Want to finance new home with liquid assets and IRAs - any flaws in my plan or suggested alternate options?
Since I have no substantial income (relatively small amount of interest income), I was going to try to qualify for an "asset dissipation/depletion" mortgage for part of it.
I can use savings, early withdrawal of CD (penalty applies), and savings bonds to pay for part of the purchase.
I can withdraw contributions and a prior conversion from my Roth IRA tax- and penalty-free, since I've had the Roth for more than five years. I haven't owned a home since Jan. 2013, so I will qualify as a first-time homebuyer. That means I can withdraw up to $10,000 from my Roth and/or Traditional IRA penalty-free.
When I conservatively computed a 15-year fixed rate mortgage on $40K at 5% (I have excellent credit), the total interest I'd pay over the life of the mortgage comes out to substantially more than I'd pay in taxes and penalty on early withdrawal of that amount from my IRAs (split between 2015 and 2016). I wouldn't be in higher than a 15% federal income tax bracket, and a state income tax bracket of about 4%.
If I need to continue to withdraw from my IRAs for living expenses, I could implement SEPP (substantially equal periodic payments) for five years to avoid the 10% penalty. After that, I'd be past age 59 1/2 and could continue to withdraw penalty-free.
Anyone have thoughts on my plan where I may have missed something? Or any alternative suggestions?
I know I could wait until 59 1/2 and allow my IRAs to grow some more. I could also reallocate so I'm more ready. My IRAs are in Vanguard 2025 Target Retirement funds. But I'm tired of renting, and there are limited lots left with no lot premium being charged where I want to live.
TIA for any feedback!