Your husband’s receipt of an inheritance, combined with the recent sale of a piece of commercial property on your part has started the two of you thinking about upping the amount you’ve been contributing towards your grand-nieces’ college fund. (With no grandchildren of your own, you have, for the past few years, been making gifts to an Indiana 529 plan for each of your husband’s brother’s twin granddaughters, claiming the 20% state income tax credit for those education gifts.)

While you had originally talked about making 2025 joint gifts of $38,000 to each of the girls’ accounts, you read in a tax newsletter that one can “front load” 529s by putting in five years’ worth of contributions. However, even using the inheritance and the property sale profits, you’d need to sell off some jointly held investments to accomplish such a contribution, and that is causing you to weigh different factors before coming to a decision. 

Now both in your late 70s, you have enjoyed good health. At the onset of your retirement from full time employment a decade ago (you each still do some consulting work), you oversaw the completion of a major update to your home to make it more age-appropriate; it is not likely that major house-related expenses lie ahead. 

Knowing that you would still “control” the accounts and be able to use the money yourselves in case of some unforeseen turn of events or health emergency, you like the idea of letting your contributions more time to grow tax-free* inside the 529s before the girls actually begin their schooling. 

Since the 5-year Gift Tax Election allows donors to make this large contribution without affecting your lifetime gift tax exclusion; you might discuss your plan with an estate planning attorney. The total 529 “frontloaded” gift would be $19,000 per year, per beneficiary, or $95,000 for the five-year plan for each grand-niece, a total of $190,000.

Since the Federal Housing Administration has raised the national lending limit on reverse mortgages to $1,209,750, you might consider using a portion of your housing wealth to help you achieve your 529 funding goal. The unused portion of your reverse mortgage loan will continue to grow at the same rate as the interest as that being charged on the borrowed portion of your equity.

“Rerouting” a portion of the equity that has been building up in your home in the past can help you fund the two 529 plans in the present, helping your grand-nieces’ prepare for the future.

*Please consult a tax advisor. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org

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For decades, your retirement planning was loosely based around the 4% Rule of withdrawals. Now, seven years in (two in full retirement), the two of you have been wondering about the long term sustainability of taking that 4% annually. Because a good deal of your money is in mutual funds, you follow articles by Morningstar, and a recent piece by Barbara Kohllmeyer seems to anticipate an economic slowdown. While you have absolutely no need for additional funds right now (both your home and your prepaid funeral expense plans are fully paid for and you have been very comfortable staying within your budget), you do not relish having to absorb any but the most modest cutbacks in your moderate lifestyle. Your wife is probably going to be receiving a small inheritance within the next couple of years, but you don’t want to base your income planning on that factor.

In basing your planning around the 4% Rule of income withdrawal, you seem to have considered only your investment assets, ignoring the equity built up in your home. Consider setting up a reverse mortgage structured as a “standby” line of credit. Yes, there will be some upfront cost, but the important thing is that in the event of an economic slowdown that affects your investments before your wife receives her inheritance, you will be able to readily access your housing wealth without putting further downward pressure on your portfolio. Meanwhile, whatever portion of your equity is not being used will be credited with growth at the same rate as the interest being charged on the outstanding loan balance.

Just as our national defense has a Ready Reserve Force on stand-by status, think of reverse mortgage funding as the Ready Reserve Force of retirement planning!

David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.orgEqual Housing Lender

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Now about to enter your sixth year of retirement (for your wife it will be her third), you’re glad that after toying with the idea of moving to a nearby retirement community, the wisdom of your decision to “stay put” in your “big house” was confirmed after hosting no fewer than six grandkids and their parents for the holidays.

Both of you tend to approach big decisions systematically, considering all aspects and ramifications before moving forward. Had you decided to move, there would have been certain repairs and renovations needed before listing the home; now that you’re staying, you realize, the remodeling can be done in stages over several years, and you will be better able to time large withdrawals out of your portfolio and cash accounts. The home is fully paid for, and you’ve been careful to keep up with all basic maintenance needs.

Your regular income sources include an annuity payment from her former employer, Social Security (you have been collecting for four years, while she began to claim benefits just six months ago), rent from a property she inherited, regular withdrawals from your IRA Rollover account, and a jointly held investment account. You’ve made all investment decisions together, using a simple “pie chart” concept to keep stock, bonds, and cash “in balance”, checking in with your CPA to avoid triggering excess tax.

