How to withdraw $250K with the least impact?

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Topic Author
Alto Astral
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How to withdraw $250K with the least impact?

Post by Alto Astral »

Him: Age=42, Income=400K (40% in stock)
Her: Age=37, Income=100K
Desired AA: 80/20

Emergency Funds - 4 months (at $4K/ month living expense)
5% $80K Savings Account (Interest=0.40%)

Investments (77% stock, 23% bond)
40% $680K his+her 401k (+19.5K/year, Stock Index Fund, ER=0.01%)
24% $260K his+her 401k (+19.5K/year, Bond Index Fund, ER=0.03%)
23% $470K his+her taxable (Stock Index Fund, ER=0.04%)
3% $50K his+her i-Bonds (+$10K/year/person)
5% $100K his+her Roth IRA (+$11k/year backdoor, Stock Index Fund, ER=0.04%)
0% $8K his Mega Backdoor Roth 401k(+$30K/year, Stock Index Fund)

100% $1600K Total

Mortgage: $200K at 3.625% interest 30Y fixed (~$400k home value)
Tax: Married-Filing-Jointly, 35% Bracket
State: IL (State Tax=4.95%)
Kids: 8 years + 4 years

Hi,
I expect needing ~$250K in 3-6 months for a foreign sibling's medical expenses in the US. There is no insurance so it will be out of pocket. This will put my AA temporarily out of whack but I plan to rebalance by the end of the year.

I have a total of $130K that I can access in 3 months ($80K in cash + $50K in iBonds). I need to find the best way to get $120K more. I see a few options:
  1. $70K from his+her Roth IRA contribution only (the rest $30K of the total $100K will stay, as its appreciation). This should not have tax implications. Once its out, I can only add back $12K his+her/year via backdoor. However, I do have the option to put ~30K/year in mega backdoor Roth, so I should be able to restore my Roth amount in ~2 years)
  2. $50K+$50K loans from his+her 401k (will pay back in ~1 year). I am okay with temporarily being out of the market. I may need to pause contributions till I replay the loan but I will check the plans rules.
  3. $40K pay using credit cards and pay off asap. I could apply for another credit card. My credit score is 800+
  4. $100K Cash out refinance the house. I plan to relocate in 1-2-years to another state and plan to sell this house at that time. So, I would not get full benefit of a lower rate. I could refinance to just 80% of the home value of $400K and get the $100K difference out (400K value, 80%=300K, 300K-200K=100K). This will avoid PMI. Then get the rest from one of the options above. Is this better than using the credit card?
  5. $120K after selling StockIndexFund from taxable account. I believe this will be taxed at the top bracket of my income? Or maybe at long term capital gains? I've not done this option before so I am not sure here. (I paused investing monthly to after-tax as soon ask I knew about the upcoming expense)
  6. $30-40K pause mega backdoor contributions. Also pause any unmatched 401k contribution. But this will be saved only over 12 months and I need the money sooner.
What are your thoughts here? What is your order of preference with options 1-6 above? Did I miss anything?

Thanks for your time.

Alto
Last edited by Alto Astral on Sat Jul 17, 2021 11:47 pm, edited 1 time in total.
KlangFool
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Re: How to withdraw $250K with the least impact?

Post by KlangFool »

OP,

You make 500K per year. How much is your annual savings? Why do you need to access all those accounts for 250K? Between your emergency fund, annual savings, and your taxable account dividend/distribution, you should have enough.

<<I expect needing ~$250K in 3-6 months for a foreign sibling's medical expenses in the US.>>

A) Do you ask for a discount? In the worst case, you get a no.

B) Can you pay by installment?

KlangFool
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Topic Author
Alto Astral
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Re: How to withdraw $250K with the least impact?

