Reverse mortgages offer older adults with home equity but limited savings a way to stay in their homes, but what happens when the funds run out? Veronica is considering tapping into her 401(k) to help her mother, whose reverse mortgage money has run out. She plans to take out $250,000. Older adults should be cautious of the downsides of reverse mortgages, like limiting future options.

Taking out a reverse mortgage increases debt, unlike a regular mortgage that builds equity. The FTC warns that using up home equity with a reverse mortgage can hinder future moves. Borrowers must also maintain the home as their primary residence and cover taxes, insurance, and repairs. The money from a reverse mortgage is tax-free and won’t affect Social Security or Medicare benefits.

Veronica, over 59 ½, won’t face a 10% penalty for withdrawing from her 401(k). She must start taking required minimum distributions at age 73 and pay taxes on the withdrawals. Consulting a tax professional and financial planner is advisable. Veronica should ensure her own retirement plan is secure before helping her mother.

Veronica’s plan to pay off her mother’s reverse mortgage and potentially take out a new mortgage in her name poses financial risks. Considerations include the impact on the mother’s estate and the siblings who are heirs. Consulting an estate attorney is crucial to understand the implications fully. Reverse mortgages can be a good option for those lacking retirement savings, but there are potential risks.

It is essential to understand the risks and implications of reverse mortgages before proceeding with such financial decisions. Consulting with professionals and ensuring a solid financial plan is in place can help navigate the complexities of managing investments and assets effectively.

Read more at Yahoo Finance: I’m 65 and want to help my mom with the reverse mortgage on her $1.5M home by tapping into my 401(k). Is this risky?