Should I use some of my Roth IRA to pay down my mortgage?[ Edited ]
I recently bought a house on a VA Loan. Although I didn't make a down payment, I was thinking about taking some money out of my Roth IRA and paying on the mortgage so that I can save a significant amount of interest payments. I do have an emergency fund and other investments as well as military retirement. I still have 10 years before retirement to build up my Roth IRA again. I have heard a person should never touch their nest egg until retirement. What are your thoughts?
I appreciate where you’re coming from on this one…but I don’t think I’d do it.
One reason I wouldn’t is my assumption about the interest rate of your mortgage compared to the potential return you might earn on your Roth IRA. Since your VA loan is pretty new, I’m guessing your interest rate is pretty low. And since you’ve got 10 years until retirement, if you’re so inclined, you could invest your Roth money in market-based investments to try to earn higher returns. Granted, there’s no guarantee that you’d be able to earn more than you’re paying, but it’s certainly a point worth considering as you contemplate this issue.
Another concern I’d have with pulling out Roth money to pay down your mortgage is that once you do it, the only way you could have access to that money again is to either sell your house or take out another mortgage or equity loan. Neither of these is a particularly easy way to get your hands on your money again. Leaving it in the Roth IRA instead, gives you easier access to the money should you need it for something else.
Retirement Money Sanctity Lost
I’d also be nervous about using Roth IRA money to pay down a mortgage (at least before retirement) because doing so violates the sanctity of your retirement funds. Now, you seem pretty responsible from a financial perspective so this might not be as much of a concern for you specifically. However for many people, it can be difficult to get off of that slippery slope once they step on it the first time.
Finally, it’s worth noting that if you’re not yet 59 ½ you’d typically only be able to withdraw your Roth IRA contributions without incurring taxes and penalties. Tap into the earnings and it could cost you. Also, if you have IRA conversion contributions as part of your Roth balance, this gets even more complicated.
So again, I get where you’re coming from with this one but I really don’t think I’d do it. Have you considered the option of making extra principal payments with the money you were thinking you’d use to rebuild your IRA? That could also be a good way to help you save interest expense.
Thanks so much for your question and best of luck to you!