However, past behavior best predicts future behavior, so more than likely, they will drain the IRA and run up more debt.
I hear what you're saying, but I'm not looking to philosophize, prognosticate or psychoanalyze. To me that's tilting at windmills. My goal is simply to understand the numbers and model a couple scenarios. It'll be up to them to stick to the plan.
Why should he kill off part of the golden goose for a quick fix?
How is it his golden goose when he's paying more in loan interest than he's earning on portfolio returns?
Here's the way I look at it.
If they follow the current debt paydown plan, they'll spend ~$16.2k over the next 14 months. If, however, they sell part of their IRA retirement savings, they'll pay ~$15.7k today. They would free up ~$1100 in montly cash flow to redirect back into savings, which could replenish the IRA (now split between his and hers) in about 14 months. Given that much of his income isn't taxable (VA disability) he it should be close to neutral on taxes and deductions. Given their likely low AGI, they would be essentially tax-gain harvesting the IRA. Win win.
The risks I see are:
1) He could miss out on a bear market that kicks off tomorrow. Not likely.
2) One of them could croak before replenishing the IRA. Term life insurance pay-out is worth more than the $15.7k.
3) They could go on a wild spending spree and waste the $1100 a month. That's their choice but I don't see this as an issue.
Is my math or understanding of the tax rules incorrect?