Where to take money for new car

[Wille]

My wife and I are retired and using ACA, so I am hyper-aware of keeping our AGI low. We have one car between us and are considering a second car. If we take the money out of our brokerage (taxable) account, does it trigger Capital Gains?

 

[mrfeh]

If the asset has increased in value from when you bought it, the increase is a capital gain. That amount is income for ACA purposes.

 

[Wille]

How would this compare to Roth conversions that I do?

 

[Jerry1]

How would this compare to Roth conversions that I do?

With a ROTH conversion from your IRA, the entire amount is ordinary income. With a taxable account it can be capital gain. If your taxable account (for example) was all in a money market, then you’ve already claimed the interest income and taking money out of the account would have no impact on taxable income. If your account was all equities, you’d have to sell some and incur a capital gain or loss.

 

[Philliefan33]

How would this compare to Roth conversions that I do?

The capital gains income would count the same as income from Roth conversions for ACA purposes, but the tax treatment would be different. For example, compare a $10K Roth conversion and $10K of capital gains. In each case, $10K counts as income for ACA purposes. However, the Roth conversion will be taxed as regular income (10%, 12%, 22%?)* and the capital gains will be taxed at 0% or 15%.

*I don’t know the ACA income limits. You probably are over the ACA limit if your income gets into the 22% level? Regardless, capital gains would be taxed at a lower rate.

 

[Stormy Kromer]

Have you explored financing options ? It goes against my grain to finance a depreciating asset such as a vehicle, but I'm in a similar situation.

If I withdraw $40,000 or so from my taxable account I would have a CG of about $15,000. The tax on this would be LTG so no Fed taxes, MN taxes this as orginary income.

It would add $15,000 of taxable income to ACA which would be the biggest impact.

If I were to finance the purchase I could absorb most of the payments into my normal budget and could leave the $40,000 invested. Even if the $40,000 were in Money Market fund earning 4.5% it would be a wash if I could get dealer financing for the same interest rate.

The last time I purchased a car I wanted to pay cash. The dealer told me they could knock off $500 if I financed it. 6 year loan at 3.9%. At the time MM funds were paying less than 1% so I paid it off after the 6 month loan requirement.

I used to save up in a savings account to buy a new vehicle. This time I'm going to stay fully invested and finance the next vehicle.

 

[VanWinkle]

Have you explored financing options ? It goes against my grain to finance a depreciating asset such as a vehicle, but I'm in a similar situation.

If I withdraw $40,000 or so from my taxable account I would have a CG of about $15,000. The tax on this would be LTG so no Fed taxes, MN taxes this as orginary income.

It would add $15,000 of taxable income to ACA which would be the biggest impact.

If I were to finance the purchase I could absorb most of the payments into my normal budget and could leave the $40,000 invested. Even if the $40,000 were in Money Market fund earning 4.5% it would be a wash if I could get dealer financing for the same interest rate.


The last time I purchased a car I wanted to pay cash. The dealer told me they could knock off $500 if I financed it. 6 year loan at 3.9%. At the time MM funds were paying less than 1% so I paid it off after the 6 month loan requirement.

I used to save up in a savings account to buy a new vehicle. This time I'm going to stay fully invested and finance the next vehicle.

+1 This is best obtained with a 36 month 0 interest loan from the manufacturer if possible. We currently have a vehicle purchased that way as my SO is on the ACA.

 

[Wille]

Have you explored financing options ? It goes against my grain to finance a depreciating asset such as a vehicle, but I'm in a similar situation.

If I withdraw $40,000 or so from my taxable account I would have a CG of about $15,000. The tax on this would be LTG so no Fed taxes, MN taxes this as orginary income.

It would add $15,000 of taxable income to ACA which would be the biggest impact.

If I were to finance the purchase I could absorb most of the payments into my normal budget and could leave the $40,000 invested. Even if the $40,000 were in Money Market fund earning 4.5% it would be a wash if I could get dealer financing for the same interest rate.

The last time I purchased a car I wanted to pay cash. The dealer told me they could knock off $500 if I financed it. 6 year loan at 3.9%. At the time MM funds were paying less than 1% so I paid it off after the 6 month loan requirement.

I used to save up in a savings account to buy a new vehicle. This time I'm going to stay fully invested and finance the next vehicle.

Yes, I was thinking of looking into this, also. I could then do my Roth conversion. Thanks

 

[ERD50]

... It goes against my grain to finance a depreciating asset such as a vehicle, ....

The asset depreciates whether you finance it or not. Financing or not is really a separate decision.

In this case, there are tax implications, in other cases, it may be an arbitrage decision (can I make more with investments than the loan costs?).

-ERD50

 

[Al18]

A combination of LTCG, cashing in a CD, and cash from a savings account would work to minimize taxes.

 

[mckittri2000]

My wife and I are retired and using ACA, so I am hyper-aware of keeping our AGI low. We have one car between us and are considering a second car. If we take the money out of our brokerage (taxable) account, does it trigger Capital Gains?

The easiest way to do it is to take it out of a Roth holding as proceeds from them are not counted toward the ACA income.

 

[Wille]

Excellent suggestions from all. Thank you!