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Selling stocks to retire mortgage
09-17-2010, 07:53 AM
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#1
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Recycles dryer sheets
Join Date: Jan 2008
Posts: 126
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Selling stocks to retire mortgage
I'm 49 and will retire in 2017 with pension ($3700/month) and retiree medical benefits (I pay 20% of premiums). Taxable accounts equal $800k now. Real estate equity of $500k (Farm + house in town).
We recently closed money-losing Roths and put that money against our mortgage, which now has a balance of $113k, which we want to retire by 2017.
Would anyone recommend using a SEPP plan to retire the remainder of the mortgage? It felt good taking that money out of a volatile market and making 5.25% on it when we closed the Roths.
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09-17-2010, 08:10 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,806
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Quote:
Originally Posted by Gazingus
We recently closed money-losing Roths...
...It felt good taking that money out of a volatile market
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I can't predict the future, but what you are doing sounds a lot like "buy high, sell low", not a strategy that generally gets ringing endorsements.
If you feel that way about markets and equities, I'd suggest you do some FIRECALC runs for a 40 year span with zero equities. You might be surprised at the stash you would have needed to fight inflation.
-ERD50
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09-17-2010, 08:54 AM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
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Quote:
Originally Posted by Gazingus
I'm 49 and will retire in 2017 with pension ($3700/month) and retiree medical benefits (I pay 20% of premiums). Taxable accounts equal $800k now. Real estate equity of $500k (Farm + house in town).
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Could you explain why you choose a Roth to close? SInce under current law that money would never be taxed, it was in effect high powered money. Especially when you have taxable accounts of $800,000 which to me would appear to be a better source to tap than the Roth.
Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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09-17-2010, 10:20 AM
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#4
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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Quote:
Originally Posted by haha
Could you explain why you choose a Roth to close? SInce under current law that money would never be taxed, it was in effect high powered money. Especially when you have taxable accounts of $800,000 which to me would appear to be a better source to tap than the Roth.
Ha
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+1, with $800k in taxable accounts why are you cashing in SEPPs and ROTHs. What do you mean by a "loosing ROTH" surely that's just down to your investment choices.
Personally I like paying down debt. I put half my spare cash into stocks/bonds and half towards extra mortgage principal payments, even if it's rate is only 4.5%. There is too much uncertainty around right now so 4.5% guaranteed seems pretty good. I want to ER asap and want to go into it completely debt free.
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09-17-2010, 02:32 PM
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#5
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Recycles dryer sheets
Join Date: Jan 2008
Posts: 126
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The Roths were losers because of timing,mostly. I maxed out 2006, 2007,and 2008 for DW and I. The reason I liquidated the ROTHs is because it was easy; my only after-tax account.
I feel like I have recovered enough from the crash that this is a good time to sell. I read Michael Lewis' The Big Short and I have zero confidence in Wall St, but there is nowhere to go. Luckily, every dime I put in gets a match.
I think taxes have to go higher down the line, so paying the taxes now in a 72t SEPP would seem to make sense.
I'm semi-ignorant, so don't flame me too hard.
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09-17-2010, 02:41 PM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2006
Posts: 7,733
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Quote:
Originally Posted by Gazingus
The Roths were losers because of timing,mostly. I maxed out 2006, 2007,and 2008 for DW and I. The reason I liquidated the ROTHs is because it was easy; my only after-tax account.
I feel like I have recovered enough from the crash that this is a good time to sell. I read Michael Lewis' The Big Short and I have zero confidence in Wall St, but there is nowhere to go. Luckily, every dime I put in gets a match.
I think taxes have to go higher down the line, so paying the taxes now in a 72t SEPP would seem to make sense.
I'm semi-ignorant, so don't flame me too hard.
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This is a bit confusing. You listed that you had 800K in taxable account. This is a substantial sum and in all likely hood it would make sense to sell some of those assets to pay off the mortgage. Did you mean the 800K was in tax deferred account like a 401K...
In general, money in Roth is quite valuable since it can grow tax deferred, is never taxed, and can be withdrawn without pushing you into a new tax bracket. I am sure there are times when it makes sense for some people to take money out of a Roth to pay for a mortgage, but normally it isn't something you should do.
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09-17-2010, 04:24 PM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
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We are not flaming you, only trying to help in spite of rather sketchy information being provided. What we are trying to say is to think very hard and be sure you know what you are about before you mess with money in a Roth.
Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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09-17-2010, 06:01 PM
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#8
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Recycles dryer sheets
Join Date: Jan 2008
Posts: 126
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No, you're very nice. I was worried about the heavy hitters out there lying-in-wait!
The Roths were under water when I sold them, but they had lost more than 40 percent at one time. We bought 26k worth from spring2007 to spring2008, so thus the timing issue. But I don't think buy and hold is going to make a decent return for quite a few years.
While I'm working, is 72t a good tool to take 100k per next 5 years out of 401k to pay off the mortgage?
All our accounts are tax-deferred, I thought taxable was a correct description.
I can also write better than this but not on a Ipad while dw takes me thru downtown Dallas at rush hour.
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09-17-2010, 06:49 PM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2006
Posts: 7,733
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My short answer is probably not. There are a fair amount hassles associated with setting up a 72(t) and it is primarily intended to let retirement people have access to their retirement saving prior to reaching 59.5.
Since you have money in a 401K and you are planning to retire at 2017 at age 56. You will have probably access to your funds immediately (401K generally allow withdrawals at 55 after leaving the company). I would guess that you will be in a lower tax bracket right after retiring than right now. The money you withdraw via 72(t) will taxed at today's marginal so realistically you will probably need to withdraw more than $150K to pay off 113K mortgage.
I understand your concern that buying and holding isn't good strategy for the next few years. You should be aware that plenty of smart people (e.g. Warren Buffett) disagree with that. I am not sure myself but a 5.25% mortgage isn't a very high interest rate. I personally wouldn't be willing to pay tax on the withdrawn money, and give up the benefits of tax free compounded.
Now after you retire if you want to withdraw money from your 401K to pay off your mortgage that is a completely sensible decision IMO.
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09-17-2010, 07:02 PM
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#10
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Recycles dryer sheets
Join Date: Jan 2008
Posts: 126
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Thank you. Those are good tax considerations. If we don't drastically raise taxes sometime in the future, how do we stop the spiral of national debt? Stop spending, I think they ain't.
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