I’d appreciate some help thinking through a potential scheme, it’s got three moving parts. For the sake of simplicity (and because I’d like to think through the concepts involved) I’m going to leave off the numbers for now.
Here are a few pieces of information:
1) I have income-producing rural investment property that is 44 acres and has a mortgage at 5.75%. Because this property is this size, I have had no luck at all with refinancing it at a lower rate (despite trying continually over the past 5 years). The only people who do mortgages with rural property of this size are the ones who currently hold the mortgage (and they’re not dropping the rate, despite my frequent begging inquiries). The property has a vineyard and a house, both of which are leased out. The lease money all goes to covering operating costs and debt service.
2) Looking at my statements for my Roth Ira at Vanguard I see that the contributions I made over the last decade are coincidently just about the same amount as the remaining principal on the mortgage.
3) I am a public employee (in the US) and participate in the 403(b) deferred compensation plan (the public servant’s equivalent of a 401(k), there is no employer match); I don’t contribute the maximum amount at this point (because I’m focused on paying down this $$#!! mortgage as part of my “savings”…I hate debt like the Hatfields hate the McCoys).
Scheme – here’s what I’m thinking I might do?
• Withdraw the contributions made from the Roth IRA and pay off the mortgage.
• And to make up for the “hole” in the retirement account, I would increase the 403(b) contributions to the max this year (and in future years).
Consequences:
• Are there tax consequences to withdrawing Roth contributions? (I don’t think so, but I’m checking assumptions).
• Retirement funds would be replaced, but would be pre-tax instead of the Roth they are now. At this point 40% of my retirement is pre-tax and 60% is Roth. By playing this shell game I would shift that balance. My thinking is that at FIRE (3-5 years from now) I would have very little income and could do the Roth conversions at the capital gains rate of 0%.
• My paycheck would be drastically reduced (due to the greatly increased 403(b) contributions) but any shortfall could be made up from the leases on the investment property. My savings rate is over 40% now, so the reduced paycheck would require me to use only about a third of the net leases, the rest would go towards investment - now that it isn't all going to debt service).
Am I crazy? And what am I not considering? Please shoot holes in this, and/or give me some directional feedback.