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#33 Avoiding Forced Early Pension Withdrawals Through a Reverse Mortgage


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

Like a number of your friends and former co-workers, you’ve been downsized from what you had considered a stable career. At age 57, finding a new position in your field has so far proven fruitless, and until the pandemic has become past tense, you don’t see much hope of replacing your income. Your spouse is 62 and still working, but the one income is hardly enough to support your lifestyle needs.

At this point, you have already gone through a good portion of your own savings and investment accounts, and the bulk of your remaining assets is tied up in your IRA and in your company 401K account. Your wife would be allowed to take a loan from her own 401K, you’ve learned, and one of the new laws would allow her up to three years to pay the money back without tax. She is very reluctant to consider that step, and frankly neither of you likes to either increase debt or create any extra tax burden. You’ve been informed that, while normally you need to be 59 ½ years old to tap your own IRA and/or 401k without a 10% penalty, the Rule of 55 allows penalty-free withdrawals sooner in cases like yours. As yet another option, you have been considering taking a home equity line of credit against your home, but that, too, involves increasing debt during a time of uncertainty

As homeowners, since one of you is over the age of 62, you may be able to qualify for a reverse mortgage, which would allow you to convert your home equity into cash to pay for expenses while you explore options for either part time or full time employment. With a reverse mortgage, unlike a home equity loan, you will not need to make regular installment payments to cover the principal and interest. Instead, with your reverse mortgage set up as a HELOC or line of credit, you will be able to withdraw money as needed, but stop withdrawals and even start repayments if and when you go back to work. Meanwhile, your 401K and IRA funds can continue to grow tax-deferred.

Not intended as tax advice. Please consult a tax specialist.