Post by Alto Astral »

KlangFool wrote: Sat Jul 17, 2021 3:33 pm OP,

You make 500K per year. How much is your annual savings? Why do you need to access all those accounts for 250K?
I have ~$60K annual expenses, and the rest goes to my AA. I need to wait a year before the stock portion of my income vests. Besides that, we should be able to save $80K annually (after maxing out retirement accounts). I need to wait a year before I can save up that $80K (plus sell vested stocks at short term capital gains -at 35%?) and I would be $120K short of cash in ~3 months.
KlangFool wrote: Sat Jul 17, 2021 3:33 pm Between your emergency fund, annual savings, and your taxable account dividend/distribution, you should have enough.
How do I approach my taxable account dividend/distribution? I reinvest all dividends in my taxable Vanguard Total Stock Index Fund. Should I stop reinvesting and take distributions? Or should I just sell $120K worth of stock and pay long term capital gains (20%?) ? I though the other options had a lesser income tax implication.
KlangFool wrote: Sat Jul 17, 2021 3:33 pm <<I expect needing ~$250K in 3-6 months for a foreign sibling's medical expenses in the US.>>
A) Do you ask for a discount? In the worst case, you get a no.
Yes, they have a discount for out-of-pocket payers. This hospital is well known for their relatively reasonable rates.
KlangFool wrote: Sat Jul 17, 2021 3:33 pm B) Can you pay by installment?
No, its needs to be upfront as my sibling is not US based. They won't let me pay by installment but they make me guarantor for any extra costs.
KlangFool
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Re: How to withdraw $250K with the least impact?

Post by KlangFool »

Alto Astral wrote: Sat Jul 17, 2021 4:54 pm
How do I approach my taxable account dividend/distribution? I reinvest all dividends in my taxable Vanguard Total Stock Index Fund. Should I stop reinvesting and take distributions?
Alto Astral,

Yes, you should. You should stop reinvesting your taxable account dividend/distribution immediately. You cannot avoid paying taxes on that. Then, see what else to do to cover the shortfall.

Selling your taxable account investment and pay long-term capital gain tax rate maybe a better idea than anything else.

KlangFool
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KlangFool
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Re: How to withdraw $250K with the least impact?

Post by KlangFool »

Alto Astral wrote: Sat Jul 17, 2021 3:18 pm

[*] $120K after selling StockIndexFund from taxable account. I believe this will be taxed at the top bracket of my income? Or maybe at long term capital gains? I've not done this option before so I am not sure here. (I paused investing monthly to after-tax as soon ask I knew about the upcoming expense)

[*] $30-40K pause mega backdoor contributions. Also pause any unmatched 401k contribution. But this will be saved only over 12 months and I need the money sooner.
[/list]

What are your thoughts here? What is your order of preference with options 1-6 above? Did I miss anything?

Thanks for your time.

Alto
Alto,

<<$120K after selling StockIndexFund from taxable account.>>

This should be long-term capital gain tax rate.

<<$30-40K pause mega backdoor contributions.>>

Do this.

<<Also pause any unmatched 401k contribution.>>

Do not do this. Because of your high marginal tax rate, this may not help you much after paying a lot of taxes.

KlangFool
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KlangFool
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Re: How to withdraw $250K with the least impact?

Post by KlangFool »

OP,

<<23% $470K his+her taxable (Stock Index Fund, ER=0.04%)>>

Why do you need to do anything else besides selling your taxable investment and stop reinvesting your dividend and distribution?

Please note that you are paying taxes on the GAIN. You are not paying taxes on the whole 250K.

This is the most simple way to solve this problem.

KlangFool
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cchrissyy
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Re: How to withdraw $250K with the least impact?

Post by cchrissyy »

good advice so far

i would not withdraw from any retirement account or get a loan against the house.

if more funds are needed than you can get from your high monthly cash flow, my go-to would be applying for a 0% credit card where I could pay for it over the next 6 months or whatever.

It would be like this:
save all incoming cash from now until the appointment date
pause your mega backdoor roth contributions
taxable account withdrawal
charge the rest on that 0% card
pay the whole thing off within a few months from your current earnings
then turn on the mega backdoor roth again
then refill your taxable account

good luck with the procedure for your sibling!
Last edited by cchrissyy on Sat Jul 17, 2021 5:31 pm, edited 1 time in total.
Rex66
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Re: How to withdraw $250K with the least impact?

Post by Rex66 »

Like they say listen to a fool

Actually they never say that but in this case they should

Klangfool hit it on the head
ChiKid24
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Re: How to withdraw $250K with the least impact?

Post by ChiKid24 »

You should be able to specify which lots you want to sell in the taxable. Sell the highest cost basis shares that are over 1 year old to minimize any gains. And yes, you can and should turn off dividend reinvestment for the time being, until you've built up what you need.
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Raymond
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Re: How to withdraw $250K with the least impact?

