA funds reducing the benefit of the Roth Conversion.

David Garrison and I have been discussing over the last number of months using a taxpayer’s home equity to pay the income taxes on the Roth Conversion. Here’s how it works:

The taxpayer converts $1,000,000 Traditional IRA to a Roth IRA. On the conversion, the taxpayer is going to incur approximately $400,000 of income taxes depending on his or her state (this perhaps can be reduced by staging the Roth Conversion over a number of years).

The benefits of a Roth Conversion are:

• Invested funds in a Roth IRA are not subject to Required Minimum Distributions (“RMDs”)
• Funds can be withdrawn tax-free during life or after death, which is a significant benefit if you want to combine your Roth IRAs on your death with protection planning using trusts for the benefit of your children
• Funds in a Roth IRA grow tax free until 10 years after the death of the Owner (subject to certain other complex rules that require small RMDs after Roth IRA owner’s death if death occurs after age 72, and the shorting of the 10-year period if death occurs in the owner’s 80s)

The downside of the above strategy is how is the taxpayer going to pay the income tax without selling capital gain assets such as stocks in an investment account causing additional income taxes or depleting the converted Traditional IRA funds reducing the benefits of the Roth Conversion.

An alternative that everyone should explore is using a HECM (Home Equity Conversion Mortgage, also know as a reverse mortgage). The HECM depending on the age of the owners of the home and equity available in the home may provide the funds necessary to pay of the income taxes on the Roth Conversion without causing additional income taxes. Additionally, a HECM requires no monthly principal and interest payments which provides for maximum efficiency of the Roth Conversion strategy. This is a strategy that everyone should be considering when contemplating a Roth Conversion.

This Article is for education purposes only and are not intended, and should not be relied upon, as legal or accounting advice.

Pursuant to Circular 230 promulgated by the Internal Revenue Service, please be advised that this article is not intended or written to be used, and that it cannot be used, for the purpose of avoiding federal tax penalties unless otherwise expressly indicated.

Brian A. Eagle, managing partner of the law firm of Eagle & Fein, P.C. is celebrating 30 years of serving clients. Brian inspires families to plan to meet their goals and objectives based on a unique process that focuses on the definition of proper planning.

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David Garrison
Home Equity Retirement Specialist
NMLS # 1595194
Serving the State of Indiana
p (317) 644-2595 c (765) 516-0130
e [email protected]

2169 East Rutland Lane, Martinsville, IN 46151
Corporate NMLS #1025894

“Get ready to discard old notions of who a needs-based borrower really is,” comments blogger Shannon Hicks, explaining that house-rich, very cash-poor retirees used to be the ones who turned to reverse mortgages, making ends meet by eliminating their monthly mortgage payment. In contrast, today’s retirees, she explains, may have six-figure – and better – retirement portfolios from which they take monthly draws to supplement their Social Security benefits.

All well and good, but couples like the Wilsons, Hicks says, are finding that inflation has increased their monthly expenses by 11% (their financial advisor has had to break the news that their savings are likely to last only another nine years). A reverse mortgage for the Wilsons will indeed be “needs-based”, Hicks observes, but not because the couple is devoid of assets. Inflation is simply eroding their buying power and causing them to feel “the pangs of need”.

Actually, what the savviest financial advisors are coming to realize is that housing wealth can be used to satisfy a variety of both “wants” and “needs”, even for clients whose monthly income is more than sufficient to keep up with the rising monthly costs. Reverse mortgage proceeds have been used to finance the purchase of a sunny-climate winter home, for charitable bequest, for business launches, grandkids’ education, even for new starts following a “gray divorce”.

Financial advisors should most certainly, “get ready to discard old notions about who a needs-based borrower really is”. On the other hand, it’s high time to recognize that reverse mortgages represent financial tools well worth affluent clients’ consideration to satisfy some of those not-their-fathers’ needs-based “wants”..

https://mutualreverse.com/david-garrison

David Garrison
Home Equity Retirement Specialist
NMLS # 1595194
Serving the State of Indiana
p (317) 644-2595 c (765) 516-0130
e [email protected]

2169 East Rutland Lane, Martinsville, IN 46151
Corporate NMLS #1025894

The two of you have always done things just a little bit differently. While most of your friends have owned homes, with some now relocating to retirement communities, you’ve always rented, moving from place to place to accommodate various long-term corporate consulting assignments. Now, as you’re preparing to retire (you’re 67 and 68 years old), you’re planning to settle “back home in Indiana”, ready to purchase a suburban home where you can putter in the garden, pursue hobbies, and host parties. You do not have children, but there are nieces and nephews whom you’d enjoy having visit.

You’ve saved enough over the years to finance a one-time cash purchase, but probably not enough to do the remodeling and adaptations you envision. In any event, you’re not comfortable cashing in retirement plan dollars, so a mortgage will need to be considered. And, while you had hoped to put work-related travel behind you, it’s reassuring to know that if needed, you can accept certain consulting assignments if costs mount up.

Just as you seem to have done things “in reverse” as compared with your friends, moving “in” to retire instead of “moving out”, you might consider a reverse mortgage to finance the purchase of your “retirement home.” You’d make a down payment (perhaps 50-60% of the purchase price), using the HECM- for- purchase to finance the closing costs and the remainder of the price. What might prove particularly advantageous is that you would not be obligated (although you might choose to) make mortgage payments, freeing up dollars to gradually improve the property to your liking.

