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Need cash, what to sell now?
Old 02-05-2018, 09:25 AM   #1
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Need cash, what to sell now?

As I posted a few days ago, I am buying a house for cash. I kept the equity from the old house as cash, but I need to supplement it by about $140K. We close on February 16. Initially, my plan was to simply sell stocks and bonds proportionately to maintain my 60/40 asset allocation. The cash would be pulled from an IRA to reduce future RMDs.

Our pension covers all current expenses and well start SS this year with DW taking at 62 and me taking spousal (born 1952).

My thinking now is to just sell bonds and rebalance later as the market recovers. What would you do?
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Old 02-05-2018, 09:35 AM   #2
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I would get the money out of bonds and leave stocks alone.

But then, everyone here knows I am a market-timing non-indexer.

PS. Forgot to add my rationale. Stock valuation is high, but there's a chance it will stay high for a little while. On the other hand, inflation and interest rate look surely to go up.
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Old 02-05-2018, 09:41 AM   #3
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I'm no expert but my thinking would be bonds and I wouldn't sell equity funds now. Just my 2 cents.
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Old 02-05-2018, 09:43 AM   #4
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I know it's not what you want to hear, but I would take out a mortgage. Seems like an extra 140k from IRA would be a big tax hit. I might withdraw the max without going into a higher bracket (like you'd do a Roth conversion) and borrow the rest. I might take a rollover for closing while the mortgage is processing...maybe in the gray area to do it this way.
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Old 02-05-2018, 09:46 AM   #5
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Stocks are basically at an all-time high so congratulations on a great time to sell.
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Old 02-05-2018, 09:50 AM   #6
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I know it's not what you want to hear, but I would take out a mortgage. Seems like an extra 140k from IRA would be a big tax hit. I might withdraw the max without going into a higher bracket (like you'd do a Roth conversion) and borrow the rest. I might take a rollover for closing while the mortgage is processing...maybe in the gray area to do it this way.


In another circumstance, Id do this. But I won the bidding war by offering cash and a quick closing date. The losing party offed $25K more with a mortgage.
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Old 02-05-2018, 10:03 AM   #7
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Sell to keep your asset allocation in place. This is not the time to be taking more risk by upping your stock allocation (selling bonds).

If 60/40 is right for you, sell to stay 60/40. If 50/50 is "right" now, sell to be at 50/50.

Selling from a Traditional IRA will create a big taxable income boost. Keep that in mind. for 2018 taxes.
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Old 02-05-2018, 10:13 AM   #8
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In another circumstance, Id do this. But I won the bidding war by offering cash and a quick closing date. The losing party offed $25K more with a mortgage.


I don't get it. If you request rollover instead of withdraw it gets you 60 days to decide if you want to pursue a mortgage. There is a procedure available to take out a mortgage on a property that you just purchased for cash. Can't remember what it's called but here's a link.
https://www.google.com/amp/s/www.for...-mortgage/amp/
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Old 02-05-2018, 10:29 AM   #9
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Here's another link. It's kinda old also. I looked into this awhile back but can't locate anything more recent right now.
https://www.quickenloans.com/blog/de...on-cash-buyers
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Old 02-05-2018, 11:49 AM   #10
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Originally Posted by travelover View Post
As I posted a few days ago, I am buying a house for cash. I kept the equity from the old house as cash, but I need to supplement it by about $140K. We close on February 16. Initially, my plan was to simply sell stocks and bonds proportionately to maintain my 60/40 asset allocation. The cash would be pulled from an IRA to reduce future RMDs.

Our pension covers all current expenses and we’ll start SS this year with DW taking at 62 and me taking spousal (born 1952).

My thinking now is to just sell bonds and rebalance later as the market recovers. What would you do?
After selling, I'd want to end up with my desired AA. So, I'd sell whatever would give me that AA, as you initially planned to do. It's a good opportunity to rebalance like that.

Market timing usually has pretty bad results, which I suppose is why we are not all billionaires. I just don't do it.
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Old 02-05-2018, 12:19 PM   #11
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I use my HELOC for cash purchases. After the close, you can sell what you want. If the closing is delayed, or canceled, nothing gets sold.
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Old 02-05-2018, 12:34 PM   #12
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Another minor twist. Do whatever selling you need to do now to lock in the equity prices, just to avoid a theoretical situation where we have a giant swoop down between now and closing. You can then decide (before closing) how much of that to take from the account vs HELOC etc. (i.e. the tax planning part).

