Document Viewer
Ask An Advisor: I'm 65, Earning at My 'Absolute Peak' and Won't Retire Soon. Should I Use My Roth IRA for a $30K Home Improvement Project?
May 23

Loraine Montanye, CFP«, AIF«

I am 65 and at the absolute peak of my earnings. I'm also in the 35% tax bracket and am not looking to retire soon. I need $30,000 for a home project. I have enough to take it out of a nonqualified brokerage account but will pay capital gains taxes on what I liquidate. I'm thinking that the best place to take it from would be my Roth IRA so that I do not increase my tax bill. A home mortgage loan is not in the picture since I need this cash quickly. If you were to say no to the Roth withdrawal now, when is a good time to withdraw from the Roth IRA? Our kids are well off and don't need it as a future inheritance.


While seeking to minimize the tax impact from this individual project is important, it's not the only consideration as you decide which account the money should come from.

Before using your Roth IRA to cover the cost of the project on the grounds of short-term tax bill minimization, it is also critical to consider the long-term tax and financial planning implications of withdrawing from each account and when.

I can answer your question generally as it would apply to most taxpayers but will caution that it is best practice to consult a tax professional who thoroughly knows your full tax picture. (And if you need more help with your tax strategy, consider matching with a financial advisor with tax expertise.)

Examine Your Tax Situation
As you note, there would be no immediate tax implications if you withdraw the
funds from your Roth IRA since you are past age 59 1/2. Because you are in the 35%
income tax bracket, the rate you pay on capital gains taxes from your taxable
brokerage account will be either 15% or 20% depending on your tax filing status
(married and filing jointly, single or head of household) and actual income.

Although it might seem safe to assume tax rates will be lower in retirement when you're no longer receiving income from employment, I caution against this assumption. Current income tax rates are set to expire at the end of 2025, and they are relatively low by historical standards.

Consider a Taxable Withdrawal
Overall, if you are not close to the top of the 35% income tax bracket and would
face a 15% capital gains tax, it might make sense to use your brokerage account
for the withdrawal while you have income to support the current tax bill.

Furthermore, while the total value of your brokerage account might indicate that you will owe capital gains taxes on a withdrawal, you should review the individual holdings within the account and consider tax-loss harvesting opportunities.

Given the volatile market environment and the drawdowns most asset classes experienced in 2022, it's possible that some holdings have declined in value below your original cost basis, depending on what you own and how long you have owned them. If that is the case, you could sell some of the assets that have lost value and use those realized losses to offset capital gains elsewhere in the account, thereby reducing your tax bill.

If tax loss harvesting is not an option, another strategy would be to gift appreciated securities to a charity.

By The Associated Press, Copyright 2023

Join Now for the 50 Plus Newsletter