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#105 Using a reverse mortgage to build up Roth inheritance for adult child


October 11th, 2022

As a single gentleman at the “ripe old age” of 71, you’re still able to command a sizeable income, and God willing, hope to continue your very active lifestyle indefinitely. While you travel extensively, you’re proud of your home, which you’ve kept in good repair and which is fully paid for (but, which, your one adult daughter has frankly stated, she has no interest in inheriting…

Interestingly, you have never been part of an employer pension plan, but have contributed the maximum every year to a self-directed Roth IRA, and intend to make the maximum allowable contribution again this year and in coming years, hopefully being able to keep the money growing tax-free with no obligation to make withdrawals. The Roth IRA will make the perfect inheritance for your daughter, you believe, with the entire sum of all your deposits over the years, plus the earnings, transferring to her as named beneficiary. (Under the latest changes in the law, you understand, she will be forced to withdraw the money within ten years of your death, but that will generate no tax liability for her, since you’ve held the account for longer than five years.)

Since you’re already maxing out your annual Roth contributions, you might consider “enriching” your daughter’s inheritance in an additional way, using the equity in your home. Although setting up a reverse mortgage will entail some upfront costs, you would be using your housing wealth to establish a second source of growing wealth earmarked for your heirs. Unlike the investments in your Roth account, if you make no withdrawals, the value of your home equity will never fluctuate downward due to stock market volatility; instead, the unused portion of your equity will in fact, be increasing. grow. Of course,, you’ll continue to be responsible for property taxes, insurance, and maintenance costs, but you’re obviously used to keeping the home in tip top shape. Best of all, should your income drop and you feel the need to use some of the available funds, you can do that without tax liability, leaving the Roth IRA to continue to grow for the benefit of your daughter.

With the combination of the Roth IRA and a reverse mortgage, you’ll be building your daughter’s inheritance from both directions.

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