Post by Raymond »

+1 to the advice above, and respect to the OP for paying for his sibling's medical care.
"Ritter, Tod und Teufel"
retired early&luv it
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Re: How to withdraw $250K with the least impact?

Post by retired early&luv it »

Have you looked at what your taxable cap gains would be if you sold from your taxable stock account? I am assuming it is in ETFs, thus you can sell the shares that you have held for a year or more (for lower tax rate) and pick the shares that have the lowest cap gains to minimize taxes.

If however your stock funds are conventional mutual funds, what is your method of determining cap gains? First in/first out, average cost, or specific ID. In my active funds I use specific ID, so I sell the specific shares that have the least gain.
TJat
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Re: How to withdraw $250K with the least impact?

Post by TJat »

Can you move your taxable to interactive brokers and borrow against it? May not cover the full amount needed but you should be able to access 100-150k or so. Then can you get a HELOC To cover the rest?
Topic Author
Alto Astral
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Re: How to withdraw $250K with the least impact?

Post by Alto Astral »

KlangFool wrote: Sat Jul 17, 2021 5:04 pm <<$30-40K pause mega backdoor contributions.>>

Do this.
cchrissyy wrote: Sat Jul 17, 2021 5:17 pm pause your mega backdoor roth contributions
Raymond wrote: Sat Jul 17, 2021 5:31 pm +1 to the advice above
Okay, I did this. its was pretty quick to update my contributions.
KlangFool wrote: Sat Jul 17, 2021 5:04 pm <<Also pause any unmatched 401k contribution.>>

Do not do this. Because of your high marginal tax rate, this may not help you much after paying a lot of taxes.
Okay, this stays as-is. I should be able to max out all pre-tax contributions on his+her this year.
Luckywon
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Re: How to withdraw $250K with the least impact?

Post by Luckywon »

You should be able to deduct medical expenses paid for a sibling if they meet criteria for being your dependent. Not sure how this applies if your sibling is not a citizen/resident but I would certainly try like heck to qualify for this as that would be a game changer.

Edit to add: Quick search suggests that in order to do this your relative needs to be one of the following: (1) a resident of the United States, Canada, or Mexico, (2) a U.S. citizen, or (3) a U.S. national.
Last edited by Luckywon on Sat Jul 17, 2021 8:06 pm, edited 1 time in total.
Topic Author
Alto Astral
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Re: How to withdraw $250K with the least impact?

Post by Alto Astral »

KlangFool wrote: Sat Jul 17, 2021 5:00 pm
Alto Astral wrote: Sat Jul 17, 2021 4:54 pm
How do I approach my taxable account dividend/distribution? I reinvest all dividends in my taxable Vanguard Total Stock Index Fund. Should I stop reinvesting and take distributions?
Alto Astral,

Yes, you should. You should stop reinvesting your taxable account dividend/distribution immediately. You cannot avoid paying taxes on that. Then, see what else to do to cover the shortfall.
cchrissyy wrote: Sat Jul 17, 2021 5:17 pm save all incoming cash from now until the appointment date
ChiKid24 wrote: Sat Jul 17, 2021 5:19 pm And yes, you can and should turn off dividend reinvestment for the time being, until you've built up what you need.
I calculated that his+her distributions are $1400/quarter. I got this option in Vanguard "Change your dividends and capital gains distribution elections". I picked "Transfer to a bank account" for both.
nalor511
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Re: How to withdraw $250K with the least impact?

Post by nalor511 »

KlangFool wrote: Sat Jul 17, 2021 5:08 pm OP,

<<23% $470K his+her taxable (Stock Index Fund, ER=0.04%)>>

Why do you need to do anything else besides selling your taxable investment and stop reinvesting your dividend and distribution?

Please note that you are paying taxes on the GAIN. You are not paying taxes on the whole 250K.

This is the most simple way to solve this problem.

KlangFool
If your broker supports (or you can move to a broker that will work with you) instead of selling you could take a cheap (<2% margin loan) against these assets. IB will give you around 1%, Schwab offered me 2.4%, Fidelity offered me just under 2%. I'd rather pay margin than cap gains right now, but depends on other factors.
Last edited by nalor511 on Sat Jul 17, 2021 8:44 pm, edited 1 time in total.
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Watty
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Re: How to withdraw $250K with the least impact?

Post by Watty »

Alto Astral wrote: Sat Jul 17, 2021 3:18 pm Did I miss anything?
A couple of ideas, I don't know if they would work for you or not.