Your need for infusions of cash will undoubtedly increase as you have the home remodeled to enable “aging in place”. Since that would potentially disturb your asset allocation plan, consider freeing up your “housing wealth” to function as the cash portion of the “pie”. (Unlike selling investments or taking larger taxable withdrawals from your IRA, with a reverse mortgage set up as a line of credit, you can fund the home improvements without triggering any new taxes.) You might even be able to reduce the cash holdings in the joint investment account, all while maintaining your agreed-upon balance of cash, stocks, and bonds. Meanwhile, whatever portion of your equity that has not been tapped will be credited with growth at same rate as the interest being charged on the mortgage balance.

Allow your home equity to keep your assets in balance while preparing your property to serve your needs as both holiday hosts and retirees! 

David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.orgEqual Housing Lender

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Having survived some serious post-COVID health challenges, the two of you are happy to be back to Plan A, involving the major home indoor and outdoor redesign you’d originally hoped to do right after retiring. With the newest estimates from contractors totaling some $120,000, you’ll be forced to both sell off some portfolio assets and apply for a home equity line of credit in order to fund the work.

Ongoing living costs have been comfortably handled through your pension, Social Security for each of you, and some of your wife’s special consulting gigs. You’d established a systematic withdrawal plan out of a jointly owned investment account, but were forced to take several large withdrawals to cover certain non-covered rehab therapies. While that joint portfolio has done very well, you’re reluctant to apply further strains on its value.

Ironically, the big dilemma inherent in the decision to move forward with the renovation concerns a block of stock your wife inherited from her parents, which has appreciated to an almost astounding extent. (In order to “net” $120,000, your accountant has estimated, you’d need to sell a chunk of those inherited shares close to double that amount!) In fact, one big goal of your estate planning was to have your four children inherit that stock some day with no need to pay capital gains. 

Redesign and Renovation Plan B need not involve straining the jointly held account, incurring a monthly mortgage obligation,* or selling appreciated stock. Consider accessing your housing wealth, but through a reverse mortgage loan line of credit, to be accessed as the renovations. progress. There will be upfront costs of establishing that line of credit, but the unused portion of the equity will be credited with the same rate of growth as the interest being charged on the borrowed funds.

Avoiding sales of the stock your wife inherited will preserve the possibility your children benefiting from the “step-up” in basis. The housing wealth you have now can help your children benefit later.

*Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.orgEqual Housing Lender

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For many years after the Deering Savings & Loan first issued a reverse mortgage to Nellie Young of Portland, Maine in 1961, CPA Joshua Wiesenfeld writes, the product was viewed with suspicion by CPAs and financial planners. Over the years, that view became outdated, he adds, with the Financial Industry Regulatory Authority softening its stance after reviewing research published in the Journal of Financial Planning in 2012 demonstrating that, used wisely, the reverse mortgage can serve as an effective personal financial planning tool.

Now, twelve years after that article was published, a study by WSFS Mortgage shows reverse mortgages are being viewed favorably by homeowners aged 60 and over, who see them as a way to remain in their homes for a longer duration and as a method to enhance cash flow during retirement.

IRA expert Ed Slott has become a “convert” as well, suggesting on a Don Graves podcast that reverse mortgages can be a source of tax-free* income “you can count on for the rest of your life”, and that reverse mortgages can help pay the tax on Roth IRA conversions. 

“Altogether, while reverse mortgages might not be top-of-mind for financial advisors working with wealthy retirees they could serve a role in mitigating against sequence of return risk, particularly for clients largely reliant on an investment portfolio to support their needs in retirement,” Emile Hallez writes in Investment News.

In my own reverse mortgage origination practice, I have several referral advisors who evaluate every client for potential reverse mortgage viability, understanding what a valuable tool reverse mortgages can be. As 2024 draws to a close, noting that interest rates have remained stubbornly high (potentially dampening the value of reverse mortgage funds), I am happy to note that the maximum loan value has been increased from $1,149,000 to $1,210,000, so that higher value homeowners can benefit.

As we bid farewell to 2024, I am committed to helping others understand how a reverse mortgage can fit into their retirement planning, providing security, peace of mind, and the opportunity to live a more fulfilling life.

Happy new year! 

*Please consult a tax advisor. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.orgEqual Housing Lender

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While the original plan was, once you’d both retired, to put your home on the market and join several former neighbors at a nearby independent living retirement community, you’ve changed your minds and decided to stay put. Rather than waiting months for just the right spot in that community, then needing to expend much physical effort (and spend many dollars) on moving, you’re now planning to do an interior overhaul centered around the first floor kitchen and bath, turning what was the guest room into your own bedroom. That way, there will be no need to “downsize”, and you can continue to enjoy the furnishings and artwork you’ve so carefully selected and maintained over the years. 

