‘I’m really torn between renting seasonally and using the money I inherited for a down payment on my first home’: I have a dilemma on whether to invest my inherited IRA in a new home. What should I do?

“Hi Money Minder,”

Hey there! I’m currently a Florida resident, but I’m itching to buy a home in Vermont – a small mountain town that I adore. I’ve got no kids, two pampered pooches, and a girlfriend I love traveling with.

Financially, I’m in decent shape. Good credit, no credit card debt, and some cash stashed away. I make $95k a year, looking to bump that up soon. And I’ve found this dreamy $525k mountain home, but I’m torn between renting and buying.

I really need some advice on whether I’m being smart or reckless with my money. Any help would be greatly appreciated! Bye for now!

-Rocky Mountain Dreamin’

Response from THE MONEY MINDER:

Hello There,

Congratulations on making positive financial changes over the past few years and considering a big decision like buying a home! It sounds like you have a solid financial foundation with good credit, no credit card debt, and a healthy mix of savings, investments, and retirement accounts.

Given your current financial situation and goals, here’s a practical approach to consider for your situation. First, it’s great that you qualify for a first-time homebuyer program that offers a lower interest rate and closing cost assistance. However, withdrawing $100k from your inherited IRA at a 24% tax rate may not be the most tax-efficient move. Before making any decisions, it would be wise to consult with a financial advisor or tax professional to fully understand the implications of this withdrawal on your overall financial picture.

Additionally, renting seasonally or purchasing a home in Vermont both have pros and cons. Renting seasonally allows for flexibility, but you are essentially paying towards something you don’t own. On the other hand, buying a home can provide stability and potential long-term equity, but it also comes with financial commitments and responsibilities. Considering your desire for a small home in a mountain town, it’s important to weigh the financial impact, tax implications, and lifestyle factors before making a decision.

In terms of your career and income potential, it’s great that you’re actively looking for new job opportunities that could increase your earnings. However, it’s always best to base your financial decisions on your current income rather than future expectations. Make sure that any potential increase in income is realistic and factors into your overall financial plan.

Ultimately, it’s important to approach this decision with a clear understanding of your financial goals, risk tolerance, and long-term plans. Taking the time to assess all the financial implications, seek advice from professionals, and make an informed decision will help you navigate this transition successfully. All the best from THE MONEY MINDER in your financial journey!