I want to buy a 2nd property. I am about to turn 65, and live on SS and dividends from stocks in a taxable account that I purchased eons ago. I really don't want to sell stocks creating a bigger tax consequence. I have pre-qualified for a mortgage based on that income. I was thinking I'd use the mortgage for half and Roth funds for the other half. Any thoughts? Thanks. My current net worth is at little over 50% invested thru taxable accounts, 35% Roth, and remainder IRA. I've had most of my stocks since the 80's so I would not have any losses to offset gains.
Roth for 2nd home
- Thread starter Mansderm
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RunningBum
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I know a lot of people would say to hang onto the Roth as long as you can, but a really nice benefit of a Roth is to make a large purchase like this without incurring a tax hit, so I like your plan.
I don't know how much you are concerned about heirs, but I think passing on those highly appreciated stocks with stepped up basis is better than passing on a Roth. If you spend the Roth now and pass on the stocks, there are no taxes paid. But if you spend the stocks now and pass on the Roth, you have to pay cap gains on the stocks. So your plan is a pretty clear winner to me.
Of course stepped-up basis of inherited stocks could go away. That probably just means your heirs would pay cap gains so it just turns into a wash.
I don't know how much you are concerned about heirs, but I think passing on those highly appreciated stocks with stepped up basis is better than passing on a Roth. If you spend the Roth now and pass on the stocks, there are no taxes paid. But if you spend the stocks now and pass on the Roth, you have to pay cap gains on the stocks. So your plan is a pretty clear winner to me.
Of course stepped-up basis of inherited stocks could go away. That probably just means your heirs would pay cap gains so it just turns into a wash.
Dash man
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Mansderm; said:
To me, my Roth is my last place to withdraw from. It grows completely tax free, so I want it to compound as much as possible. You can’t put it back once it’s out.
I’d rather pay long term capital gains by selling taxable funds than touch my Roth.
We own two vacation homes both paid for with cash from stock sales. Capital gains rates are a bargain now compared to what they might be in the future. We also bought a home for my son and his family with cash. Our Roth accounts are doing well other than the current market correction. We’re not touching them until other sources are depleted.
fosterscik
Full time employment: Posting here.
Personally I'd get the biggest 30-year mortgage amount you can qualify for and pay it back as slowly as possible (over 30 years or more likely expire before its paid off). That way you control your withdrawals, minimizing any tax consequences (IRMAA tiers, higher tax brackets etc.) and keep your Roth largely intact. I don't see any reason not to use borrowed money if you have plenty in the bank to pay down at any time.
ncbill
Thinks s/he gets paid by the post
Line of credit or margin loan against your taxable portfolio...the latter would be cheaper...those over on bogleheads forums report negotiating margin loan rates around 1.5%, much lower than the official rates posted on brokerage websites.
I was quoted around 3% for a pledged asset line of credit at my brokerage against up to 2/3 of my taxable account.
I'm converting my traditional IRA to Roth slowly over the next several years and plan on saving the Roth for my heirs.
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Wow, I never considered that. So do you just make payments on it at any time and any amount? Do you still get your dividends? Risk?
RunningBum
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Read up on borrowing on margin and margin calls. The risk is that if there is a big drop in stocks, you could be forced to sell some of them at a low, which makes a very bad situation even worse. If you keep the margin loan to a very low % of investment assets you'll probably be safe. I probably wouldn't borrow more than half the amount I'm allowed to. If they let you borrow up to 50% of your portfolio value, I would keep it under 25%. Maybe less if most of your investments are in a few individual stocks. In the dotcom bust my largest holding dropped 90%. It recovered a lot of that over time, but had I borrowed against it I would have been forced to sell (or come up with money elsewhere) and would have missed the recovery.
You still own the stocks you are borrowing against so you'd still get your dividends.
You still own the stocks you are borrowing against so you'd still get your dividends.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Do you have very much headroom in the 0% long-term capital gains tax bracket? If so you could sell to fill it up and the mortgage the rest.
ncbill
Thinks s/he gets paid by the post
What runningbum said.
Pledged asset line (at least the one I was offered) requires regular payments.
Margin loan usually does not...the interest just accumulates.
copyright1997reloaded
Thinks s/he gets paid by the post
Just me, but I would never borrow w/variable rate with inflation running 8+% and current mortgage rates 5.5%.
Borrow fixed < inflation? YES.
Borrow variable < inflation? NO NO NO.
With fixed, if rates go up, you have a rate under market - GOOD.
With fixed, if rates go down to under your mortgage rate - GOOD (as you can refinance).
Now the aspect of whether the house you are buying (especially 2nd home) is also part of our "Everything bubble" is a different question - and one you didn't ask our opinions on.
