Should I Tap My Roth IRA for Home Renovations at 65?

As a 65-year-old still working and in the 35% tax bracket, you're wondering if it's wise to use your Roth IRA for a $30,000 home renovation project. Before making a decision, let's weigh the pros and cons, considering both short-term tax implications and long-term financial planning.



Short-term tax implications:

1. Roth IRA withdrawal: Since you're over 59 ½, you can withdraw your contributions tax-free and penalty-free at any time. However, if you withdraw earnings, they will be taxed as ordinary income if you haven't met the five-year rule.
2. Brokerage account withdrawal: If you withdraw from your nonqualified brokerage account, you'll pay capital gains tax on the profits, either 15% or 20%, depending on your tax filing status and income.

Long-term financial planning implications:

1. Lost tax-free growth: Withdrawing funds from your Roth IRA means you'll miss out on tax-free growth in the future. For example, if you withdraw $30,000 today, it could grow to approximately $42,000 in 10 years, assuming an 8% annual return, and $60,000 in 20 years.
2. Reduced contributions: If you need to replenish your Roth IRA after the withdrawal, you may have to reduce your contributions to other retirement accounts or delay saving for other goals.
3. Increased risk: Withdrawing funds for a home renovation project may increase your financial risk, especially if the project's value doesn't appreciate as expected or if you encounter unexpected expenses.
4. Impact on Required Minimum Distributions (RMDs): While Roth IRAs do not have RMDs during the owner's lifetime, withdrawing from your Roth IRA could impact your overall retirement income strategy if you have other retirement accounts with RMDs.



In conclusion, while it might be tempting to use your Roth IRA for a home renovation project, consider the long-term financial planning implications. If you decide to withdraw from your Roth IRA, make sure to replenish the account as soon as possible to minimize the impact on your future retirement savings. Consult with a financial advisor to determine the best course of action for your specific situation.