How to Tap an IRA to Avoid Home Foreclosure
If you face the prospect of a home foreclosure, you probably have at least one or two courses of action available. If you have an IRA, you can consider tapping it to avoid foreclosure, but this approach has several drawbacks. Consider whether you will be able to keep your home mortgage loan current in the future even with a payment from your IRA.
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Things You'll Need
- IRA statement
- Home mortgage loan statement
- Home mortgage loan agreement
Instructions
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1
Calculate the amount past due on your home mortgage loan. Include not only the payments owing but also the interest, penalties and other charges assessed.
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2
Determine the outstanding balance of your home mortgage loan.
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3
Compute how much you need to take from the IRA to bring your home mortgage loan current. Add in the amount of money you will pay on taxes and penalties for an early withdrawal from your IRA. Taxes and penalties are computed on a case-by- case basis. You will be taxed on the amount withdrawn from a traditional IRA at your present income tax rate. You also face the prospect of an additional 10 percent penalty payment. If the account is a Roth IRA, you previously paid taxes on the contributions into the account and do not face additional taxes.
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4
Withdraw money from your IRA. Because IRAs include everything from basic bank accounts to mutual funds, you need to contact the financial institution at which you maintain your account to obtain specific rules for withdrawal. If you have an employer-sponsored IRA, contact your human resources representative for information about withdrawal. The IRA payment is made out to you.
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5
Pay taxes and penalties due and owing for the early IRA withdrawal. Report the IRA withdrawal on IRS Form 1040 when you file your income taxes.
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6
Send a payment to the mortgage lender using your IRA funds to bring your loan current.
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Tips & Warnings
If you want to live in your current residence during your retirement, using IRA funds to bring your mortgage current makes particular sense. Lowering or paying off a home mortgage is a solid course of action in anticipation of retirement.
If you think you may end up facing a past-due mortgage again, tapping your IRA may not make sense. You may need to consider filing for bankruptcy to protect your home.
