So I think I am honing in on a pretty good solution. Talked to the Bank yesterday, and they offer a HELOC for $100k limit, no annual fee, 3.24% for the first 12 months and Prime plus .25% after that. I have to keep it open for 3 years or pay $450 penalty. I could borrow $10k for the first year an it would only cost $27/mo (interest only). But I wouldn't pull a large chunk out, I would take it out as I needed it, reducing the interest cost. The idea is that principle would be paid off when we sell a property in 1-3 years. Near term, I can see the need for only a few thousand to finish up some projects around here and maybe do some travel (well, pay for some travel that we have already booked, but have no idea how we are going to pay for it ;-0). Longer term, buying one or two new cars in ~2 years, at around $20-$25k I'd guess. Ideal case is to sell a property around that time.
I *could* borrow $25k for 2 full years at 4% and only pay about $2000 interest total. So yeah, cheap money.
But back to the IRA. As I had said, DW's salary is already well into the 22% bracket, so anything we'd take from there gets hit at 22%. Some earlier said "Well, you have to pay it eventually anyway", but not necessarily at 22%. If after DW retires we stay on budget, then only a portion of it gets taxes at 22% (Still not clear on how distributions are taxed, as income I know, but have other questions, may star a new thread on that). So the way I look at taking from that IRA right now, is that it costs us 10% (22%-12%) worst case. Way more than the HELOC 4%. And the tax "hit" on a $25k pull (to compare above) is X 10% or $2500. And if we wanted to make ourselves "pay it pack" after a property sells, like HELOC, we could. Then I conclude that HELOC is the better source. Yes, we will forego some growth in the IRA, but for the period of time, and amounts we are talking about, I don't think it moves the needle much. To keep our AA where we wanted, we were going to keep the IRA in MM or some CDs anyway.
And we will have access then to HELOC and the IRA if the s^it hits the fan for some reason. Sound reasoning, or am I missing something?
I *could* borrow $25k for 2 full years at 4% and only pay about $2000 interest total. So yeah, cheap money.
But back to the IRA. As I had said, DW's salary is already well into the 22% bracket, so anything we'd take from there gets hit at 22%. Some earlier said "Well, you have to pay it eventually anyway", but not necessarily at 22%. If after DW retires we stay on budget, then only a portion of it gets taxes at 22% (Still not clear on how distributions are taxed, as income I know, but have other questions, may star a new thread on that). So the way I look at taking from that IRA right now, is that it costs us 10% (22%-12%) worst case. Way more than the HELOC 4%. And the tax "hit" on a $25k pull (to compare above) is X 10% or $2500. And if we wanted to make ourselves "pay it pack" after a property sells, like HELOC, we could. Then I conclude that HELOC is the better source. Yes, we will forego some growth in the IRA, but for the period of time, and amounts we are talking about, I don't think it moves the needle much. To keep our AA where we wanted, we were going to keep the IRA in MM or some CDs anyway.
And we will have access then to HELOC and the IRA if the s^it hits the fan for some reason. Sound reasoning, or am I missing something?
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