Mortgage Killer Accelerator

Strategy 25 of 107

Roth IRA contributions (not earnings) to principal

Most predictableFrom an asset you already own

What it is

Roth IRA withdrawals come out of regular contributions first, and those can be taken at any age without tax or penalty.

Steps

  1. Roth IRA withdrawals come out of regular contributions first, and those can be taken at any age without tax or penalty.
  2. Total your contributions (Form 5498 each year) and take no more than that.
  3. Send it to principal only if retirement savings are otherwise on track.

Repeat: Once, or whenever a decision is made to trade retirement growth for a paid-off home.

Measure: Contributions withdrawn (enter as a one-time amount).

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

Risks

  • Contributions cannot be put back except within normal yearly limits; tax-free growth on them is lost for good.
  • Withdrawing earnings or converted amounts early can be taxed and penalized.

Who it fits

Average household, Higher earners, Married couples, Single, No college degree

Needs

Has a Roth IRA

How predictable

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

A worked example (hypothetical, not guaranteed)

Picture a hypothetical household (average household). 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: roth IRA withdrawals come out of regular contributions first, and those can be taken at any age without tax or penalty.

Suppose it brings a one-time $30,000 on principal. The loan would be paid off in 22 years 10 months instead of 30 years, saving about $134,798 in interest. To finish in five years, they would still need about $3,387 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.

Sources and more information

Where to get help

Related strategies

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