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#34 Combining Roth Conversion and Reverse Mortgages


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

You’ve been doing quite well in semi-retirement, both health-wise and financially. However, you’ve just realized that this is the year in which you’re going to be forced to take the first Required Minimum Distribution out of your IRA account (which represents the bulk of your financial assets). Future tax rates are likely to be higher than today’s, you believe, and you’d like to eliminate the need to take those RMDs going forward.

One tactic you’ve been reading about is converting to a Roth, which would cancel the need for those annual withdrawals and allow the money to continue growing tax-free. Your estate plan would be improved as well, you believe, with your heirs having no tax bill on the inherited funds. The only issue is the substantial tax bill a conversion would trigger this year. While your gig income plus pension benefits and Social Security are more than enough to cover lifestyle expenses and keep some cash reserves, you are in no position to fund a one-time, six-figure tax liability.

Freeing up the resources you’ve accumulated in the form of home equity might provide a solution. Once the Home Equity Conversion Mortgage (HECM) has been established, you can tap the line of credit to the extent needed to pay the tax triggered by the Roth conversion, allowing the unused portion of the reverse mortgage revolving line of credit to continue to grow.

Like love and marriage, reverse mortgages and Roth conversions can, in the words of that old song: “Go together like a horse and carriage!”

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