Rich retirees warned off using IRA cash to buy a house outright

A couple sitting on $8.2 million in traditional IRAs asked whether they should raid the accounts to buy a home outright. MarketWatch columnist Quentin Fottrell had a brisk answer: from a tax and financial standpoint, he called that a mistake.

The question came from an anonymous married couple, ages 60 and 69, who told MarketWatch’s The Moneyist column they have about $9.8 million in investments. Their portfolio includes $8.2 million in traditional IRAs and $1.6 million in a taxable brokerage account.

The husband is retired, according to the column, and receives a $200,000 annual pension, $40,000 in Social Security and $90,000 from consulting for his former employer. That consulting arrangement lets him participate in the company retirement plan.

The wife said her income comes entirely from long-term capital gains and can swing from zero to more than $500,000 a year. The couple said they have no debt, have low-cost private health insurance and are paying $100,000 a year in college costs from cash flow, with those expenses expected to end in 2028.

The house question

Their missing asset is a home. The couple said they want to buy in a high-cost, high-tax state and wondered whether they should withdraw the full purchase price from traditional IRAs, accept the tax bill and avoid mortgage interest.

Fottrell wrote that their concern about future tax brackets is reasonable given their income, pension and IRA balance. He noted that some wealthy retirees accelerate withdrawals or Roth conversions because they do not expect far lower tax rates later.

Even so, he pointed to the couple’s $1.6 million taxable brokerage account as money that could be used before making a large IRA withdrawal. Traditional IRA distributions are taxed as ordinary income, and a large one-time withdrawal could push the couple into top federal and state brackets, he wrote.

Using a $500,000 home purchase as an example, Fottrell said a lump-sum withdrawal of that amount could generate a tax bill of $150,000 to $220,000 or more, depending on other income and state taxes. By comparison, he said, a 6.6% 30-year mortgage would charge interest over time while leaving retirement assets invested and tax-deferred until later withdrawals.

Fottrell’s suggested middle path was to use a mix of options: draw from the taxable brokerage account, take a mortgage and time IRA withdrawals or Roth conversions over several years. He said the wife’s variable income could create lower-tax years for IRA moves, which could reduce future required minimum distributions without causing one large tax hit.

Mega backdoor Roth angle

The couple also asked about using a mega backdoor Roth strategy. Fottrell said the husband’s consulting income may make that possible if the employer plan permits after-tax contributions and in-service Roth conversions.

He described the strategy as useful for high earners who want to move more money into Roth accounts, especially those who exceed income limits for direct Roth IRA contributions. It requires a workplace retirement plan that allows both after-tax contributions and Roth conversions or in-service rollovers.

For 2026, Fottrell wrote, the total annual 401(k) contribution limit rises to $72,000, including employee contributions, employer match and after-tax contributions. Workers ages 50 to 59 and 64 and older can contribute up to $80,000 if permitted, while those ages 60 to 63 can contribute up to $83,250.

Still, Fottrell said the mega backdoor Roth is no magic wand for the home purchase. In his view, it may save tens of thousands of dollars, not millions.

This story draws on original reporting from MarketWatch.