What to do?

[wrichards58]

We are going to be cashing out our UL policy which is 219,000 Taxes are on the policy is 56,000. We are working with our tax guy so we do not go up into the next tax bracket. So this is the deal..we have a home equity loan of 68,000 and our house loan at 125,000
both interest are around 4.875 and 4.99 We really want to pay off the home equity at 68,000 (4.99) but the question is...do we pay off the house or put the money in investments. We are planning to put the house on the market next spring. Our insurance guy is trying to talk us into an annuity...but I say not a good idea......... we are 58 ...... Husband plan in Jan 2015
money for retirement is
400,000 in 403b hoping before retire 500,000
12,000 Roth
wife pension will be 18,000 (COLA)
ss 200
husband pension 43,000 (no COLA)
ss 24,000

[Rowdy]

Quote:

Originally Posted by wrichards58 ...Our insurance guy is trying to talk us into an annuity...

Your insurance guy may be looking to pay off his own mortgage. Look at fees very carefully.

[wrichards58]

Quote:

Originally Posted by Rowdy Your insurance guy may be looking to pay off his own mortgage. Look at fees very carefully.

we are not going to do an annuity... was were wondering whether to put the money in investments or pay off the house? I believe we will have to pay taxes on the interest which is only 56,000

[braumeister]

Quote:

Originally Posted by wrichards58 wondering whether to put the money in investments or pay off the house?

In the absence of any context except what's in your post (we would really need to know what your annual expenses are in some detail -- hint, hint), I would look at it this way.

Paying off your mortgage (125K plus HE loan 68K) would mean using 193K. If I understand your post correctly, you will have proceeds of 219K less 56K in taxes, or 163K net, so you couldn't pay off both of them.

Both your loans are around 5%. You're wondering whether to reduce your debt or put the proceeds into investments.

If I have all that right, I would recommend paying off the larger (125K) debt and 38K of your HE loan, using the entire proceeds from your cash-out.

Here's why:
You're eliminating 5% loans, and safe investments today struggle to make that much. In the future, things may get better. Others here will disagree with me, but that's what I would do.

[wrichards58]

Quote:

Originally Posted by braumeister In the absence of any context except what's in your post (we would really need to know what your annual expenses are in some detail -- hint, hint), I would look at it this way. Paying off your mortgage (125K plus HE loan 68K) would mean using 193K. If I understand your post correctly, you will have proceeds of 219K less 56K in taxes, or 163K net, so you couldn't pay off both of them. Both your loans are around 5%. You're wondering whether to reduce your debt or put the proceeds into investments. If I have all that right, I would recommend paying off the larger (125K) debt and 38K of your HE loan, using the entire proceeds from your cash-out. Here's why: You're eliminating 5% loans, and safe investments today struggle to make that much. In the future, things may get better. Others here will disagree with me, but that's what I would do.

we would have 217,000 but have to pay taxes on the 56,000 which will be around 7,000 or 8,000 ...getting with the tax guy to find out.. but your logic is what my husband says...the money that we pay for the loans 600 and 682 will go into our Roth and savings so you are right we will be eliminating the 5% on the loans ...The 5% cancels out what we are making on our investments.

thanks for the response...love to hear from others.

[Dave J]

Quote:

Originally Posted by braumeister In the absence of any context except what's in your post (we would really need to know what your annual expenses are in some detail -- hint, hint), I would look at it this way. Paying off your mortgage (125K plus HE loan 68K) would mean using 193K. If I understand your post correctly, you will have proceeds of 219K less 56K in taxes, or 163K net, so you couldn't pay off both of them. Both your loans are around 5%. You're wondering whether to reduce your debt or put the proceeds into investments. If I have all that right, I would recommend paying off the larger (125K) debt and 38K of your HE loan, using the entire proceeds from your cash-out. Here's why: You're eliminating 5% loans, and safe investments today struggle to make that much. In the future, things may get better. Others here will disagree with me, but that's what I would do.

+ 1

[pb4uski]

+2 by paying off the loans you are getting almost 5% risk free - hard to beat today.

[wrichards58]

sounding good..I hate paying taxes on the 56,000 but that is life with the gov

[wrichards58]

Quote:

Originally Posted by wrichards58 sounding good..I hate paying taxes on the 56,000 but that is life with the gov

meeting tax guy but think it is going to be only long term gains tax

[samclem]

+1 on braumeister's cpomment with one other thought: Are you going to need cash because of your future moving plans or for any other reason? You said you planned to put your house on the market, but didn't say what you plan to do next (apartment? Buy a bigger house?). If you are going to need a slug of cash to spruce up your house to sell it, to purchase a new house which costs more than you'll get for your present house, or to pay for moving expenses, etc, then keep some of the proceeds from your UL policy to pay for that (you didn't indicate that you have any savings in taxable accounts). This could cost you less in taxes and future tax deferred growth than your other options (withdrawing 403B funds or Roth IRA contributions).