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Question for the Money Doctors

Question submitted on Mar 31, 2013.

Question

I am considering building a small retirement cottage on my daughter/son-in-law''s property which includes their home and they hold a mortgage thereon. I would cash IRA $ to do so. What if any concerns, issues do we need to mindful of?

Answer

Hi, thank you for the question. There are a number of issues to keep in mind. I do not know your age, but one point you may know is that if you take the funds out prior to your age 59 1/2, then you will be subject to a 10% penalty. You will always be subject to ordinary income taxes on the funds in your IRA when you take them out. The tax rate will be whatever your personal income tax rate is the year you take the funds out.

From a financial planning standpoint, you should consider if you will have enough income to live on the rest of your life. There are many other expenses to consider, such as health care, food, utilities, travel and so on that need to be accounted for before you liquidate your IRA.

There might be legal implications should your daughter's house ever be faced with foreclosure. You should consult an attorney in your area for advice in this area.


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