Roth vs Mortgage

[james22]

Retired, 62 years old, single.

$3.6M Roth
$5.2M TIRA
$1.5M taxable

$400K condo

$350K auto loans at 6.4%


Planning to sell the current condo for a $2M condo.


I've always thought to protect the Roth and save it for last, but wondering if it might not make sense to use it to buy the new condo?

Maybe pay off the car loans as well?

Would make things very simple.

Arguably just shifting from tax-free Roth growth to tax-free ($250K capped) RE growth.

And buying a 6% return.

Thoughts?

Thanks.

 

[RunningBum]

I view my Roth as a great source to pull money for emergencies, large purchases where I don't want to incur taxes to pull money from elsewhere and don't want to take out a loan, and a source for regular expenses if I need to keep taxable income under a certain amount. I'd probably only do the last one to keep from going over an ACA subsidy cliff if that came back. My Roth is a lot smaller than yours so I can't do all I want, but in your case it seems reasonable. I'd be looking at my overall spending and future needs, full tax picture for this year and future years, Roth conversion plan, and probably other things I can't think of right now, but I don't have any specific questions to ask.

Wow, did you say $350K in auto loans? Well, I guess you can afford them, but be prepared to take some flak for that!

 

[Koolau]

I won't mention the auto loans.

I'm one who considers Roths to be almost sacred, so would tend to use them last. Having said that, you are correct, you could deal with your needs by using them AND save any taxes or interest you might otherwise incur.

First, I'd be certain that my monthly expenses were covered by my income and nest egg. IOW considering a new house should fit in with your other expenses.

Have you run FIRECalc?

FIRECalc: A different kind of retirement calculator

www.firecalc.com

 

[TheWizard]

$350,000 in automobile loans is hard to believe.
If true, Dave Ramsey is gonna getcha...

 

[MarieIG]

Very good job with your savings. If it was me, due to growing RMDs and future IRMMA, I would put the proceeds of the old condo towards the down payment, tap the traditional IRA to boost the down payment, and take out a 10 year mortgage paid down for the most part with IRA withdrawals to reduce it prior to RMDs. And, of course, no RMDs will be required on your new condo and per your rationale you can (arguably) earn your 250k RE "tax-free" growth.

You didn't mention what source you were using to pay the car loans, but presumably you could keep using that.

I would leave the Roth for when you really need the arbitrage.


Good luck.

 

[james22]

Thanks, everyone.

I've been living off my TIRA, spending to the 24% tax bracket level. My taxable account is all Berkshire (paying no dividends), so I've left that alone.

If I buy the new condo outright, my expenses won't go up by much (+$1K HOA/month, etc.).

If I take out a mortgage, I'd be looking at something like a $13K/month loan. I'd have to up the fixed income in my TIRA to avoid selling to meet that requirement when the market swoons.

Hadn't given much thought to how drawing down the TIRA via mortgage would help me avoid RMDs though. Hmm.

Probably have to sit down with an hourly CPA and go over. Just liked the simplicity of paying everything off.

And hey, I'm an old man. If I don't drive the 911 now, when will I?

 

[COcheesehead]

We both drive nice cars, but haven’t had an auto loan since maybe I was 26-27 years old. I keep a car until the value allows us to write a comfortable check for the difference of the new one. We’ve done that for years now, except when I had company cars.
With that amount of assets, curious why you financed them in the first place, especially at that interest rate.

 

[james22]

With that amount of assets, curious why you financed them in the first place, especially at that interest rate.

Just didn't want to sell those assets below fair value.

Once there, I might go ahead and sell/pay off the loan.

 

[jazz4cash]

I won’t comment on the principal for the auto loans but I would prioritize paying that off based on the rate.

 

[PlayinwithFIRE]

Even a GT3 RS pegs at about $250K. It must be at least a few of them !

Enjoy them while you can !

 

[Dash man]

I’m curious what the property tax and insurance will be on that new condo. Those things only go up each year.
Our finances are similar, but we have less tIRA, more taxable, ~$3M in five properties and no debt. We each drive
5 series plaid for BMWs.
Our Florida beach condo costs us more than the other four properties together to maintain, and it’s the smallest.
If I were you I’d pay off those vehicles.
RMDs will hit you hard if you don’t do something with that pretax money.
Think carefully about that $2M condo and what the future costs will be.

 

[james22]

Even a GT3 RS pegs at about $250K. It must be at least a few of them !

Enjoy them while you can !

More than double that:

https://finder.porsche.com/us/en-US/details/porsche-911-gt3-rs-preowned-4XORP9

Thanks!

 

[james22]

I’m curious what the property tax and insurance will be on that new condo. Those things only go up each year.

Property tax ~$19K, insurance +$250/month?

Our finances are similar, but we have less tIRA, more taxable, ~$3M in five properties and no debt. We each drive
5 series plaid for BMWs.
Our Florida beach condo costs us more than the other four properties together to maintain, and it’s the smallest.

That's a lot to manage.

I've struggled coming up with ways to spend that aren't more work. A second home, ranch, yacht all seem more effort than reward.

This seems easy enough.

If I were you I’d pay off those vehicles.

I've been thinking I wanted to avoid the 24% income tax hit.

But probably should be paying from the Roth or brokerage accounts. A guaranteed 6.4% return is pretty attractive.

RMDs will hit you hard if you don’t do something with that pretax money.

Yeah, I'm realizing that.

Think carefully about that $2M condo and what the future costs will be.

20% home/net worth seems reasonable, no? Below the 25-30% retirement rules-of-thumb I see.

And can always get out of it if I want to (at some transaction cost, admittedly).

 

[Dash man]

Property tax ~$19K, insurance +$250/month?



That's a lot to manage.

I've struggled coming up with ways to spend that aren't more work. A second home, ranch, yacht all seem more effort than reward.

This seems easy enough.



I've been thinking I wanted to avoid the 24% income tax hit.

But probably should be paying from the Roth or brokerage accounts. A guaranteed 6.4% return is pretty attractive.



Yeah, I'm realizing that.



20% home/net worth seems reasonable, no? Below the 25-30% retirement rules-of-thumb I see.

And can always get out of it if I want to (at some transaction cost, admittedly).

Two of our homes are townhomes our two boys live in with their families. Plus a SFH at the Jersey Shore near the beach that we rent for a few weeks each year to cover the expenses. It’s more than doubled in value since we bought it and gives us and our family a place to vacation each year. We also have our Florida condo that has turned into a money pit, but we love spending the winters here. Our primary home in PA is near our boys and grandkids. Overall not a lot of work since we hire people for yards and maintenance.
We’ve been paying into the 24% tax bracket and occasionally into the 32%. We used a few software retirement programs to determine the tax hit now will pay benefits later. Especially if one of should pass earlier than planned.

 

[james22]

Two of our homes are townhomes our two boys live in with their families. Plus a SFH at the Jersey Shore near the beach that we rent for a few weeks each year to cover the expenses. It’s more than doubled in value since we bought it and gives us and our family a place to vacation each year. We also have our Florida condo that has turned into a money pit, but we love spending the winters here. Our primary home in PA is near our boys and grandkids. Overall not a lot of work since we hire people for yards and maintenance.

Sounds great.

We’ve been paying into the 24% tax bracket and occasionally into the 32%. We used a few software retirement programs to determine the tax hit now will pay benefits later.

Yeah, I'm realizing I need to sit down with someone about this.

For the last five years I've had a paid off condo and cars and struggled to spend at a 2% WR.

Was very simple.

Now trying to up my spending (and the market making the TIRA more of a RMD problem than I'd expected), things have changed.