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Age old question - pay down HELOC?
Old 06-04-2018, 10:05 AM   #1
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Age old question - pay down HELOC?

OK, this has been explored numerous times, but we'd like to share some data and see how folks here would handle our state of affairs.

DH - 68 yr old retired six years
DW - 66 yr old retired six years

DH - Taxable IRAs $500,000 Roth IRA $85,000
DW - Taxable IRAs $270,000 Roth IRA $65,000

Use three Vanguard Funds - Conservative Growth, Managed Growth and Dividend Growth - AA approximately 60/40 Stock/Bond

SS DH $27,000 DW $10,000 DH Pensions $13,500 = $ 50,500 income

$ 50,500 is sufficient for annual expenses.

Assets - Home $260,000

HELOC $ 80,000 - currently at 5.75 - tied to prime

Given the tax rates on income, we will obviously be using the standard deductions in 2018.

We never carried debt in the past, and the loan is just a pain to look at.

1) Draw down 10k - 20k per year from IRA to pay off the loan?
2) Take it all from Roth and pay it off all at once.

DH will have do start mandatory draws from IRA in two years, which will be close to $ 20k
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Old 06-04-2018, 11:21 AM   #2
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Yes pay it off, 5.75% is pretty steep.
Besides by withdrawing from the IRA you will lower the RMD that is coming.

Check with tax software, but my thinking is you can pull out approximately $46K and stay within the 12% tax bracket (it is %77,400 of TAXABLE income, after standard deduction).

Remember when you pull out the ~46K , taxes will be about $6K on it so you will have $40K to apply to the debt each time.

So do it now and in January 2019 and the debt will be gone.
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Old 06-04-2018, 12:10 PM   #3
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That's a high interest rate and likely to go higher. However, the principal approaches 9 percent of your savings. In your shoes, I would balance preserving capital and minimizing taxes against getting that alligator off your back. I would try to pay it off over the next few years instead of all at once.
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Old 06-04-2018, 06:22 PM   #4
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DW seems to be getting less than 50% of DH's SS value...can she claim spousal benefits and kick that up a notch, or does the difference have to do with the age claimed? If I were you all, and my income matched my spending, I'd just pay off the HELOC. Even at 3.5%, you could take out another $29K annually (before taxes) from the investments...live larger!
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Old 06-04-2018, 10:13 PM   #5
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Pay it off, refi to fixed rate, and/or combine with 1st. The rate is already high and will rise w/ prime. Our HELOC is prime MINUS .75 and will gets paid down early with IRA withdrawals calculated to maintain current tax bracket along with Roth conversions.
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Old 06-05-2018, 06:13 AM   #6
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Quote:
Originally Posted by jpjr View Post
SS DH $27,000 DW $10,000 DH Pensions $13,500 = $ 50,500 income

$ 50,500 is sufficient for annual expenses.
Have you considered and planned for how your income and expenses change when one of you passes?

Will your diminished income still be sufficient?

Do you have Long Term Care insurance?

Quote:
We never carried debt in the past, and the loan is just a pain to look at.

1) Draw down 10k - 20k per year from IRA to pay off the loan?
2) Take it all from Roth and pay it off all at once.
Unless you determine that your IRAs are critical to meeting your future expenses, then either method to pay it off would work. If the pain bothers you enough, then just pay it off now.
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Old 06-05-2018, 09:54 AM   #7
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Id do what Sunset suggested, I'd pull funds out of the IRA but stay under the 12% tax threshold and pay it off over a few years. Also, you should be paying on the HELOC monthly as well, so the amount should be reducing over time.

If it really bothers you, use the the Roth money and do the IRA to Roth conversion and stay under the 12% tax bracket and replenish the Roth. It will be the same result.
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Thanks for the input
Old 06-05-2018, 07:28 PM   #8
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Thanks for the input

Thanks for the various thoughts. We'll probably do some early withdrawal and partial pay-down over the next year - year and 1/2.
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Old 06-05-2018, 08:48 PM   #9
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“Pay down HELOC” always has both a financial and a psychological answer.
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