Taking $130K Out Of A $136K IRA To Pay Off A Mortgage? Suze Orman Says 'That's The Worst Idea I've Ever Heard In My Entire Life'

A woman named Allie thought she and her husband were on the verge of making a smart financial move: take most of their IRA savings and throw it at the mortgage. But when she ran the plan by Suze Orman, the reaction wasn't what she expected.

"That's the worst idea I've ever heard in my entire life," Orman said on a recent episode of her "Women & Money" podcast.

Orman, known for her direct approach, didn't hold back — and for good reason. While Allie and her husband had done many things right, their next step could cost them far more than they realized.

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A Late Start, A Bold Plan

Allie explained that she and her husband were "late starters" when it came to money. They bought their first home in their late 40s, but today they're in a stable place: no debt, a large emergency fund, and pensions and Social Security that will cover most of their income in retirement.

Their main concern is a $1,400 monthly mortgage payment. With about $245,000 left on the loan and $136,000 in a traditional IRA, they figured that withdrawing $130,000 would help them pay off the mortgage in three years. After that, they'd be debt-free and free up $1,400 a month — creating a steady stream of cash flow to match their retirement income needs.

It sounded like a logical move. But Orman says the math — and the tax code — tell a very different story.

The Hidden Cost Of A Big Withdrawal

Because Allie's IRA is a traditional account, any withdrawal is considered taxable income. So taking out $130,000 in a single year could come with a hefty tax bill.

"If you take out $130,000 you’re going to owe approximately — let’s say just you and your husband make $60,000 a year…You would owe approximately $26,000 in taxes," Orman explained. Then she added that there's state tax. In Virginia, that could be another $8,500.

Altogether, that's $34,000 in taxes — money the couple may not have set aside. And that doesn't include what might happen if the withdrawal pushes them into a higher tax bracket or affects their Medicare premiums.

Orman's key question: where is that $34,000 going to come from?

"You can't take it from the IRA because you want that $130,000 to go towards your mortgage, so $34,000 has to be somewhere else," she said. But if you don’t have that, then you have to take out even more. It’s just nuts."

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A Better Path Forward

Orman urged the couple to take a step back and consider the long-term implications. If they simply left the money in the IRA and invested it wisely, she said, it could grow to around $200,000 in the next seven to nine years.

That's a big difference from spending nearly all of it now and losing a large chunk to taxes.

"You’re thinking in theory is correct, but in reality it isn’t how it works," Orman told Allie.

What Others Can Learn

For others nearing retirement, the lesson is clear: don't make big financial moves without looking at the full picture — including taxes. While the appeal of being mortgage-free is strong, draining retirement accounts can create more problems than it solves.

Before taking large distributions or making lump-sum payments, Orman recommends talking to a tax advisor or financial planner.

In retirement, every dollar counts — and understanding how to keep more of it can be the smartest move of all.

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