Using Taxable Account Money to Buy a House

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cnblure
Posts: 39
Joined: Tue Jan 05, 2016 9:45 pm

Using Taxable Account Money to Buy a House

Post by cnblure »

I am planning on moving back to my home town in roughly 10-12 years. At that time I would like to purchase a house outright with cash. In the mean time I plan on buying $1000 of VTSAX every two weeks in a taxable account after maxing out TSP/Roth IRA/HSA contributions with the intention of using this money to buy a house at that time. I understand normally down payments and house money should not be invested in this type of account, but I feel like with this timeline and accumulation rate it may be warranted. But I am worried about the potential amount of taxes due to capital gains if I sell and use the money to fund a home purchase. Aside from not selling anything held for under a year to pay the lower long-term rate, is there anything else I can do to minimize these taxes? Or am I completely missing the boat and there is a much better way to put this money to use for this goal? I'm currently renting and will most likely continue to do so until this move/purchase. It's important to me to be able to do this without a mortgage. Thanks
dbr
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Re: Using Taxable Account Money to Buy a House

Post by dbr »

Why would you have a problem paying tax on the gains? The alternative is to not have any gains and have less money to pay for the house before or after taxes.

Probably the factor to take most account of in this scenario is that as time goes on your timeline becomes shorter and shorter and you don't want to be in a high risk position only a couple of years away from needing the money. That means if you do start out putting the money in stocks you would need to change over as you go.
RetiredAL
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Re: Using Taxable Account Money to Buy a House

Post by RetiredAL »

cnblure wrote: Sat May 02, 2020 2:03 pm But I am worried about the potential amount of taxes due to capital gains if I sell and use the money to fund a home purchase. Aside from not selling anything held for under a year to pay the lower long-term rate, is there anything else I can do to minimize these taxes?
Depending on your current tax rates , Fed and State, you may want to CapGain Harvest periodically, if the LTC gains will be taxed at a lower rate than what your lump sum withdrawal rate would be when you buy the house.
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grabiner
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Re: Using Taxable Account Money to Buy a House

Post by grabiner »

If you do this, your taxable account needs to be at least twice the size of the intended down payment. This ensures that you will have enough to make the down payment even if the stock market crashes just before you buy (as happened in March).

But this is a reasonable strategy, particularly because you have the TSP G fund as an unusually good bond fund. When you do make the down payment, if you would prefer to sell bonds and not stock, you can sell taxable stock, and move an equal amount in the TSP from the G fund to the C, S, and I stock funds.

I did this when I bought my home in 2013. I sold at a market peak, so I had capital gains on my stock sales, but these were offset by capital losses carried over from 2008-2009. And when I closed on the home, I reallocated my employer plan so that I had the correct stock allocation for my new financial situation.
Wiki David Grabiner
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