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rw  
#1 Posted : Tuesday, September 07, 2010 7:15:50 PM(UTC)
rw

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I have approximately $450,000 in TSP "G" funds and plan to retire within 1 year.  I have a $200,000 mortgage.  I had planned on using earnings from my TSP to supplement my mortgage payment of $1,460.  However, earnings are currently nil.  My daughter is permanently disabled and lives with me.  I need to be consider providing for a secure future for her as well.  I realize that I would lose the deduction for mortgage interest by paying off the loan, but I do not see how I can make the mortgage payment in retirement.  I am 65 years old and have 25 years FERS.  I will retire as a GS-13 Step 8.  Any ideas?
Henry  
#2 Posted : Tuesday, September 07, 2010 8:31:49 PM(UTC)
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RW, That is exactly what I did. If I was you, I would figure out how much interest you will pay if you continue to make monthly payments on your house vs. the benefit of the deduction. I believe you would be better off, paying the house off.
restonham  
#3 Posted : Wednesday, September 08, 2010 12:00:54 AM(UTC)
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You do understand that you will have to pay income tax on the $200K you withdraw at least at the 25% bracket, probably higher?  That means you will have to withdraw $250K to get a spendable $200K unless you have $50K laying around to pay the taxes with.  I'm assuming that, if that were the case, all this would be unnecessary.

I don't consider 2.5% interest to be "nil" in today's interest environment.   That's over $11K a year - not insignificant.   Since you will need recurring access to your money, your best bet is to roll your TSP to an IRA and then withdraw money when you need it.  or, you could set up a monthly withdrawal and change the amount each year, if necessary.  No matter what you do, you will have to pay taxes on all money withdrawn as ordinary income.

Keep in mind, that once you pay off your mortgage and are retired, that money is gone forever - you will have a very difficult, if not impossible, time getting another one if you need the money in an emergency.   Your only option would be to sell the house or get a reverse mortgage.
 
Pick  
#4 Posted : Wednesday, September 08, 2010 4:50:48 AM(UTC)
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restonham wrote:
Keep in mind, that once you pay off your mortgage and are retired, that money is gone forever - you will have a very difficult, if not impossible, time getting another one if you need the money in an emergency.   Your only option would be to sell the house or get a reverse mortgage.
 
Or home equity line of credit, or credit card, or the remaining 200k in TSP...  Go with what Henry said and do the cost/benefit analysis between your mortgage interest and your deduction, but make sure you factor in your penalties (including the higher tax rate) for withdrawing the lump sum from your TSP.  Speaking from the point of view of someone that has also paid off their house, It will definitely give you peace of mind in your situation.
daves  
#5 Posted : Wednesday, September 08, 2010 1:06:09 PM(UTC)
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Consult an accountant about the penalties.  Caring for a disabled family member may qualify for a penalty free withdrawal.
The HalfBreed  
#6 Posted : Wednesday, September 08, 2010 2:58:09 PM(UTC)
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Lotta good advice above.......I'd like to add one more.

Is your Home WORTH that much? Will you pay it off, only to find out that, in 1 year, it's worth 33K LESS ???
Would it be wise to sell the home, move into a 2 bedroom spot, and rent >???
IF you spent 250K to get 200K, only to find out via selling that you've lost 33K, then what ?

RETIRED 12/19/2012 !!! Good Bye Tension !!! Hello Pension !!!
Copper  
#7 Posted : Thursday, September 09, 2010 5:58:14 AM(UTC)
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I think others here have offered some very good thoughts.  But, given the potential risks involved it may be money well spent to sit down with a competent CPA/financial advisor and have them run some numbers for you.  They will be able to explain options, help you weigh the risks and provide more specific answers tailored to your situation and long term needs.  Good Luck!

restonham  
#8 Posted : Thursday, September 09, 2010 12:50:53 PM(UTC)
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I'm not sure what penalty is involved here.  The OP is 65 years old - there are no TSP penalties after 59 1/2 - that's not even an issue.
The HalfBreed  
#9 Posted : Thursday, September 09, 2010 1:57:45 PM(UTC)
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restonham wrote:
I'm not sure what penalty is involved here.  The OP is 65 years old - there are no TSP penalties after 59 1/2 - that's not even an issue.


Maybe it would be an issue, becoz payments from the TSP are taxable events, and, if he's going to draw that much out, in addition to his annuity, he could wind up in a high tax bracket....

JMHO tho..........
RETIRED 12/19/2012 !!! Good Bye Tension !!! Hello Pension !!!
martyb  
#10 Posted : Thursday, September 09, 2010 9:59:27 PM(UTC)
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restonham wrote:
I'm not sure what penalty is involved here.  The OP is 65 years old - there are no TSP penalties after 59 1/2 - that's not even an issue.
 
 
Actually, there are no TSP penalties after age 55, if one is retired in that year or beyond. 
Forum trolls to 0%
restonham  
#11 Posted : Friday, September 10, 2010 4:24:09 AM(UTC)
restonham

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The HalfBreed wrote:
restonham wrote:
I'm not sure what penalty is involved here.  The OP is 65 years old - there are no TSP penalties after 59 1/2 - that's not even an issue.


Maybe it would be an issue, becoz payments from the TSP are taxable events, and, if he's going to draw that much out, in addition to his annuity, he could wind up in a high tax bracket....

JMHO tho..........
 
That's not a penalty, just a fact of life - generally, more income equals more taxes.
Not retiring yet  
#12 Posted : Friday, September 10, 2010 10:27:36 AM(UTC)
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How about enough monthly payments from TSP  to have the mortgage payment amount left, after taxes?   He would be being paying the mortgage,  still have the tax deduction for mortgage interest,  still have the remainder of the TSP, plus any pension dollars due to cover living expenses.  Just a thought, but maybe an option. 
brogo13  
#13 Posted : Friday, September 10, 2010 12:06:46 PM(UTC)
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Try this on...
Start with the assumption that you aren't going to touch TSP at all, ever.  What's your annual taxable income going to be next year?  Add your standard exemption and standard deduction to get your gross income.  Now--how much more [taxable] income would it take to tickle the bottom of the next marginal tax bracket?  One twelfth of that is--ta da--your [actual, still to be taxed] monthly TSP withdrawal.  Too much?  Great!  Just because it came from TSP doesn't mean you can't now park it somewhere substantially more liquid.
Don't forget to look again around this time every year, and to send in the form (effective January) well in advance of that pesky December 15 cutoff.   8r'
 
stoutboy  
#14 Posted : Saturday, October 16, 2010 9:18:20 PM(UTC)
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This begs the question of what is a 65 year old doing with a 200K mortgage.  I think it is a bad idea to use tsp funds to pay off this mortgage unless you are damn sure your fed pension and other savings are adequate.  It looks to me like your best bet would be to sell your house and move to a location you can afford. It may be time to downsize.
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