The snag is in the financing. Had you sold, the profit in today’s market would have more than covered the moving and redecorating costs as well as the retirement community “buy-in” fee. You’re reluctant to strip your cash savings and jointly held investment portfolio assets, and, with an excellent credit rating, are considering what your banker calls a cash-out refinance loan. 

As you work towards preparing your home environment to be more age-friendly, you might check out contractors who are specifically trained to do “aging in place” home remodeling, certified through the National Association of Homebuilders. In terms of paying for the interior “overhaul”, consider tapping into the equity you’ve built up in your home through a reverse mortgage rather than a refinance.

With reverse mortgage funding, there will be no obligation to make regular monthly mortgage payments,* nor will you be forced to dip into your investment portfolio assets to pay for the home redesign. Your reverse “line of credit” will enable you to make tax-free** withdrawals as needed to pay the contractors as the work proceeds. Meanwhile, the unused portion of your equity will actually be growing (credited with the same rate of growth as the interest being charged on the borrowed funds).

Your reverse mortgage can help you stay rooted in the home you love, even as it gets a “facelift”.

*Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees. **Please consult a tax advisor. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.orgEqual Housing Lender

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If there is such a thing as an amicable divorce, that’s what the two of you are trying to accomplish. The one item about which there has been no dispute is the occupancy of your home – while your will be continuing to live in Indiana, your soon-to-be ex-wife is relocating to be near her nieces and nephews in Virginia. 

The greatest portion of your assets outside of the home itself is in your respective retirement plans, but there is also a jointly held stock and mutual fund/ETF portfolio, which can be easily split “down the middle”, as your financial advisor has assured you. The only issue is that, in order for her to agree to cede total ownership of the house to you, you would need to part with the largest part of the non-pension investments. Given that you have been the one primarily involved in selecting and monitoring the portfolio over the past several decades, you find that a rather repugnant prospect. 

There’s an alternative to consider. Since it has apparently been agreed that you will be the one continuing to live in the home, your “housing wealth” might prove to be a better source of funding the divorce settlement. Using a reverse mortgage loan based on the equity built up in the home, the proceeds can be used to satisfy your divorce settlement obligation, avoiding the need to liquidate portfolio investments. Post-divorce, with no obligation to make monthly mortgage payments,* you will be under no pressure to liquidate investments.

With you remaining at home, experienced at managing the investments, your ex-wife will have the cash needed for the relocation. In a way, the housing wealth you’ve created while together can help each of you transition into your new, separate futures.  

https://mutualreverse.com/david-garrison

Readers, if you’d like to see what you might qualify for with a reverse mortgage in Indiana, or to download your Reverse Mortgage Guide Click Here (and scroll down).

*Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.orgEqual Housing Lender

          Although you’ve enjoyed success in your long career in sales, it’s always been as an employee rather than as an owner. In fact, your original idea was to take on sales training gigs after retirement (planned for the end of next year). Recently, however, you have become interested in owning and operating a franchise business. You’ve been exploring businesses very different from those of your present or former employer, in fields more in line with your fitness-related hobbies rather than with your past corporate sales experience.

You’ve already begun “stockpiling” cash reserves to cover the initial franchise purchase price, but haven’t wanted to lower your contribution levels to your tax-deferred retirement plans. You also want to avoid cashing in your personal investment portfolio, because you envision those assets remaining in place, generating quarterly and monthly income until you begin to generate cash flow from the new business. A mortgage refinance is also under consideration, since your existing first mortgage is less than one year away from being fully paid.

It’s often a challenge for new franchisees to support themselves until their business takes off, and you’re smart to avoid cashing in your hard-earned investments. However, rather than taking out a second mortgage on your home, consider tapping into the equity you’ve already built up by applying for a reverse mortgage, set up as a line of credit. You’d continue to own, maintain, and live in your home, but you’d have a source of tax-free* funds which you could use as needed, avoiding the need to sell off portfolio assets, and offering security in the early years of business ownership. (In fact, have a reverse mortgage in place as an “asset reservoir” will be seen as a positive when potential franchisors are considering you as a franchisee.

The housing wealth you’ve built over the years can help you transition into building new wealth, this time as a business owner! 

https://mutualreverse.com/david-garrison

Readers, if you’d like to see what you might qualify for with a reverse mortgage in Indiana, or to download your Reverse Mortgage Guide Click Here (and scroll down).

*Please consult a tax advisor. Borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.orgEqual Housing Lender