We're 61 With $900k Saved and a $250k Mortgage. Should We Use IRA Money to Be Completely Debt‑free Before We Stop Working?

Consider this scenario.

A couple is 61 years old. They've saved roughly $900,000 for retirement, and they still carry a $250,000 mortgage on their home. Retirement is close enough to feel real, and the idea of entering it completely debt-free is tempting.

On the surface, paying off the mortgage feels like the responsible move. No monthly payment. Lower fixed expenses. One less thing to manage once paychecks stop.

But the way they'd need to do it (by pulling a large sum from their IRAs) turns what feels like a clean decision into a complicated one.

Taxes, Medicare premiums, and Social Security all get pulled into the equation, and the wrong move can quietly cost far more than the mortgage interest they're trying to eliminate.

Why a Large IRA Withdrawal Can Quietly Backfire

At 61, they're past 59½, so there's no early-withdrawal penalty. That's what makes the idea feel reasonable.

The issue is that every dollar withdrawn from a traditional IRA or 401(k) is taxed as ordinary income in the year it's taken.

If they withdraw the full $250,000 in one year to pay off the house, that entire amount stacks on top of whatever other income they have — wages, consulting income, pensions, or required distributions down the line.

One decision can push them into a much higher tax bracket for the year, and sometimes beyond.

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There are knock-on effects too. Higher income now can mean a larger share of future Social Security benefits becomes taxable.

It can also push their modified adjusted gross income high enough to trigger Medicare IRMAA surcharges, increasing Part B and Part D premiums for at least a year.

And once that $250,000 leaves the IRA, it stops compounding tax-deferred. Over the next decade or two, that lost growth can quietly snowball into a much larger opportunity cost than most people expect.

Option One: Keep the Mortgage Into Retirement

The least dramatic path is often the most overlooked.

They keep the mortgage, leave the $900,000 invested, and service the loan through regular, planned withdrawals. By spreading withdrawals over time, they retain far more control over tax brackets, Social Security taxation, and Medicare premiums.

This approach preserves flexibility. If markets are down in a given year, they can adjust withdrawals or temporarily lean on non-retirement assets. Nothing forces a large, irreversible move at a single moment.

The downside is emotional, not mathematical. Some people simply dislike the idea of carrying a mortgage in retirement, even when the numbers support it.

Option Two: A Partial Payoff Over Time

The middle ground is often the most practical.

Instead of eliminating the mortgage in one shot, they could make smaller, deliberate withdrawals, perhaps $50,000 to $80,000 spread across several years, and apply that money to the principal.

Doing this gradually reduces the balance and the psychological weight of the mortgage without triggering the tax and Medicare landmines that come with a single large withdrawal.

It also allows them to stay below key income thresholds, including Medicare IRMAA tiers, which for married couples begin just above the low-$200,000 range of MAGI.

This approach balances three things at once:

• Lower guaranteed housing costs
• Preservation of most tax-deferred growth
• Better control over taxes and healthcare expenses

It's still not a one-size-fits-all answer, but it avoids the extremes.

Option Three: Full Payoff From the IRA

The most emotionally satisfying option, paying off the mortgage in full immediately, is usually the most expensive over time.

A large, one-year withdrawal often pushes income into higher tax brackets, increases the likelihood that 85% of Social Security benefits will be taxable in future years, and triggers higher Medicare premiums through IRMAA.

On top of that, it permanently removes a meaningful chunk of capital from tax-advantaged growth.

There are niche cases where a full payoff can make sense (very high mortgage rates, unusually low future income, or substantial assets outside retirement accounts) but it's rarely the default winner once everything is modeled together.

The Overlooked Impact on Social Security and Medicare

Two of the most commonly missed consequences of a large IRA withdrawal show up later.

First, Social Security taxation.

Benefits are taxed based on provisional income, which rises sharply with IRA withdrawals. That means the effective tax rate on the withdrawal can be much higher than the headline bracket because it pulls more Social Security into the taxable column.

Second, Medicare IRMAA.

Premiums are determined using income from two years prior. A single large withdrawal today can result in higher monthly Medicare costs down the road — often catching retirees by surprise, long after the mortgage is gone.

When those costs are layered in, a payoff that looked sensible in isolation can end up far more expensive than expected.

Where a Financial Advisor Actually Adds Value

This is exactly the kind of decision that benefits from real modeling instead of gut feel.

A good advisor can run side-by-side scenarios:

• Keeping the mortgage and taking normal withdrawals
• Gradually paying it down over several years
• Paying it off entirely in one year

And then show how each option affects taxes, Social Security, Medicare premiums, and long-term portfolio durability.

This is where SmartAsset can be useful. Their free matching service connects people with vetted, fiduciary financial advisors who specialize in retirement and tax planning.

For households with at least $100,000 in investable assets, SmartAsset can match you with up to three CFP professionals to review their situation and stress-test decisions like this for free.

An hour spent modeling these paths can be worth far more than the interest saved on a mortgage if it prevents a poorly timed six-figure withdrawal that triggers avoidable taxes and healthcare costs.

Where This Usually Lands

For a 61-year-old couple with $900,000 saved and a $250,000 mortgage, paying off the house with a single IRA withdrawal is often the most expensive way to achieve peace of mind.

A more measured approach (keeping the mortgage or paying it down gradually with carefully planned withdrawals) tends to strike a better balance between emotional comfort, tax efficiency, protection of Social Security and Medicare benefits, and long-term portfolio health.

The right answer isn't obvious from the surface. It emerges only when the numbers are laid out over time.

And that's the real takeaway: this isn't a decision to rush. It's one to model carefully, with the goal of entering retirement lighter on debt and lighter on avoidable financial drag.

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