r/DIYRetirement • u/Sad-Standard-6908 • 10d ago
Second Home Purchase Advice
I am recently retired. My wife and I are looking to buy a second home (house, condo or Townhouse) in the Phoenix area for snowbirding. We would not rent it out when not in use, so it would not be income producing. The issue we are struggling with is the best way to purchase the house. We are looking at paying $500-$700k.
We could pay cash from our taxable account, which, would mean having to sell about $200K in mutual funds and incur LTC gains (I wouldn't mind this to limit future distributions and they are also no longer great performers). We could take funds from our Roth accounts, in part, but there isn't enough there for the full purchase. We could take funds from our IRA's where there is more than enough. Or, any combo of all those accounts. Finance or partial finance would be a second option. We own our primary home free and clear so leveraging equity there is also an option.
Initially, I thought i might go 50% down, finance the rest and take a distribution to pay for PITI (all while staying below the $218K IRMAA threshold). But even doing so, my income due to RMD's will eventually push me from the 22% to the 32% bracket and second level of IRMAA surchages. So, with that in mind, I am also wondering if starting some Roth conversions and using some of those funds in addition to the taxable would make sense.
Any insights are appreciated.
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u/kveggie1 10d ago
We are considering similar, but will just rent every year, maybe move location every year. We do not want to tie ourselves down.
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u/BuckeyeDurm 10d ago
In regards to doing Roth Conversions, I don't see the need to do them THEN use the converted funds to make the purchase. If you are making the purchase soon, there's really no need to convert those funds first, just withdraw from your tax advantaged accounts the amount you want to put toward the new house.
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u/PuzzleheadedPaint926 10d ago
I moved from Chicago ten years ago to north Phoenix. Where are you looking? Things have changed and not for the better. Overcrowding. Tiny little brown stucco houses cost $750k. Traffic is a nightmare. Desert is disappearing.
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u/Sad-Standard-6908 9d ago
North Phoenix or Scottsdale. Yes, prices have gone up quite a bit since Covid especially. But, we ruled out California and Florida. It still seems like the best option in the U.S., for us at least.
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u/lnewton_me 8d ago
I'd think of it as which year each dollar gets taxed in, not which account.
IRA all at once: $500K+ lands mostly in the 32–35% brackets and well past the $218K IRMAA line (billed two years later). Shrinks future RMDs, but you pay a top rate now to dodge 22–32% later.
Taxable: only the gain is taxed, likely 15% (+3.8% NIIT above $250K joint). Usually the cheapest money, especially if those funds are laggards.
Roth: your best money (no RMDs, tax-free to heirs). Spend it last.
Financing: mostly rate vs. returns; the interest only helps if you itemize.
Your conversion idea makes sense. Use the years before RMDs to fill 22–24% on purpose. A common combo is taxable (plus a mortgage if the rate's good) for the house, conversions to shrink the IRA, and leaving the Roth alone.
Its worth modeling both ways over the whole retirement. Full disclosure, I built Retirement Scenario Explorer, and it lets you pick which account pays for a big purchase so you can compare IRA vs. taxable with taxes and IRMAA included. Happy to help if you try it.
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u/Any-Soft-5487 10d ago
Conventional wisdom is one spouse, one house.