The difference between a HELOC and a margin loan is that the house would have a mortgage and that's something he could not tolerate never mind the tax or financial implications.  We also don't itemize.

Roberta 

I'd re-finance the house at a 5.5% rate or better and write off the mortage. If possible say 100K for the house, and not full value.   Look for funds that I can sell at a tax loss due to distrubutions being paid at the end of last yr and the funds have fallen q1 2008.  then look at roth ira, and lastly you can set up automatic withdraws from the IRA that are not taken with a penality.

"We also don't itemize"

I've been waiting for that statement. I was wondering if I was the only one on this Forum who doesn't itemize. There is so much discussion here about paying off mortgages by the time one retires that I've been surprised at the number of comments with Tax Deductible in them.

Billym 

Until recently we had no debt of any kind other than a small HE loan. FOr personal reasons, we had to take out a 35% mortgage on our home last year since the interest was deductible. Since I am receving income to offset the interest I am paying out it is kind of a wash.

Had I withdrawn the funds needed from my IRA (the only source I have) I would have again found our Medicare and other costs go way up again in addition to having to pay a large income tax bite on the IRA withdrawal (probably in at least the 25% bracket. In addition, I would have had to sell mutual funds within the IRA to raise the cash, and this certainly isn't the time to be doing that.

We have always been able to itemize even without the house loan interest... our RE taxes, deductions for medical insurance and copayments, etc,  and charitable contributions are enough to beat the standard deduction. I guess I'm kind of surprised that more retirees are NOT itemizing...

Bob 

Roberta,

With a HELOC, you have a certain amount of credit set up (based on your equity in your home) that you don't pay interest on unless you use the money.  It just like a margin account.  If you HELOC is $100,000, and you need $10k for taxes, you pay interest only on the $10k actually used, not the $90k still in reserve.  Once the $10k is paid back, no interest is charged, or due.  It's like the maximum charge limit on a credit card.

I understand how a HELOC works and its advantages.  He understands how it works and its advantages.  The bottom line is that the house is your collateral and he's not going to let that happen.  Aside from the fact that he'd have to sign the papers to do it and he wouldn't, he does have the ability to access his accounts, our joint accounts and power of attorney over my accounts.  He would start at the top of the list and sell until we were debt free.  And he'd probably be so pissed, he'd sell everything and go totally to cash and CD's. It would get rid of some dogs I haven't been able to bring myself to sell :-).

It is still unclear whether I'll be able to use the margin account without marital friction.  He has weighed in on the side of conventional wisdom and using the taxable rather than sheltered but I don't think he's realized the impact RMD's are going to have on us 

We have not been able to itemize for years.  Mostly it's b/c we never got out of the habits of being poor but the same kind of scrutiny that I apply to investing goes to things like insurance.  That doesn't mean that we do without things we think are important, like travel.

Roberta

Roberta,

"He would start at the top of the list and sell until we were debt free.  And he'd probably be so pissed, he'd sell everything and go totally to cash and CD's. It would get rid of some dogs I haven't been able to bring myself to sell :-)."

I understand your situation.

If he buys off on spending taxable first, that would seem to be the best psycholigical solution.

Prior to retirement, LaLoba and I had a discussion on whether or not it made sense to pay off our mortgage, or put that same amount of money (into VWEHX, as it were!).  This was part of a discussion on whether or not to take a lump sum for half of her pension or take the annuity instead.

I worked the numbers, and it would have been better, financially, to keep the mortgage in retirement.  Several thousand dollars of interest spread over the life of the mortgage were involved.  Anyhow, even though fincially a better deal, it wasn't psychologically, so we paid off the mortgage, and haven't looked back since.

We have an equivalent HELOC set aside, which I do tap (only to smooth out lump sum money problems during the year), but obviously have the ability to pay off within a day or two (the amount of time necessary to transfer funds from Vanguard to our credit union).

But everyone is different.

Good luck in your personal 'prime credit crunch'!

Roberta,

a couple things.  I agree on the mortgage info in prior posts.  I also understand old school, own the house.. You need to decide what work for you.

I just saw this in another column,  you may already be aware.

DUMB: Selling highly appreciated company stock if you're near retirement. "The tax break on net unrealized appreciation will be lost forever," warns Jeremy E. Portnoff, a financial adviser in Westfield, N.J.

 

This little-known tax dodge works like this: The IRS will allow you to withdraw company stock in-kind (that is, you don't have to sell it first) from a 401(k) or other deferred-compensation plan at retirement and deposit it directly into a brokerage account. The tax "basis" in the stock becomes the value when it is transferred, not when it was originally purchased, when it was presumably worth much less.

Proceeds from retirement accounts are taxed like ordinary income, at rates approaching 40%. With this move, you pay the capital gains rate of 15% or less.

hope it helps dodge the tax man...