Withdraw from Roth or sell from brokerage account for car purchase?

[Fotodog]

My wife will be buying a new car this year, and I’m wondering about the best source for the funds. She has a Roth IRA, traditional IRA, and brokerage account consisting of individual stocks. We are in the 22% tax bracket and she is not collecting RMD’s yet. A withdrawal from the Roth would not have any tax consequences, but then she would lose the benefit of having that money grow tax free. If she sells stocks from the brokerage account, she will pay long term capital gains. These are taxed at 15% at the federal level and counted as ordinary income in California. There’s pros and cons to both approaches. I would appreciate other’s thoughts.

 

[fosterscik]

I would use the Roth - it's why I converted IRAs to Roths. So I would be able to make big purchases without worrying about future tax consequences of withdrawing a large lump sum. If I did not have sufficient Roth funds and were to use an IRA I would probably finance the buy to spread withdrawals over a longer time period.

 

[engineernerd]

If you are in the 22% bracket as a couple now despite DW's not being subject to RMDs yet, taking LTCGs at 15% would likely be my choice. I know nothing about CA taxes but unless you plan to move to a lower-tax state after RMDs start it probably doesn't affect this choice.

Things I would consider include the size of both your likely future RMDs (are your tax-deferred balances large or small and will you donate the RMDs to charity), do you need to rebalance in taxable anyway, and how close will you be to the second tier of IRMAA.

I have a spreadsheet that duplicates the Qualified Dividends and Capital Gain Tax Worksheet and also covers NIIT and (estimated) IRMAA so I can see the impacts of various income options on our taxes in 2026, our first full retirement year.

 

[Exchme]

In general, Roth money is the best kind of money for the long term as you don't have annual taxation of dividends and your heirs also get 10 years without that tax drag. But there are a lot of moving parts that you really would have to run through a model to get a feel for the tradeoffs. Some factors that can affect the answer:
- Size of the capital gains
- Heirs you care about and their tax rates compared to yours
- Will the LTCG taxes be new lifetime taxes or will you be depleting taxable and paying the LTCG taxes regardless?
-Will you ever be moving to a lower tax state?
-Will the extra LTCG income trigger an IRMAA surcharge/reduce ACA premium credit/ change SS benefit taxation/ hit NIIT?

In our case, the calculations always show to spend from taxable, not Roth, but our situation may not be at all similar to yours.

 

[target2019]

I would look for other people's money.

"Opportunity Cost of Cash: Before selling assets, check if your wife qualifies for a promotional low-interest auto loan; if the loan rate is lower than your expected portfolio return (e.g., 5% vs. 7-8%), financing the car may be the superior fiduciary choice to keep your capital working."

 

[finnski1]

I would look for other people's money.

"Opportunity Cost of Cash: Before selling assets, check if your wife qualifies for a promotional low-interest auto loan; if the loan rate is lower than your expected portfolio return (e.g., 5% vs. 7-8%), financing the car may be the superior fiduciary choice to keep your capital working."

Yeah. I just bought a new Subaru. 0% 36-month loan with zero down. I financed it all and pay with monthly cash flow.

 

[FlaMariner]

+2 on borrowing to buy a new car......

We just bought a new Acura.

We got an interest rate of 4.69% for 72 months.....from the dealership thru Bank of America.

My investment portfolio will (hopefully/should/has in the past) had a higher return than 4.69%.

"Other peoples money" is better for us than selling/paying taxes/depleting principle/whatever you want to call it.

 

[G POP]

I would look for other people's money.

"Opportunity Cost of Cash: Before selling assets, check if your wife qualifies for a promotional low-interest auto loan; if the loan rate is lower than your expected portfolio return (e.g., 5% vs. 7-8%), financing the car may be the superior fiduciary choice to keep your capital working."

Leaning this route for all and any upcoming purchases. My play account (less than 10% of total nut) is up over 9% YTD. I know, right? I'm grabbing all the loan $ I can get at 6% or lower.

 

[gman57]

I borrowed from my 401k at work when I was working. Paid myself interest on the loan. The only drawback, if you lose employment you have to pay it back immediately. That was many many moons ago, not sure if it's still the same.

 

[Al18]

20% cash down payment and finance the rest if the rate is good. With depreciation, I would not go longer than 48 months.

If you don’t want to finance, use a combination of cash, tIRA, stock sales and possibly RothIRA to lower the effective tax rate.

 

[Fotodog]

Thanks to everyone for all the responses! I floated the idea of a loan to my wife earlier, and she is adverse to taking on debt…even though she might come out ahead in the long term. She will be buying either a Lexus or Audi, who don’t normally offer good loan rates anyway. We are both doing Roth conversions (this is my last year before RMD’s start), so I will plug some numbers into my spreadsheet to see if there’s a clear winner.

 

[Dash man]

When I got my BMW they were offering a $2,500 discount if you financed with them at 2.9%. I financed $7,000 with them and paid off the car the first month. Check for special deals and take advantage of them. You can always pay the loan off early.