I would be reluctant to have a 140K income boost in one fiscal year due to pulling funds from an IRA, unless the 140K will be a typical RMD. I say that as someone who had a 140K unexpected capital gain (mostly cash buy out of LLTC) and I had to scramble to try to get some of it in 2016, some in 2017 taxes....and it has been a pain to deal with in terms of tax impact (including AMT).
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Old 02-05-2018, 02:20 PM   #13
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I don't get it. If you request rollover instead of withdraw it gets you 60 days to decide if you want to pursue a mortgage.
+1

Do a rollover and then decide if you want to finance. You might want to talk with your bank now in order to start the process before closing to maximize the time to get the financing before you have to put the rollover back.

I'd probably stick with your AA for selling stocks and bonds.
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Old 02-05-2018, 03:44 PM   #14
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If you request rollover instead of withdraw it gets you 60 days to decide if you want to pursue a mortgage.


Im a little slow, so how would this work? Rollover from what to what? Where does the 60 days come from?
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Old 02-05-2018, 03:52 PM   #15
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Here is some more information on this topic:

https://www.irs.gov/retirement-plans...-distributions

"60-day rollover – If a distribution from an IRA or a retirement plan is paid directly to you, you can deposit all or a portion of it in an IRA or a retirement plan within 60 days." This is essentially the same thing as a 60 day loan of your money - if taxes are withheld, you need to contribute that amount when rolling it back in and claim that amount as taxes paid on a non-taxable rollover.
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Old 02-05-2018, 04:01 PM   #16
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After today, perhaps apples on the corner? Can you borrow fast against your stock/bond holdings?

I've wondered about cash offers being more attractive than offers based on taking out a loan. Must be, as we make a fair amount of hard money loans to flippers and charge rude interest. Thanks to the Dodd-Franke act we don't loan to people buying to live in the lent on property, but that said in December we lent 85% of purchase price to a man who used his IRA or Roth for the remaining 15%. His plan was to only borrow from us for 3-4 months and I guess he had figured out that it was worth while to make the house deal even if he had to pay penalty interest on 15% of his Roth money and the fees and interest to us. Hard money looks like cash but only has the virtues of being based on the asset and being fast.
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Old 02-05-2018, 04:37 PM   #17
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Stocks are basically at an all-time high so congratulations on a great time to sell.
Just what I need - LTCG.
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Old 02-05-2018, 04:43 PM   #18
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Sell to keep your asset allocation in place. This is not the time to be taking more risk by upping your stock allocation (selling bonds).

If 60/40 is right for you, sell to stay 60/40. If 50/50 is "right" now, sell to be at 50/50.

Selling from a Traditional IRA will create a big taxable income boost. Keep that in mind. for 2018 taxes.
If your fixed income assets value remains the same or are going up, I wouldn't sell equities just to get back to some target allocation. Now if those fixed income assets drop, say do to rising interest rates, fine.

Selling inside a tIRA does nothing to taxable income. Withdrawal does.
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Old 02-05-2018, 04:45 PM   #19
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OP here, I really appreciate all the advice. Id not taken time to really appreciate the tax implications, so I need to iterate that a bit looking at just taking more of the needed cash out of a Roth or my after tax account. Is there a good estimator for 2018 similar to Taxcaster?
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Old 02-05-2018, 05:06 PM   #20
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Im a little slow, so how would this work? Rollover from what to what? Where does the 60 days come from?


Think of it this way: a rollover is simply a withdrawal that is redeposited into another tax deferred account within 60 days. It shouldn't matter if the funds come out of an employee plan or a tIRA. As long as the funds are redeposited within 60 days it retains tax deferred status. You can only do one rollover per 12 months. I'm pretty sure it's one per 12 months, not once per yr. So you get a rollover check payable to you and that starts the 60 day clock. You'll get a 1099R showing a normal distribution (if you are >59.5) at tax time. You'll have to pay income tax on the difference between the distribution and the amount that you actually redeposit. Key thing is can you get mortgage funds in time to meet the 60 day limit. It still works for<59.5 but 1099 gets filed as early with exception and any amount not rolled over will get hit with penalty.

There used to be a scheme to take a rollover every 60 days to repay the previous distribution so you'd have a perpetual distribution without paying the tax. IRS shut that down with the one rollover per 12 month rule.
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