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At 61 With $900K Saved and a $250K Mortgage, Should We Raid the IRA to Pay It Off?

MarketDash Editorial Team
1 day ago
A couple approaching retirement faces a tempting question: use IRA funds to wipe out their mortgage and enter retirement debt-free. But taxes, Medicare surcharges, and lost compound growth can make this feel-good move surprisingly expensive.

Here's a situation that probably sounds familiar to a lot of people approaching retirement.

You're 61. You've built up around $900,000 in retirement savings. There's still a $250,000 mortgage hanging over your head. Retirement feels close enough to taste, and the thought of walking into it completely debt-free sounds pretty wonderful.

On the face of it, paying off that mortgage seems like the grown-up thing to do. No more monthly payment eating into your fixed income. One less bill to track when the paychecks finally stop coming. Clean slate, fresh start.

Except there's a catch. To pull this off, you'd need to yank a quarter million dollars out of your IRA. And suddenly what felt like a straightforward financial decision turns into a maze of tax implications, Medicare premium surprises, and Social Security complications. The move that's supposed to save you money on mortgage interest can quietly cost you far more in ways you didn't see coming.

The Problem With Big IRA Withdrawals

At 61, you're past the magic age of 59½, so there's no early withdrawal penalty to worry about. That makes the whole idea feel reasonable at first glance.

But here's the thing: every single dollar you pull from a traditional IRA or 401(k) gets taxed as ordinary income in the year you take it out.

So if you withdraw the full $250,000 in one shot to eliminate that mortgage, that entire sum lands on top of whatever else you're earning that year. Maybe you're still working part-time, maybe there's consulting income, perhaps a pension. Whatever it is, that withdrawal stacks on top, and it can shove you into a significantly higher tax bracket for that year.

And the complications don't stop at your tax bracket. Higher income today means a bigger chunk of your future Social Security benefits becomes taxable. It can also bump your modified adjusted gross income high enough to trigger Medicare IRMAA surcharges, which jack up your Part B and Part D premiums for at least a year, sometimes longer.

Plus, once that $250,000 leaves your IRA, it stops growing tax-deferred. Over the next ten or twenty years, that lost compounding can snowball into an opportunity cost that dwarfs whatever you thought you were saving on mortgage interest.

Path One: Just Keep the Mortgage

The simplest route is often the one people overlook entirely.

You keep the mortgage, leave your $900,000 invested, and pay the monthly bill through regular, carefully planned withdrawals from retirement accounts. By spreading those withdrawals over time, you maintain much better control over your tax situation, how much of your Social Security gets taxed, and whether you trip any Medicare premium landmines.

This approach gives you flexibility. If the market takes a dive in a particular year, you can dial back withdrawals or tap non-retirement savings temporarily. Nothing locks you into a big, irreversible move at a single moment.

The drawback here isn't really financial. It's emotional. Some folks just hate the idea of carrying debt into retirement, even when the math clearly supports it.

Path Two: Pay It Down Gradually

The middle road tends to be the most practical for a lot of people.

Instead of wiping out the mortgage in one dramatic move, you could make smaller, intentional withdrawals over several years. Maybe $50,000 to $80,000 annually, applied directly to the principal balance.

This gradual approach shrinks both the debt and the psychological burden without setting off the tax and Medicare traps that come with a massive one-time withdrawal. It also helps you stay below critical income thresholds, including those Medicare IRMAA tiers that kick in for married couples just above the low $200,000 range of modified adjusted gross income.

What you get with this strategy is a three-way win:

  • Lower guaranteed housing costs over time
  • Most of your money stays invested and growing tax-deferred
  • Better control over both taxes and healthcare expenses

It's not perfect for everyone, but it avoids the extreme downsides of the other options.

Path Three: Pay It All Off Right Now

The option that feels the best emotionally is usually the most expensive one over the long haul.

Paying off the entire mortgage immediately with one big IRA withdrawal typically pushes your income into higher tax brackets for that year, increases the odds that 85% of your Social Security benefits will be taxable going forward, and triggers higher Medicare premiums through IRMAA.

On top of all that, you permanently yank a meaningful chunk of capital out of tax-advantaged growth.

Now, there are niche situations where a full payoff actually makes sense. If you've got an unusually high mortgage rate, expect very low future income, or have substantial assets sitting outside retirement accounts, the math might tilt in favor of it. But once you run the numbers properly, it's rarely the winning move.

The Social Security and Medicare Traps Nobody Talks About

Two of the most commonly overlooked consequences of a large IRA withdrawal don't show up until later.