1) You could get a margin loan on your taxable account. I have not used them but people have posted about Interactive Brokers having some of the lowest margin rates so you could consider moving your taxable account there and getting a margin loan. If you paid it off quickly it would not cost you too much in interest.

https://www.interactivebrokers.com/en/index.php?f=44427

2) If your sibling was in the US then once option would be that instead of selling the investments in the taxable account you could give your sibling the the appreciated shares of the index fund. They would still have your cost basis but they could likely sell them and be in a lower capital gains tax bracket. They could then pay at least part of the bill with that money. They could even pay the 0% federal long term capital gains if the taxable income is below about $40K or $80K depending on if they are filing a single or joint return. They would also need to consider any state taxes.

The complication though is they are not a US resident and I do not have a clue how they would be taxed if your did this. It might be worth looking into this to see how that would work.


I suspect that the best solution will be mixture of several of the different strategies.
KlangFool
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Re: How to withdraw $250K with the least impact?

Post by KlangFool »

nalor511 wrote: Sat Jul 17, 2021 8:43 pm
KlangFool wrote: Sat Jul 17, 2021 5:08 pm OP,

<<23% $470K his+her taxable (Stock Index Fund, ER=0.04%)>>

Why do you need to do anything else besides selling your taxable investment and stop reinvesting your dividend and distribution?

Please note that you are paying taxes on the GAIN. You are not paying taxes on the whole 250K.

This is the most simple way to solve this problem.

KlangFool
If your broker supports (or you can move to a broker that will work with you) instead of selling you could take a cheap (<2% margin loan) against these assets. IB will give you around 1%, Schwab offered me 2.4%, Fidelity offered me just under 2%. I'd rather pay margin than cap gains right now, but depends on other factors.
nalor511,

Except when the stock market drop low enough and you ended up with a margin call and forced sell of your investment at the worst possible time. I am not comfortable with that.

KlangFool
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nalor511
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Re: How to withdraw $250K with the least impact?

Post by nalor511 »

KlangFool wrote: Sat Jul 17, 2021 8:52 pm
nalor511 wrote: Sat Jul 17, 2021 8:43 pm
KlangFool wrote: Sat Jul 17, 2021 5:08 pm OP,

<<23% $470K his+her taxable (Stock Index Fund, ER=0.04%)>>

Why do you need to do anything else besides selling your taxable investment and stop reinvesting your dividend and distribution?

Please note that you are paying taxes on the GAIN. You are not paying taxes on the whole 250K.

This is the most simple way to solve this problem.

KlangFool
If your broker supports (or you can move to a broker that will work with you) instead of selling you could take a cheap (<2% margin loan) against these assets. IB will give you around 1%, Schwab offered me 2.4%, Fidelity offered me just under 2%. I'd rather pay margin than cap gains right now, but depends on other factors.
nalor511,

Except when the stock market drop low enough and you ended up with a margin call and forced sell of your investment at the worst possible time. I am not comfortable with that.

KlangFool
With that income and whatnot, interest rates now, it's a calculated risk for sure. I think I would do the margin loan, but respect that you would not.

Definitely don't get enough loaned to risk a margin call with a 30% market drop. Also you could sell a little and loan a little, doesn't have to be one or the other.
Topic Author
Alto Astral
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Re: How to withdraw $250K with the least impact?

Post by Alto Astral »

KlangFool wrote: Sat Jul 17, 2021 5:00 pm Selling your taxable account investment and pay long-term capital gain tax rate maybe a better idea than anything else.
KlangFool wrote: Sat Jul 17, 2021 5:08 pm <<23% $470K his+her taxable (Stock Index Fund, ER=0.04%)>>

Why do you need to do anything else besides selling your taxable investment and stop reinvesting your dividend and distribution?

Please note that you are paying taxes on the GAIN. You are not paying taxes on the whole 250K.

This is the most simple way to solve this problem.
cchrissyy wrote: Sat Jul 17, 2021 5:17 pm taxable account withdrawal
Okay, I will do this.
ChiKid24 wrote: Sat Jul 17, 2021 5:19 pm You should be able to specify which lots you want to sell in the taxable. Sell the highest cost basis shares that are over 1 year old to minimize any gains.
Vanguard offers the following cost basis methods for mutual funds: first in, first out (FIFO), highest in, first out (HIFO), specific identification (SpecID), and average cost (AvgCost). Our default method for mutual funds is average cost.

