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Raid IRA to get into retirement community?

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Dear Senior Living Adviser,
I am considering moving into a Continuing Care Retirement Community, or CCRC. I am 72 and retired (except for a couple days a week as an adjunct instructor at a local college, which will end when I move into the CCRC). I have my house on the market, but the market is slow right now and I have no idea when I will get an offer. I must pay the remainder of the entrance fee on the unit I have selected on Nov. 1, and need a contingency plan in case I do not have the money from the house sale when I need to close. I have plenty of money in my IRA to cover the cost, but I’m not sure I could replace it within 60 days due to the unpredictable house-sale cash.

Because I am moving into a CCRC, I have been advised that part of the entrance fee may be tax-deductible as a medical expense. I’m not sure how or if that would apply to the early withdrawal from the IRA. Any advice?

— Jim Juncture

Dear Jim,
Your concern is in triggering an income tax bill on the IRA distribution. It’s not an early withdrawal, but the distribution is subject to income taxes. If you can’t get the money back in an IRA in 60 days, you’ll owe the income tax on the distribution.

Any tax deduction on the entrance fee could offset part of the tax liability on an IRA distribution, but the optimal situation would be to avoid incurring the IRA tax liability. You didn’t mention how much money you need, but a large distribution can also put you in a higher tax bracket.

Two options to consider are a home equity line of credit, or HELOC, against your current home, or a bridge loan. Your CCRC should know of financial services firms that offer bridge loans. One I came across was Elderlife Financial Services, but talk to your bank, too.

A HELOC typically has low closing costs, but sometimes has a prepayment penalty. If you sell your home within the penalty period, that adds to the cost of that loan option. Like a bridge loan, the loan is interest only, at least in the early years of the loan.

A bridge loan can have high upfront administrative costs, and typically is for a short term, like six months, but often has a renewal feature if you don’t sell your home. I’d consider that an important feature when getting a bridge loan. You don’t want to have to raid the IRA to pay off the bridge loan since you took out the bridge loan to avoid raiding the IRA in the first place.

You’re trying to minimize both the interest expense and the tax liability, while not having to reduce the listing price on your home too much. Lean on your tax professional if you’re not sure about the tax impact of your actions.

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