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Is it better to withdraw funds from my IRA or take a loan?

I am 62 years old, building a $30,000 shed. I have a second IRA that I will not need for my retirement. I would borrow for 5 years and withdraw from IRA to make monthly payments. Which option would be financially best? Taxes? IRA earnings? Interest on loan?

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  Answers  |  1

June 09, 2017

Compare the costs: If you take the full amount from your IRA - you don't say, but I'm going to assume a traditional tax-deferred IRA - then your costs are the taxes: you add the $30,000 to your earned income which would add to your tax bill. Then you miss earnings on the $30,000 for 5 years. I don't know how you have the money invested, but maybe use your last 5 years' growth and assume it will be the same for the next 5 years and what you miss out on is also a cost.

If you get a loan, then your costs are of course the interest over the length of the loan. The lender would be able to provide that to you. You also lose return on the amount you take out of the IRA to make the payments. To make it simple, add up a year's worth of payments and make the loss of return (whatever you figured for the above scenario divided by 5) a year's worth. You also have to pay taxes on the total amount withdrawn each year, which will again add to your tax bill.

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