 

[ncbill]

My wife will be buying a new car this year, and I’m wondering about the best source for the funds. She has a Roth IRA, traditional IRA, and brokerage account consisting of individual stocks. We are in the 22% tax bracket and she is not collecting RMD’s yet. A withdrawal from the Roth would not have any tax consequences, but then she would lose the benefit of having that money grow tax free. If she sells stocks from the brokerage account, she will pay long term capital gains. These are taxed at 15% at the federal level and counted as ordinary income in California. There’s pros and cons to both approaches. I would appreciate other’s thoughts.

Borrow against taxable brokerage account via a securities-backed line of credit?

That's what I did for downpayments on the kids' homes.

 

[Koolau]

My bias is usually to hang onto the Roth as long as possible. I'd probably sell some stock and pay the CG Tax. Good luck!

 

[pjigar]

Brokerage @15% would be my choice. I would hang on to Roth as long as I could.

 

[dm]

The wife recently got a new car. We financed at 2.9% versus withdrawing money from ira.

 

[richardf]

My wife will be buying a new car this year, and I’m wondering about the best source for the funds. She has a Roth IRA, traditional IRA, and brokerage account consisting of individual stocks. We are in the 22% tax bracket and she is not collecting RMD’s yet. A withdrawal from the Roth would not have any tax consequences, but then she would lose the benefit of having that money grow tax free. If she sells stocks from the brokerage account, she will pay long term capital gains. These are taxed at 15% at the federal level and counted as ordinary income in California. There’s pros and cons to both approaches. I would appreciate other’s thoughts.

I would take the money out of traditional IRA. Traditional IRAs are a tax and IRMAA time bomb. In fact I’d convert all I could to Roth.

 

[cathy63]

Since several of you mentioned having initiated an auto loan in 2025 or 2026, I thought I'd point out that there's now a tax deduction for loan interest if the car was assembled in the U.S. You do not need to itemize to claim the deduction.

Requirements:
- new car, truck, SUV, mini-van, motorcycle, etc for personal use -- not a used vehicle
- purchased between 2025 and 2028
- under 14K lbs GVW
- deduction phases out above $100K single, $200K MFJ

Use NHTSA's VIN decoder to see if your vehicle qualifies: Welcome to VIN Decoding :: provided by vPIC

 

[Koolau]

I would take the money out of traditional IRA. Traditional IRAs are a tax and IRMAA time bomb. In fact I’d convert all I could to Roth.

This was my strategy before RMDs. I eventually "got rid" of all my tIRAs (mostly converted to Roths).

 

[G-Man]

Since several of you mentioned having initiated an auto loan in 2025 or 2026, I thought I'd point out that there's now a tax deduction for loan interest if the car was assembled in the U.S. You do not need to itemize to claim the deduction.

Requirements:
- new car, truck, SUV, mini-van, motorcycle, etc for personal use -- not a used vehicle
- purchased between 2025 and 2028
- under 14K lbs GVW
- deduction phases out above $100K single, $200K MFJ

Use NHTSA's VIN decoder to see if your vehicle qualifies: Welcome to VIN Decoding :: provided by vPIC

Is this deduction an above the line (reduces AGI) or below the line (reduces taxable income) deduction?

 

[engineernerd]

Is this deduction an above the line (reduces AGI) or below the line (reduces taxable income) deduction?

Looks like it's below the line. Calculated on Schedule 1-A and goes on Line 13b on the 1040.

 

[G-Man]

Looks like it's below the line. Calculated on Schedule 1-A and goes on Line 13b on the 1040.

Thanks for the clarification.

This must be off-topic: OBBBA Changes for Non-Itemizers

Taxpayers who take the standard deduction have not typically been able to deduct their charitable donations on their tax returns. The OBBBA, however, creates a permanent above-the-line deduction for charitable donations of $1,000 per filer who takes the standard deduction beginning in tax year 2026.

What form is this information captured on? Is it the Schedule 1-A form? Just wondering how you get credit for this deduction. In addition, I assume it would appear on Line 13b on the 1040 as well.

 

[engineernerd]

It doesn't affect 2025 taxes and I doubt the IRS will publish the 2026 forms anytime soon. Several online sources use the "above-the-line" wording. Hopefully they know what they're talking about.

 

[cathy63]

What form is this information captured on? Is it the Schedule 1-A form? Just wondering how you get credit for this deduction. In addition, I assume it would appear on Line 13b on the 1040 as well.

It doesn't affect 2025 taxes and I doubt the IRS will publish the 2026 forms anytime soon. Several online sources use the "above-the-line" wording. Hopefully they know what they're talking about.

During the pandemic when we also had a similar rule, the charitable deductions went on line 12b. So below the line ("the line" being line 11 AGI).

 

[G-Man]

During the pandemic when we also had a similar rule, the charitable deductions went on line 12b. So below the line ("the line" being line 11 AGI).

So, I guess the 1040 form will be updated later this year to allow us to enter the non-itemized deduction.