Optimal way to free up short-term cash

[pb4uski]

Add a pledged asset loan to the list of options. Basically a loan using your investments as collateral.

Good idea and I've done that, but I think the OP said they have drained their taxable account and you can't use IRAs as collateral for a loan.

 

[shortstop14]

Good idea and I've done that, but I think the OP said they have drained their taxable account and you can't use IRAs as collateral for a loan.

Exactly, the reason for the cashflow issues. It has kept me out of the Blow that Dough thread, for better or worse.

 

[Sunset]

I read that it is a flat 30% for IRA inheritance by a foreign citizen when I was planning for my estate. My family overseas are not US citizens.

Generally, but the tax treaty with various Countries affects the USA taxation.

For example:
"If you live in Canada and inherit an IRA as a non-U.S. citizen beneficiary, the distributions paid from that IRA are subject to Canadian taxation. The distribution is subject to 15% withholding tax in the U.S. This lower U.S. rate applies only if the appropriate forms are filed with the U.S. Internal Revenue Service (IRS). The standard withholding rate is 30%, but under the Canada-U.S. Tax Treaty, this rate may be reduced to 15%."

Inheriting An IRA While Living in Canada | Marnoa Private Wealth

A big issue is: I want to leave some IRA $$$ to a Canadian relative, but would they know to fill out an IRS form under the tax treaty, I'm sure they wouldn't !

So I have to think harder about this, perhaps have a trust inherit and then have the trust distribute it's inheritance

 

[NomDeER]

So I have to think harder about this, perhaps have a trust inherit and then have the trust distribute it's inheritance

You need to really do your research on that. In some situations/countries, the taxes will be higher with trusts.

 

[pjigar]

For short-term as in less than 5 years, I would use HELOC or 15-year cash-out mortgage depending on the closing costs. Remember, you can't put money back in Roth after the short-term is over. Along the same line, I keep most aggressive investments (all stocks) in Roth (never bonds, CD, cash, etc.)

 

[finnski1]

I agree with the members suggesting the HELOC. Flexibility on payment schedule and maybe minimizing IRMAA concerns?

 

[shortstop14]

Thanks for all of your comments. I'm going to investigate a HELOC / home equity loan, with the option of using the Roth accounts to pay it off if there's a pressing reason. Although I like the simplicity of just using the Roth funds, I don't want to give up that future tax advantage if I can avoid it.

 

[Global Wizzo]

Since we used most of our taxable account to get through the first 10 or so years of retirement bridging to Medicare age, we're kind of in a poor cashflow position. No issues with our normal expenses, but it's hard to find a tax efficient way to fund a large lumpy expense. Living expenses are funded by a couple of small pensions, my wife's Social Security and a traditional IRA withdrawal. Doing Roth conversions until RMDs start in three years. I waited until 70 to start my Social Security, and that starts in a few months.

But I'm in a situation where I'd like to make a real estate purchase in the near term, which will take about 17% of our retirement assets. There are a lot of good reasons to do this now. The property is in France, where our daughter and grandkids live, and taking out a short-term mortgage is really not a tenable solution there for a non-resident. We expect to be able to replace this withdrawal in the next few years.

Currently the assets are 83% tax deferred, 16% tax-free (Roths, cash) and under 1% in taxable. Not included in that, our house is paid off.

So I see my alternatives as:
- withdraw from traditional IRA. That will incur a painful tax bill, push us up into a high tier IRMAA bracket for a bit, lose the enhanced deduction for seniors. And that tax bill would require further withdrawals.
- withdraw from Roth IRAs. Cheapest in current tax consequences, but paid for in lost tax-free funds down the road, likely part of our daughter's inheritance.
- take out a home equity loan of some sort. Some interest expenses until we can pay it off in the next few years.

I'm currently leaning towards the last solution, but tossing it out there to see if I'm missing something obvious. This wasn't really part of my plan, but it's not a bad thing at all. Just moving assets from one pocket to another and trying to minmize annoying frictional costs.

I’m like you. Look at the cost of the equity loan or lint if credit. If you can keep it within a couple points of break even, I wouldn’t get into using funds that increase taxes.

Optimal solution may be some combination.

Good luck.

 

[Markola]

Why not rent first and make sure this gamble is a good idea? That way, you keep your better performing assets performing, and in their optimal tax shelters. Plus, who knows what rules and taxes France has cooked up for foreign real estate purchasing, which could be a major PITA? Residential real estate ownership is break even at best, here or in France, so if there’s any question your retirement assets could be jeopardized, man, I would rent. Good luck.

 

[davidfin]

Since we used most of our taxable account to get through the first 10 or so years of retirement bridging to Medicare age, we're kind of in a poor cashflow position. No issues with our normal expenses, but it's hard to find a tax efficient way to fund a large lumpy expense. Living expenses are funded by a couple of small pensions, my wife's Social Security and a traditional IRA withdrawal. Doing Roth conversions until RMDs start in three years. I waited until 70 to start my Social Security, and that starts in a few months.

But I'm in a situation where I'd like to make a real estate purchase in the near term, which will take about 17% of our retirement assets. There are a lot of good reasons to do this now. The property is in France, where our daughter and grandkids live, and taking out a short-term mortgage is really not a tenable solution there for a non-resident. We expect to be able to replace this withdrawal in the next few years.

Currently the assets are 83% tax deferred, 16% tax-free (Roths, cash) and under 1% in taxable. Not included in that, our house is paid off.

So I see my alternatives as:
- withdraw from traditional IRA. That will incur a painful tax bill, push us up into a high tier IRMAA bracket for a bit, lose the enhanced deduction for seniors. And that tax bill would require further withdrawals.
- withdraw from Roth IRAs. Cheapest in current tax consequences, but paid for in lost tax-free funds down the road, likely part of our daughter's inheritance.
- take out a home equity loan of some sort. Some interest expenses until we can pay it off in the next few years.

I'm currently leaning towards the last solution, but tossing it out there to see if I'm missing something obvious. This wasn't really part of my plan, but it's not a bad thing at all. Just moving assets from one pocket to another and trying to minmize annoying frictional costs.

Won’t the property in France become just another asset to leave to your heirs ?

 

[shortstop14]

Why not rent first and make sure this gamble is a good idea? That way, you keep your better performing assets performing, and in their optimal tax shelters. Plus, who knows what rules and taxes France has cooked up for foreign real estate purchasing, which could be a major PITA? Residential real estate ownership is break even at best, here or in France, so if there’s any question your retirement assets could be jeopardized, man, I would rent. Good luck.

There's not really a much of a gamble in the purchase in this case. We've lived in this place half-time for the last couple of years. And our daughter is there with her kids, so ongoing part time residency is our expectation. So there are some family reasons that are more important than strictly the investment part. In the end, I don't consider it a retirement investment, rather expecting to pass it to our daughter down the road as warm-handed gifting. A little international financial diversification isn't a bad thing, either.

 

[shortstop14]

Won’t the property in France become just another asset to leave to your heirs ?

It definitely will, but that's part of the plan,