You’ve always been comfortable doing things “differently”, and as retirees, you can now take advantage of a different way of financing a first home. 

https://mutualreverse.com/david-garrison

David Garrison
Home Equity Retirement Specialist
NMLS # 1595194
Serving the State of Indiana
p (317) 644-2595 c (765) 516-0130
e [email protected]

2169 East Rutland Lane, Martinsville, IN 46151
Corporate NMLS #1025894

Now, your second-oldest grandchild (your daughter’s son) will be applying for college. You’ve  learned that, effective for  the 2024-2025 school year, grandparent-owned 529 accounts will no longer negatively impact  a grandchild’s financial aid. The more you have been learning about 529s, the more excited you are to open a plan for each of your three grandkids (including the one already in college).

The 529 feature you like best is that you can continue to control the accounts, and can even change the beneficiary if later one of the grandkids were to drop out of college.  We could even use the money for ourselves in case of an emergency.  Something you hadn’t known before is that, as joint tax filers, you are allowed to contribute as much as to $150,000 in one shot to each of the 529 accounts. While you don’t think you’re in a position to do quite that much, you would like to start a 529 for each of the two younger grandkids with $50,000 apiece, and one for the oldest grandchild with $25,000. You like the idea of reducing your estate by $125,000, yet still have access to the money in case your own needs change. Doing advance funding by selling assets, might generate a substantial tax bill from selling investment assets.

Rather than selling investment assets to fund the 529 College Savings accounts, consider using your housing wealth by entering into a reverse mortgage, using a portion of your line of credit to advance-fund the College Savings accounts. The unused portion of your loan will continue to grow, in a way providing you with two “fallback” options (the money in the 529 accounts and the remaining equity in the home).

As you work through the details of your plan with your financial planner and tax advisor, you’ll really appreciate the fact that the recent tax law change concerning 529 plans, combined with smart use of your housing wealth, can produce some very good results for both you and your grandkids.

https://mutualreverse.com/david-garrison

David Garrison
Home Equity Retirement Specialist
NMLS # 1595194
Serving the State of Indiana
p (317) 644-2595 c (765) 516-0130
e [email protected]

2169 East Rutland Lane, Martinsville, IN 46151
Corporate NMLS #1025894

Just four short years ago, when you both retired from full-time careers, you thought you had a foolproof plan in place for managing regular expenses and keeping up with the maintenance of your beautiful home and grounds. The plan was to postpone social security benefits for one of you, taking a very disciplined approach to withdrawals from IRA and from your investment accounts. You retired debt-free with the exception of your mortgage, which has eight years to go. 

Now, like so many others, you are feeling the financial effects of the pandemic, with rising everyday costs and the two-year hit to your part-time “gig” income. While your consulting practices are being rebuilt, you’re beginning to feel more than a bit insecure about the monthly cash outflow.  

It sounds as if you’ve done a good job handling your finances, but perhaps it’s time to explore the option of tapping into your housing wealth. Just as you’d ask your plumber to install a check valve in the outlet of your water heater to prevent additional heat loss when the pipes are not in use, a reverse mortgage will help stem the drain the monthly mortgage payment is putting on your finances. 

The reverse mortgage proceeds might well be sufficient to pay off your existing mortgage, thus eliminating the need for a monthly payment. Even after closing costs, there could very well be a line of credit available, the unused portion of which will grow at the same rate your mortgage balance accrues interest. Most significantly, your improved monthly cash flow will help you keep up with the now higher costs of living, buying you time to build back your part time income.

Meanwhile, a reverse mortgage will help put a “check valve” on cash outflow.

https://mutualreverse.com/david-garrison

David Garrison
Home Equity Retirement Specialist
NMLS # 1595194
Serving the State of Indiana
p (317) 644-2595 c (765) 516-0130
e [email protected]

2169 East Rutland Lane, Martinsville, IN 46151
Corporate NMLS #1025894

As you enter your 70s, you’ve been considering converting your IRA account to a Roth before being obliged to take – and pay tax on, required minimum distributions. The size of the tax bill that would immediately come due has thus far scared you off making that conversion move.  Now, however, with the market significantly down, you’re reconsidering. Not only will the tax bill itself be less because of the account being down, you’re convinced income tax rates are likely to be rising sooner rather than later. Since your qualified accounts represent the bulk of your invested assets, for you tax planning is especially important.

The wisdom of the conversion itself is not up for question with you. If you can get over the hurdle of funding the immediate tax bill, the conversion will be very much in line with your overall estate plan. You’re not married, and the assets in the IRA are set to pass to nieces and nephews, who would be able to allow inherited Roth accounts to grow. Meanwhile, however, the tax bill on the conversion poses a big challenge.

The wealth you’ve accumulated in the form of home equity might provide the funds needed to pay the tax on a Roth conversion. Establishing a reverse mortgage loan will give you access to funds to cover the tax, allowing any unused portion of the reverse mortgage revolving line of credit to grow.

Housing wealth can help make the “pain” of a Roth conversion bearable.

https://mutualreverse.com/david-garrison

David Garrison
Home Equity Retirement Specialist
NMLS # 1595194
Serving the State of Indiana
p (317) 644-2595 c (765) 516-0130
e [email protected]

2169 East Rutland Lane, Martinsville, IN 46151
Corporate NMLS #1025894