First up: Social Security taxation. Your benefits get taxed based on something called provisional income, which rises sharply when you take IRA withdrawals. That means the effective tax rate on your withdrawal can be much steeper than the nominal bracket suggests, because it forces more of your Social Security into taxable territory.

Second: Medicare IRMAA. Your premiums are calculated using income from two years back. So that single large withdrawal you make today can result in higher monthly Medicare costs down the road, often surprising retirees long after the mortgage is paid off and forgotten.

When you layer in these costs, a payoff that looked smart in isolation can end up being way more expensive than you bargained for.

When Financial Advisors Actually Earn Their Keep

This is exactly the kind of decision where real modeling beats guesswork every time.

A solid financial advisor can run side-by-side scenarios showing what happens if you:

  • Keep the mortgage and take normal withdrawals
  • Pay it down gradually over multiple years
  • Eliminate it entirely in one year

Then they can show you how each path affects your taxes, Social Security benefits, Medicare premiums, and whether your portfolio can actually sustain you through a long retirement.

This is where a service like SmartAsset comes in handy. Their free matching tool connects people with vetted, fiduciary financial advisors who specialize in retirement and tax planning. For households with at least $100,000 in investable assets, SmartAsset can match you with up to three CFP professionals who can review your situation and stress-test decisions like this at no cost.

An hour spent modeling these different paths can easily be worth more than the interest you'd save on your mortgage, especially if it prevents you from making a poorly timed six-figure withdrawal that triggers a cascade of avoidable taxes and healthcare costs.

How This Usually Shakes Out

For a 61-year-old couple sitting on $900,000 in savings with a $250,000 mortgage, paying off the house with one giant IRA withdrawal is typically the most expensive way to buy peace of mind.

A more measured approach, whether that's keeping the mortgage and managing it with regular withdrawals or paying it down gradually with carefully timed distributions, usually strikes a much better balance. You get emotional comfort, tax efficiency, protection of your Social Security and Medicare benefits, and a healthier long-term portfolio.

The right answer doesn't jump out at you from the surface numbers. It only becomes clear when you map everything out over time and see how the pieces interact.

That's the real lesson here: this isn't a decision to make on impulse. It's one to model carefully, with the goal of entering retirement lighter on debt without loading yourself up with avoidable financial drag along the way.

Back to Stock Market News

At 61 With $900K Saved and a $250K Mortgage, Should We Raid the IRA to Pay It Off?

MarketDash Editorial Team
1 day ago
A couple approaching retirement faces a tempting question: use IRA funds to wipe out their mortgage and enter retirement debt-free. But taxes, Medicare surcharges, and lost compound growth can make this feel-good move surprisingly expensive.

Here's a situation that probably sounds familiar to a lot of people approaching retirement.

You're 61. You've built up around $900,000 in retirement savings. There's still a $250,000 mortgage hanging over your head. Retirement feels close enough to taste, and the thought of walking into it completely debt-free sounds pretty wonderful.

On the face of it, paying off that mortgage seems like the grown-up thing to do. No more monthly payment eating into your fixed income. One less bill to track when the paychecks finally stop coming. Clean slate, fresh start.

Except there's a catch. To pull this off, you'd need to yank a quarter million dollars out of your IRA. And suddenly what felt like a straightforward financial decision turns into a maze of tax implications, Medicare premium surprises, and Social Security complications. The move that's supposed to save you money on mortgage interest can quietly cost you far more in ways you didn't see coming.

The Problem With Big IRA Withdrawals

At 61, you're past the magic age of 59½, so there's no early withdrawal penalty to worry about. That makes the whole idea feel reasonable at first glance.

But here's the thing: every single dollar you pull from a traditional IRA or 401(k) gets taxed as ordinary income in the year you take it out.

So if you withdraw the full $250,000 in one shot to eliminate that mortgage, that entire sum lands on top of whatever else you're earning that year. Maybe you're still working part-time, maybe there's consulting income, perhaps a pension. Whatever it is, that withdrawal stacks on top, and it can shove you into a significantly higher tax bracket for that year.

And the complications don't stop at your tax bracket. Higher income today means a bigger chunk of your future Social Security benefits becomes taxable. It can also bump your modified adjusted gross income high enough to trigger Medicare IRMAA surcharges, which jack up your Part B and Part D premiums for at least a year, sometimes longer.

Plus, once that $250,000 leaves your IRA, it stops growing tax-deferred. Over the next ten or twenty years, that lost compounding can snowball into an opportunity cost that dwarfs whatever you thought you were saving on mortgage interest.

