Mortgage vs. retirement

Q

I’m thinking of paying off my mortgage with money from my IRA. Should I?

— B.C., Greensburg, Pennsylvania A

Think twice about it. With a traditional IRA, if you’re younger than 59 1/2, withdrawals will be taxed at your ordinary income tax rate, and you’ll face a 10 percent early withdrawal fee, too. In addition, the amount you withdraw will boost your taxable income, potentially moving you into a higher tax bracket. Meanwhile, by wiping out your mortgage debt, you’ll lose your mortgage interest tax deductions.

Think also of your mortgage interest rate, and compare it to the growth rate you expect for your IRA holdings. If your mortgage rate is 5 percent, paying any of it off early essentially “earns” you 5 percent. If you think you would have earned 5 percent with your IRA investments, you’re not coming out ahead. Cashing out a retirement account also means that money won’t be able to grow for you over time (tax-free, in the case of a Roth IRA).

Do the math for your particular situation, but consider keeping your IRA and trying to make extra payments on your mortgage when you can. Just a few extra payments each year can shave years off the loan and save you many thousands of dollars in interest payments.

Q

Where can I look up the cost of living in various cities? — D.Z., Spokane, Washington

A

There are lots of handy calculators online, and you can find a bunch by Googling “cost of living.” Some are more detailed than others, breaking out categories such as housing, food, transportation, utilities and health care. Remember that some expense categories will be more of a factor for some folks than others.