Withdrawing lump from retirement accounts

[Golfer68]

Wish to liquidate $350,000 in the next couple of months to by home with daughter in NC (makes sense from a family perspective).  Would like to put $350,000 towards $1 million home and then daughter will take over mortgage/tax/upkeep as she is young doc with young family/earning potential.  Hoping to avoid paying unnecessary taxes.  Thank you!

Currently have the following in my assets:

-401k with 500k in 60% vangaurd stock index, 40% in bonds

-Regular taxable account with 500k in 60% vangaurd stock index, 40% in bonds

-Another taxable account with $200k in 60% vangaurd stock index, 40% in bonds

-One house in cali worth $650k, of which I have paid $200k of a $400k mortgage

Thank you!

[Dr. Mom]

What is your age and current income, if any?  Are the assets you have listed your total portfolio? Is selling the house in Cali on the table?  Would increasing the mortgage on the NC house to $750000 with you only putting $250000 down to take full advantage of the new mortgage interest deduction limit be possible?

[jfoxcpacfp]

The last thing you should do is liquidate retirement accounts - 100% taxable. Can you co-sign on the mortgage instead? Otherwise, if you must have the cash, liquidate the taxable accounts. No way to tell you how to choose what to sell, though. If you have a LTCL carryover, would be a good time to use it up. (What I would do, of course, is to get rid of all of the bonds,   )

[squirrel]

I live in NC.   Sure she needs a million dollar home?  NC prices that is on the higher end.

[Golfer68]

Sorry, should have clarified . . . I am, 67, I have $4200 per month in income from SS and pentions . . . will likely be selling the house in SF, however most likely not until after house in NC is bought . . . I could certainly be on the mortgage, however would rather not have to contribute to it moving forward, thus though it would make sense to put a fair amount down up front . . . Why get rid of bonds? Not sure about the LTCL

[q-school]

I know you’ve already decided this is the right thing to do, but since no one else has stepped up to say it, this does not seem like a financially prudent thing to do.

With all due respect, your accounts do not suggest you can safely provide a gift of this size. What if you develop health issues down the road? If your daughter is a physician she can afford the mortgage on her own. If she cannot then perhaps the house doesn’t make sense. A million dollar Home in North Carolina seems excessive for young doctor. Carrying costs are significant. Maintenance significant. North taxolina will get their share of property taxes, I’m sure.

Is 68 your golf score or birth year? Assuming birth year, you put yourself at significant risk imo by handing over a big chunk of retirement funds into a personal home. I would think liabilities attach if you co own the home and if not co owned, I guess you are handing it over using estate exemption to avoid her paying taxes?

You certainly have given this a lot of thought, but it seems an extraordinary gift based on provided information.

Best of luck with whatever you decide.

[childay]

If I am understanding, you are retired with a net worth of roughly 1.4M and plan to gift your daughter 25% of that?  Or are you planning on living in this house as well?

[Dr. Mom]

Disagree about the bonds but know better than to hijack your thread with an argument with Johanna about it.

Could you do a cash out refi on your current house for the lion’s share of it which would be paid off when you sell the house? Could you afford carrying that higher monthly payment for awhile instead of liquidating taxable accounts?

[jfoxcpacfp]

Dr. Mom wrote:

Disagree about the bonds but know better than to hijack your thread with an argument with Johanna about it.

Could you do a cash out refi on your current house for the lion’s share of it which would be paid off when you sell the house? Could you afford carrying that higher monthly payment for awhile instead of liquidating taxable accounts?

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Golfer68 wrote:

Why get rid of bonds?

Actually, that was just a lame joke. I assumed everybody cringed when I said it, there have been so many discussions over the last 23 mos. @Golfer68, it's just a personal investment philosophy. I am concerned about your plans, though. Hopefully, you didn't post the sum total of your assets for us, only those relevant for purposes of this discussion.

[q-school]

Usually banks can give bridge loans based on equity in current house. Or you can have nc loan recast or refinanced at some point after selling sf home.

I would be reluctant to take that much money out of retirement but what I didn’t realize previously is you can take it out without penalty. Still going to be taxed though. Might push you into higher brackets. Some out this year and some out next year?

Even with 50k income a year through pension, I still think his might be too generous a gift. this much out is going quickly is going to kick a significant amount to Uncle Sam that might. Be lowered through a more measured withdrawal. Lost to you forever.

however if your total budget is about 100k per year, then you need 50k a year from taxable and retirement accounts, you might be alright.  i haven't gotten that far in life to start thinking about drawdown.  but i think most structured drawdowns don't take so heavily from retirement accounts so early as a rule of thumb.

Good luck however.
You are really doing something remarkeable for your daughter.

[Peds]

agree would not liquidate that much in a year or even over 2 years.

have your daughter buy the house, all in her name.

pay rent, gift yearly if desired up to the limit (15k).

agree, with a NW of 1.2MM outside of home @ 67yo you cant (easily) afford this.

[Dr. Mom]

jfoxcpacfp wrote:

Dr. Mom wrote:

Disagree about the bonds but know better than to hijack your thread with an argument with Johanna about it.

Could you do a cash out refi on your current house for the lion’s share of it which would be paid off when you sell the house? Could you afford carrying that higher monthly payment for awhile instead of liquidating taxable accounts?

Click to expand…

Golfer68 wrote:

Why get rid of bonds?

Actually, that was just a lame joke. I assumed everybody cringed when I said it, there have been so many discussions over the last 23 mos. @golfer68, it’s just a personal investment philosophy. I am concerned about your plans, though. Hopefully, you didn’t post the sum total of your assets for us, only those relevant for purposes of this discussion.

Click to expand...

I can't figure out how to do emojis on the site Johanna or I would've included lots of smileys and hearts with my response!

[Dr. Mom]

Golfer68, as I see it, if we could wave a magic wand and convert the $450K of equity in your Cali home to $350K of equity in the NC home and add 100K to your portfolio (which at 60 Stock: 40 Bond is just fine) at no cost to you that would be our goal. So where to start...

1.  Have a sit down with your daughter and really be sure that taking on a mortgage of $650K is not a strain.  She can post here, too, if desired.  Your gift needs to be a blessing not a curse.  I have family in NC and agree 1 M is alot of house there.  A good rule of thumb would be that the mortgage be no more than 2X her annual income as long as student loans are gone and location longevity is established.  I am the daughter that my parents have moved near as they age.  Talking about finances is necessary and should not be taboo.

2.  Consider selling taxable account this year by Dec. 31 to keep yourself at the 0% Cap Gains rate.  Use any losses, offset by anything that doesn't have too much gain to raise the most possible.  You didn't say if you were married or not so I'm not sure what your limits are.  How much can you raise by doing this?

3.  Next year, do the same as above.  How much can you raise here?

4.  Next year, consider the cost difference between pulling from 401k to fill your lower tax brackets versus the cost of tapping your mortgage equity.  You have numerous choices to tap it:  cash out refi, HELOC, bridge loan, or letting your daughter take on a larger mortgage and then throwing cash from the sale of your house at it if they let her recast the mortgage to a lower payment.

Hope some of these ideas help.  Consider posting over at Bogleheads and fill in the gaps of martial status and what your required annual spending is as they could effect the answer.  I really appreciated that my parents moved near me to make helping them easier on me.  Kudos for doing the same for your daughter!  Good luck!