Path One: Just Keep the Mortgage

The simplest route is often the one people overlook entirely.

You keep the mortgage, leave your $900,000 invested, and pay the monthly bill through regular, carefully planned withdrawals from retirement accounts. By spreading those withdrawals over time, you maintain much better control over your tax situation, how much of your Social Security gets taxed, and whether you trip any Medicare premium landmines.

This approach gives you flexibility. If the market takes a dive in a particular year, you can dial back withdrawals or tap non-retirement savings temporarily. Nothing locks you into a big, irreversible move at a single moment.

The drawback here isn't really financial. It's emotional. Some folks just hate the idea of carrying debt into retirement, even when the math clearly supports it.

Path Two: Pay It Down Gradually

The middle road tends to be the most practical for a lot of people.

Instead of wiping out the mortgage in one dramatic move, you could make smaller, intentional withdrawals over several years. Maybe $50,000 to $80,000 annually, applied directly to the principal balance.

This gradual approach shrinks both the debt and the psychological burden without setting off the tax and Medicare traps that come with a massive one-time withdrawal. It also helps you stay below critical income thresholds, including those Medicare IRMAA tiers that kick in for married couples just above the low $200,000 range of modified adjusted gross income.

What you get with this strategy is a three-way win:

  • Lower guaranteed housing costs over time
  • Most of your money stays invested and growing tax-deferred
  • Better control over both taxes and healthcare expenses

It's not perfect for everyone, but it avoids the extreme downsides of the other options.

Path Three: Pay It All Off Right Now

The option that feels the best emotionally is usually the most expensive one over the long haul.

Paying off the entire mortgage immediately with one big IRA withdrawal typically pushes your income into higher tax brackets for that year, increases the odds that 85% of your Social Security benefits will be taxable going forward, and triggers higher Medicare premiums through IRMAA.

On top of all that, you permanently yank a meaningful chunk of capital out of tax-advantaged growth.

Now, there are niche situations where a full payoff actually makes sense. If you've got an unusually high mortgage rate, expect very low future income, or have substantial assets sitting outside retirement accounts, the math might tilt in favor of it. But once you run the numbers properly, it's rarely the winning move.

The Social Security and Medicare Traps Nobody Talks About

Two of the most commonly overlooked consequences of a large IRA withdrawal don't show up until later.

First up: Social Security taxation. Your benefits get taxed based on something called provisional income, which rises sharply when you take IRA withdrawals. That means the effective tax rate on your withdrawal can be much steeper than the nominal bracket suggests, because it forces more of your Social Security into taxable territory.

Second: Medicare IRMAA. Your premiums are calculated using income from two years back. So that single large withdrawal you make today can result in higher monthly Medicare costs down the road, often surprising retirees long after the mortgage is paid off and forgotten.

When you layer in these costs, a payoff that looked smart in isolation can end up being way more expensive than you bargained for.

When Financial Advisors Actually Earn Their Keep

This is exactly the kind of decision where real modeling beats guesswork every time.

A solid financial advisor can run side-by-side scenarios showing what happens if you:

  • Keep the mortgage and take normal withdrawals
  • Pay it down gradually over multiple years
  • Eliminate it entirely in one year

Then they can show you how each path affects your taxes, Social Security benefits, Medicare premiums, and whether your portfolio can actually sustain you through a long retirement.

This is where a service like SmartAsset comes in handy. Their free matching tool connects people with vetted, fiduciary financial advisors who specialize in retirement and tax planning. For households with at least $100,000 in investable assets, SmartAsset can match you with up to three CFP professionals who can review your situation and stress-test decisions like this at no cost.

An hour spent modeling these different paths can easily be worth more than the interest you'd save on your mortgage, especially if it prevents you from making a poorly timed six-figure withdrawal that triggers a cascade of avoidable taxes and healthcare costs.

How This Usually Shakes Out

For a 61-year-old couple sitting on $900,000 in savings with a $250,000 mortgage, paying off the house with one giant IRA withdrawal is typically the most expensive way to buy peace of mind.

A more measured approach, whether that's keeping the mortgage and managing it with regular withdrawals or paying it down gradually with carefully timed distributions, usually strikes a much better balance. You get emotional comfort, tax efficiency, protection of your Social Security and Medicare benefits, and a healthier long-term portfolio.

The right answer doesn't jump out at you from the surface numbers. It only becomes clear when you map everything out over time and see how the pieces interact.

That's the real lesson here: this isn't a decision to make on impulse. It's one to model carefully, with the goal of entering retirement lighter on debt without loading yourself up with avoidable financial drag along the way.