Should I use my IRA to buy a second home? - NJMoneyHelp.com

Should I use my IRA to buy a second home?

Photo: pixabay.com

Q. I have an inherited IRA and I take RMDs from it. My spouse and I have income from work of about $200,000, and the RMD is usually about $30,000. We are thinking of buying a second home and if we have more cash to put down, we can get a lower interest rate on the mortgage. How do we decide if it’s worth taking a larger distribution and paying taxes on it to use the money for a down payment? When would we be in a higher tax bracket?
— Calculating

A. A second home is an exciting proposition.

Trying to get a lower mortgage rate is a great move.

When you take a Required Minimum Distribution (RMD) from a regular IRA, the amount you must take out is based on your and your spouse’s combined life expectancies, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown. “When you take an RMD from an inherited IRA the amount is based on your life expectancy alone.”

You said your income from work is $200,000.

Kiely ran a few numbers.

He assumed you took the standard deduction for a married couple filing jointly, which is $29,200.

This gives you taxable income of $170,800 ($200,000 minus $29,200).

It results in a federal tax of $27,682, which puts you in the 22% tax bracket.

The 22% tax bracket is for taxable income between $94,301 up to $201,050.

“You have to understand that if you are in the 22% tax bracket, not all of your taxable income is taxed at 22%,” he said, explaining how the graduated system works.

The 10% bracket is from $0 to $23,200 of income, and your tax is $2,230.

The 12% bracket is from $23,201 to $94,300 of income, and the tax is $8,532.

The 22% bracket is from $94,301 to $170,800, and your tax is $16,830

Your total tax is $27,782

“The 22% tax bracket goes up to $201,500. So if you take $30,000 out of your inherited IRA your taxable income will jump up to $200,800 ($170,800 + $30,000),” he said. “You will still be in the 22% tax bracket, which peaks out at $201,050. So, the additional tax on the RMD will be $6,600 ($30,000 X 22%).”

The next tax bracket for a married couple is the 24% tax bracket which runs from $201,051 up to $383,900, Kiely said, so, any additional withdrawals from your inherited IRA will be taxed at 24%.

“The law states that if the decedent who left you the IRA died in 2019 or after, you must withdraw all the funds within 10 years,” he said. “I believe taking out more now to have a lower mortgage rate for the next 10, 20 or 30 years is worth it.”

“If you do so, you will make the person in heaven who left you the IRA smile,” Kiely said.

Email your questions to Ask@NJMoneyHelp.com.

This story was originally published in July 2025.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.