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#86 Using a reverse mortgage to cover tax on Roth conversion


May 31st, 2022

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.

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