I owe about $80,000 on my mortgage and will be retiring within a year but I want to be free of the mortgage payments. Should I use my Roth IRA or IRA to pay off the mortgage? Should I pay off the mortgage in full at once or make large payments over a four-year period? I appreciate any advice you can give me.
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– Mona
Mona, it’s good that you’re thinking about the most efficient way to pay off your mortgage. How you withdraw money from your retirement accounts can significantly affect your tax bill and, in turn, how long your savings last. Generally, in a situation like this I’d recommend pulling from your tax-deferred IRA first, provided you are willing to stagger the payments over several years. This may allow you to preserve your Roth IRA and let it continue to accumulate tax-free.
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But ultimately, the best strategy depends on factors like your current and future tax brackets, other income sources and how quickly you want to pay off the mortgage. While I can’t give you a definitive answer without those details, I can outline a framework to help you think it through.
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I think a good place to start is calculating your marginal tax rate. This is the tax rate that you’ll pay on the next dollar that is added to your taxable income. You can find that on line 15 of your Form 1040 tax return. If your current return looks similar to last year’s, you can use it to determine which federal income tax bracket you fall into.
For example, let’s assume that you’re single and have $55,000 of taxable income. For 2025 that would put you in the 22% federal tax bracket. You’ll owe 22% on the next dollar added, all the way up until your taxable income reaches $103,350.
On the other hand, if your taxable income is $200,000, you are in the 32% bracket. Another way to think about this that you’ll owe 32 cents in federal tax on the next dollar added to your income.
For reference, here are the federal income tax brackets for 2025:
Rate
Single
Married, Filing Jointly
Married, Filing Separately
Head of Household
10%
$0 – $11,925
$0 – $23,850
$0 – $11,925
$0 – $17,000
12%
$11,926 – $48,475
$23,851 – $96,950
$11,926 – $48,475
$17,001 – $64,850
22%
$48,476 – $103,350
$96,951 – $206,700
$48,476 – $103,350
$64,851 – $103,350
24%
$103,351 – $197,300
$206,701 – $394,600
$103,351 – $197,300
$103,351 – $197,300
32%
$197,301 – $250,525
$394,601 – $501,050
$197,301 – $250,525
$197,301 – $250,500
35%
$250,526 – $626,350
$501,051 – $751,600
$250,526 – $375,800
$250,501 – $626,350
37%
$626,351+
$751,601+
$375,801+
$626,351+
(A financial advisor can help you evaluate your tax situation and optimize your retirement plan for federal and state taxes.)
In order to make the best decision possible, you also need to have an estimate of your future marginal tax rate. The kicker of course is that there is no tax return to look at. Instead, you need to have a projection of what your income might look like throughout retirement. This would include adding things sources like Social Security, pensions, annuity payments and planned withdrawals from your IRA.
The general rule of thumb is that your income will fall in retirement and you’ll be in a lower tax bracket. However, that isn’t always the case. If you’ve saved diligently and have a good plan in place you may find that your taxable income won’t drop at all. The point here is that in order to do this correctly you need to have a personalized plan that is specific to you.
(And if you need help creating a personalized plan for retirement, speak with a financial advisor and see how they can help you get started.)
Once you have your current and future estimated marginal tax brackets you can map out your plan to withdraw money to pay off your mortgage. The idea is to withdraw the money in a way that minimizes your expected taxes over time. Let’s look at two extreme examples first to see how this could play out. Think of these as bookends to a spectrum of outcomes.
Suppose the taxable portion of your Social Security benefits plus your planned withdrawals for everyday spending don’t even exceed the standard deduction. For 2025, that includes the basic deduction of $15,750, the $2,000 senior deduction, and the $6,000 bonus deduction from the One Big Beautiful Bill Act (OBBBA).
That adds up to $23,750. In this case, your marginal tax rate is effectively 0%. To take full advantage, you’d want to withdraw at least enough to reach that threshold.
So let’s say that you’re $10,000 shy of that threshold. You could withdraw $10,000 per year without owing federal income tax. If your circumstances remain the same, you could plan to pay off your $80,000 mortgage over eight years entirely tax-free.
Now imagine you are in a high tax bracket, such as 35%, with a lifestyle and savings balance that suggest you will remain there. In 2025, the 35% bracket for single filers covers income from $250,526 to $626,350. If your taxable income is $300,000, adding an $80,000 withdrawal will not push you into a higher bracket. Since you do not expect your tax rate to fall in the future, taking the full distribution at once could make sense.
Perhaps you’re still working and you have a taxable income of $110,000. This would put you in the 24% bracket. Then, based on an assessment of your retirement plan, you believe your taxable income will fall to $65,000 once you retire and that you expect it to remain there (inflation adjusted) for the foreseeable future. That would put you in the 22% bracket.
In this scenario, you may want to wait until you retire and drop into the 22% bracket before you make the withdrawal. The top of the 22% bracket is $103,350, so you would have $38,350 of “room” left beyond your $65,000 of planned taxable income. So, you might withdraw that much in the first two years to pay for your house. You’ll then withdraw a small remainder in the third year.
(Tax planning in retirement can be complicated. Consider working with a financial advisor as you think about questions like this one.)
I made an assumption here that you have settled on paying off your mortgage, so I didn’t address the question of whether you should. I do think it’s important to explore that question to see if you even should pay your mortgage off early, but I wanted to answer your question. If you’re going to pay off your mortgage I’d consider approaching it in the most tax efficient way.
Brandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Brandon is not an employee of SmartAsset and is not a participant in SmartAsset AMP. He has been compensated for this article. Some reader-submitted questions are edited for clarity or brevity.
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