Hello, I need about $150k in cash soon for a purchase. Where should I get it? I am under 59 1/2 so can't touch rollover IRA. I have inherited IRA and a joint account. Each has enough funds and would need to sell mutual funds or bonds to get that much cash. I have already done some Roth conversions for this year. If I tap the inherited IRA, 100% is taxable. If I tap the joint account, only the profits are taxed. Does it make sense to tap the inherited IRA since I am already doing Roth conversions and this taps some of my tax deferred account, thus reducing that a bit? Opinions? Other ideas?
Where to get cash
- Thread starter Raymond01
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Just from a tax perspective I'd much rather sell some taxable shares instead of withdrawing from an IRA. I'd also use the specific share identification method to select the shares with the lowest gains. Although do consider selling from the taxable account and covering the taxes from the IRA, with all of the withdrawal withheld for taxes. That can avoid penalties if you are not already set with one of the safe harbors. It doesn't sound like this was a fully planned purchase.
Capital gains have a wide range of 15% taxation, so they are less likely to bump you into a higher tax bracket like a large IRA withdrawal might. And you may have some 0% CG tax rate available to you if your income has been low so far. It gets a little more complex above $250k AGI, so hopefully you can stay below that.
You'll have to estimate your taxes and see what fits best.
Capital gains have a wide range of 15% taxation, so they are less likely to bump you into a higher tax bracket like a large IRA withdrawal might. And you may have some 0% CG tax rate available to you if your income has been low so far. It gets a little more complex above $250k AGI, so hopefully you can stay below that.
You'll have to estimate your taxes and see what fits best.
pb4uski
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Take out a loan and use withdrawals from the inherited IRA to make the payments to manage the tax burden?
I was going to suggest this. Take what you need in a loan, keeping in mind your current position in tax brackets, and NIIT.
Perhaps margin, HELOC, portfolio loan…
racy
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There's always this: https://tinyurl.com/y5w46lvn 
HawkeyeNFO
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Here's your answer
So you guys feel better about taking a loan than just selling some equities and paying cash? I've never liked loans, paid off my mortgage early. I guess theoretically I can earn more by leaving the money in my investments, but just doesn't feel right.
ExFlyBoy5
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Yes, because a HELOC has a pretty low interest rate. Do you really want to pay taxes if you don't have to? Also, if your primary mortgage is paid for, I would give consideration to getting another primary mortgage since you can get a fixed rate. However, it could take 4-6 weeks to get money using these methods.
I moved my taxable money from Vanguard to IBKR, then got a 1.58%* margin loan to buy a fixer up house for my daughter and son in law, then they got a mortgage from me. I expect them to get a regular mortgage as soon as it is fixed up.
* that is subject to change, but I'm hoping this is only a one year loan.
* that is subject to change, but I'm hoping this is only a one year loan.
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While it may strictly speaking be a better financial decision to take out the loan, that doesn't mean it's the right decision for you. There are several decent options, so consider what's most important to you as you decide.
It depends. When do you need the money? If this year, there could be some rather drastic tax consequences taking large gains this late in the year. The loan can be a short term tool to spread out the tax liability.
Finance Dave
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Maybe a hybrid approach. Sell equities up to the top of an acceptable tax bracket, then use a HELOC for the rest...then continue selling equities up to the top of a tax bracket annually to repay the HELOC...this allows you some flexibility in managing taxes.
I agree with you...prefer to avoid borrowing if possible now that I've paid everything off. We paid our personal home off in 12 years (I was 39) and have not had a house payment since other than a HELOC we use for tactical reasons (always pay it off within a month or two). We also have five rental properties that we paid cash for...no leverage here.
I agree with you...prefer to avoid borrowing if possible now that I've paid everything off. We paid our personal home off in 12 years (I was 39) and have not had a house payment since other than a HELOC we use for tactical reasons (always pay it off within a month or two). We also have five rental properties that we paid cash for...no leverage here.
On the other hand, we haven't had any debt since 1994, we took a margin loan to buy a fixer up house and give a mortgage to my daughter and son-in-law. Then took a HELOC at a low 6 month teaser rate of 0.99% and paid down the 1.58% margin loan. Both interest payments come out of the accounts. no hassle at all.
Getting the HELOC was a bit of paperwork though, I went in and said I have no job, and no income and I want a HELOC. Mostly had to give them a lot of pages about my brokerage accounts.
P.S. The kids got some of the kitchen cabinets this week, more coming. New windows expected late in January. They got the fridge and stove without a long wait.
Getting the HELOC was a bit of paperwork though, I went in and said I have no job, and no income and I want a HELOC. Mostly had to give them a lot of pages about my brokerage accounts.
P.S. The kids got some of the kitchen cabinets this week, more coming. New windows expected late in January. They got the fridge and stove without a long wait.
pb4uski
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That's the whole idea... rather than take out a big chunk that pushes you into a higher tax bracket take out smaller chunks at a lower tax bracket for the payments and prepayments of principal if you wish.
Precisely. This doesn’t need to be a long term loan.
one source of funds is ordinary income, so some care needs to be done in week 51 of the year.
RunningBum
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This is a big drawback to paying off a mortgage early and leaving yourself cash poor. Hard to give advice with only a small picture of your situation but a HELOC sounds like a viable plan, as Finance Dave suggested.
I was going to suggest the same. I have a HELOC set up for flexibility now that I'm FIRED, when I bought my current place, I liquidated some investments but also took a short-term loan against my TSP to shift some of the tax burden into future years.
