Home Equity as a Strategic Planning Tool

Instead of treating home equity as something that matters only at sale or at death, some investors are exploring ways to unlock just enough value to give their retirement strategy more flexibility and resilience.

Long-term Care

You might access a portion of your equity to create liquidity for long-term care for an aging parent, yourself, or your spouse. Tapping your equity can provide the liquidity needed to cover those costs without sacrificing your monthly retirement income.

A Buffer

Home equity can serve as a buffer during market fluctuations. By accessing your home equity, you can avoid selling investments at a loss when the market dips. This buffer can help you ride out volatility and keep your retirement portfolio intact for the long term.

Part of a Roth Conversion Strategy

If you're planning to convert traditional IRA funds to a Roth IRA, you'll owe taxes on the amount converted. Instead of withdrawing money from your retirement accounts to cover these taxes—which could push you into a higher tax bracket—consider using home equity. You'll keep your retirement savings intact and potentially save taxes.

Portfolio Rebalancing

You want to rebalance your portfolio to maintain your asset allocation* but don't want to sell while the markets are down. By accessing your home equity, you can make that shift without disrupting your portfolio or incurring taxes on withdrawals.

Investments Opportunities

You have an opportunity to buy an attractive investment and have a current investment that's in a tailspin. Selling now would result in a short-term capital gain for tax purposes. Using home equity might allow you to hold onto the current investment until you've owned it long enough to realize a more favorable long-term capital loss when you sell it.

Approach with Caution

If you're not careful, tapping into home equity could lead to financial strain later. Talk with your trusted professional to determine a strategy that aligns with your overall financial goals.

*Rebalancing a portfolio may create a taxable event if done outside of a retirement account. And asset allocation won't guarantee a profit or ensure against a loss but may help reduce volatility in your portfolio.

**Converting a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax-free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59-1/2 or due to death, disability, or a first-time home purchase (up to a $ 10,000-lifetime maximum). Roth IRA distributions may be subject to state taxes.