Dipping into IRA from late mom can be risky

Q My husband (and two young sons) and I are looking to buy a new home, and we have found one in a neighborhood with excellent schools. We are a one-income family. The house seems in good shape but it needs updating. The kitchen is all but unusable for anything but making soup and sandwiches. I make almost all of our own food, both baking and cooking, and bake all of our own bread -- so an updated and expanded kitchen is a necessity for me. We would have enough money to get into the home but not enough for a kitchen renovation. However, I have a beneficiary IRA from when my mom passed away a couple of years ago. Would it be worth taking a portion of it to make getting into this house possible?

MEG

A From a financial point of view, it's a good idea to let an inherited IRA compound as long as possible. That said, your lifestyle is important to you and your family. The kitchen renovation will definitely pay off psychologically and emotionally over time (as well as in healthier, lower-cost meals).

You could borrow money for the renovation and pay it off from your husband's future earnings. My concern is that with one income, a new house and a mortgage, that's a risky maneuver.

Here's another way for you to decide whether to use the IRA money: What would your late mother think? Would she be pleased that you tapped into the inheritance this way or distressed that you didn't let a good chunk of the money compound longer? I'd honor her way of thinking with your decision. If you do go ahead with the remodeling, please make sure you get several bids, research the project carefully and keep the overall bill down.

My answer also assumes that you'll stay in the home for a long time. And that brings me to my main point: Please make sure the finances really work for you. A home is a lifestyle, too. "This is the true nature of home," said 19th-century art critic John Ruskin. "It is the place of peace; the shelter, not only from injury, but from all terror, doubt, and division."

What you don't want to do is add "financial stress" to that list of attributes. The real lesson of the past few years is to keep household finances conservative. Here are my principle guidelines for weighing the costs and benefits of homeownership:

•Compare the cost of owning versus renting.

•Buy only if the deal is financially conservative.

•Keep the financing simple.

•Smaller is both smart and socially sustainable.

•A home can make for a wonderful lifestyle if financed with a margin of safety. It's potentially disastrous for anyone who stretches their finances to own.

Chris Farrell is economics editor for "Marketplace Money." Send questions to cfarrell@mpr.org.

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