EASING ADULT CHILDREN OFF THE FINANCIAL LEDGE
While your children were brought up to manage their finances responsibly, with no expectation of help from you beyond their college years, you’re now reconsidering, watching your daughter, a single mom, struggle after a layoff several months ago. Apparently she’s not the only one forced into tapping her 401(k) plan for funds – ironically, on a CNBC talk show, you learned that this has become a widespread issue. Your daughter has not approached you for financial help, but she has confessed to making some “premature” (she is in her early fifties) withdrawals out of 401(k). While you’d made clear to all three children that they were expected to manage their own finances, given today’s economic realities, you realize she is going to have a very difficult time finding a comparable position in her field of expertise.
The two of you are far from wealthy, but with your home paid off and in good physical condition, you’ve been able to manage well on retirement plan income and social security, hoping to remain in your home for the rest of both your lives. Financially, things appeared to be going according to plan – until, suddenly, for your daughter, they weren’t. You abhor the idea of her using 401(k) funds, but at the same time, you’re reluctant to upset the “balance” of assets in your own investment accounts, and you’ve been toying with the idea of taking out a line of credit on your home.
Rather than tapping your own investment assets or retirement accounts, consider using your housing wealth to provide the needed help for your daughter. Since your plan is to “age in place”, a reverse mortgage line of credit will enable you to “draw down” tax-free* loan proceeds which you can use to provide the financial assistance your daughter needs today. Importantly, unlike the case if you take out that home equity line of credit, there will be no mortgage payments required. There will be time later to discuss if and how you’d want to adjust your estate plan to accommodate this “early legacy” to one child.
As the CNBC program explained, “hardship withdrawals and cash-outs’ are surging”, and those “come at a step cost” in terms of retirement readiness. Tapping the equity built up in your home may be a way to “ease your daughter off a financial ledge”, perhaps buying time for her to explore different career opportunities. Later, when her circumstances have changed, if she desires to pay you back, you could apply those funds to your reverse mortgage balance, growing your line of credit.
https://mutualreverse.com/david-garrison
*Please consult a tax advisor. 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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