Mortgage Killer Accelerator

Strategy 42 of 107

70½ and over: give from the IRA directly and send the tax saved to principal

Most predictableFrom new cash flow, not your paycheck

What it is

If you already give to charity, have the IRA pay the charity directly (a qualified charitable distribution) instead of writing checks from the bank.

Steps

  1. If you already give to charity, have the IRA pay the charity directly (a qualified charitable distribution) instead of writing checks from the bank.
  2. The gift is left out of taxable income, up to the yearly IRS limit, and counts toward required distributions from 73.
  3. Keep giving the same amount; the tax you no longer owe goes to principal.

Repeat: Every tax year.

Measure: Tax saved for the year (enter as a yearly amount).

Try it in the calculator Enter its amount in "Yearly amount to principal". Add a payoff goal of 5 years to see what is still needed.

Risks

  • Only for money you would give anyway; it is not a way to make money.
  • The check must go straight from the IRA to the charity, and you cannot also deduct it.

Who it fits

Grandmas and grandpas (62 and over), Higher net worth, with assets

Needs

70½ or older; Gives to charity every year

How predictable

Most predictable: once in place, the payoff date is arithmetic

A worked example (hypothetical, not guaranteed)

Picture a hypothetical household (grandmas and grandpas (62 and over)). They owe $300,000 at 6.5% with 30 years left. The required payment is $1,896 a month, and that payment, which comes from income, never changes in this example.

They follow the steps: if you already give to charity, have the IRA pay the charity directly (a qualified charitable distribution) instead of writing checks from the bank.

Suppose it brings $6,000 once a year on principal. The loan would be paid off in 17 years 11 months instead of 30 years, saving about $173,949 in interest. To finish in five years, they would still need about $3,488 a month more from other strategies. That is why the five-year sequences stack several at once.

The amount above is chosen only to show the arithmetic. It is not an estimate of what this strategy will produce for anyone. Put real numbers from the fact finder into the calculator.

Sequences that use it

  • Estate and giving stack: Turn assets that no longer fit into principal with as little tax as the rules allow, then recast to lower the payment.
  • Five-year sprint: 73 and over: Money that must come out anyway, a yearly free withdrawal, the tax saved by giving directly, and a policy no longer needed.

Sources and more information

Where to get help

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