I’m 65 and want to help my mom with the reverse mortgage on her $1.5M home by tapping into my 401(k). Is this risky?

Reverse mortgages whitethorn assistance older adults enactment successful their homes if they person equity but not a batch of savings. But what happens erstwhile the wealth from a reverse owe runs out?

Imagine Veronica. She is disquieted astir her mother’s fiscal situation, and is considering doing thing that whitethorn interaction her ain fiscal aboriginal to help.

At 65, she is preparing for status and is considering tapping into her ain 401(k) to wage backmost the reverse mortgage. Veronica’s mother’s location is worthy $1.5 cardinal and the reverse owe was for $500,000, but present the wealth has tally out.

With $800,000 successful her 401(k), Veronica plans to instrumentality $250,000 retired of it to enactment toward paying disconnected the reverse mortgage, and utilizing immoderate of her currency savings to screen the rest. She’s unsure of the rules astir taking withdrawals connected her 401(k), and what the taxation implications volition be.

She is besides wondering if she tin wage disconnected the reverse mortgage, and past possibly instrumentality retired a caller owe connected her mother’s house, successful her ain name.

She thinks that possibly she would get taxation deductions connected the involvement payments connected a caller owe that could payment her taxation concern erstwhile she starts taking required minimum distributions from her 401(k). But is she correct?

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Older adults who person a batch of equity successful their homes but not a batch of savings to unrecorded connected often take a reverse owe truthful that they tin enactment successful their homes, and person a dependable income besides. However, a reverse owe is not without its downsides.

For example, the Federal Trade Commission (FTC) warns that taking a reverse owe tin bounds your options successful the future. It warns that you could usage up the equity successful your home; if you wanted to determination to a smaller home, oregon into assisted living, you whitethorn not person the wealth to bash so. (1)

People who are 62 and older tin suffice for reverse mortgages. The magnitude that you suffice for is based connected the equity you person successful your home.

When you instrumentality retired a reverse mortgage, you are expanding your debt: not lone bash you wage fees connected the reverse mortgage, but involvement arsenic well, which accrues implicit the word of the loan. With a regular owe you are expanding your equity arsenic you wage it down. With a reverse mortgage, it’s the opposite.