Which one should I pick? By highest cost basis do you mean HIFO option above?
retired early&luv it wrote: Sat Jul 17, 2021 6:08 pm Have you looked at what your taxable cap gains would be if you sold from your taxable stock account? I am assuming it is in ETFs, thus you can sell the shares that you have held for a year or more (for lower tax rate) and pick the shares that have the lowest cap gains to minimize taxes.

If however your stock funds are conventional mutual funds, what is your method of determining cap gains? First in/first out, average cost, or specific ID. In my active funds I use specific ID, so I sell the specific shares that have the least gain.
Its all in Vanguard Total Sock Market Index Admiral Fund. I tried SpecID and Vanguard gave me this message:
Specific identification (SpecID) is not yet available online for this fund. For trades placed today, the "first in, first out" (FIFO) method will be used because it'll take us a day to provide detailed lot information. SpecID will be available for subsequent trades of this fund within 1 to 2 business days.
Last edited by Alto Astral on Sat Jul 17, 2021 9:27 pm, edited 1 time in total.
KlangFool
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Re: How to withdraw $250K with the least impact?

Post by KlangFool »

Alto Astral wrote: Sat Jul 17, 2021 9:23 pm
specific identification (SpecID),
Alto,

You can specify which lot to sell and you know the actual cost basis of each lot.

KlangFool
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Topic Author
Alto Astral
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Re: How to withdraw $250K with the least impact?

Post by Alto Astral »

KlangFool wrote: Sat Jul 17, 2021 9:27 pm
Alto Astral wrote: Sat Jul 17, 2021 9:23 pm
specific identification (SpecID),
Alto,

You can specify which lot to sell and you know the actual cost basis of each lot.

KlangFool
Okay, thanks. Good to know. I picked that cost basis type a few minutes ago. Vanguard tells me it's going to take a couple of days:
Because you recently changed the cost basis method for this fund, information isn't yet available. You'll be able to view your cost basis details once the information is available.
Topic Author
Alto Astral
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Re: How to withdraw $250K with the least impact?

Post by Alto Astral »

nalor511 wrote: Sat Jul 17, 2021 9:01 pm
KlangFool wrote: Sat Jul 17, 2021 8:52 pm
nalor511 wrote: Sat Jul 17, 2021 8:43 pm
If your broker supports (or you can move to a broker that will work with you) instead of selling you could take a cheap (<2% margin loan) against these assets. IB will give you around 1%, Schwab offered me 2.4%, Fidelity offered me just under 2%. I'd rather pay margin than cap gains right now, but depends on other factors.
nalor511,

Except when the stock market drop low enough and you ended up with a margin call and forced sell of your investment at the worst possible time. I am not comfortable with that.

KlangFool
With that income and whatnot, interest rates now, it's a calculated risk for sure. I think I would do the margin loan, but respect that you would not.

Definitely don't get enough loaned to risk a margin call with a 30% market drop. Also you could sell a little and loan a little, doesn't have to be one or the other.
Watty wrote: Sat Jul 17, 2021 8:44 pm 1) You could get a margin loan on your taxable account. I have not used them but people have posted about Interactive Brokers having some of the lowest margin rates so you could consider moving your taxable account there and getting a margin loan. If you paid it off quickly it would not cost you too much in interest.
I never knew about this. The rates for a $50K margin loan are Vanguard (7.5%), Fidelity & Schwab (6.875%) and Interactive Brokers (1.6%). Yeah, I would be in a pickle if I loaned $120K out and another financial crisis comes along. But, say, $50K should be manageable.

Isn't this similar to a 401k loan though? I could loan $100K (his+her) and any interest goes into my 401k? The advantage of the 401k loan would be that I just need to pay back the dollar amount irrespective of the market. And yes, not get fired/laid off at my job or else it becomes due. Or were you trying to avoid this to keep the contributions going as-is?
grkmec
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Re: How to withdraw $250K with the least impact?

Post by grkmec »

I am gonna go against the grain here and suggest the following:

Do a max cash out refi to whatever you can avoiding PMI via a 5yr ARM. With a new money discount to either BAML or Schwab, your rate should be 2% or less. I would even suggest raising the interest rate by 0.25% to get a 1 point closing credit so this turns into a zero cost refi. Since you plan to sell and move in a couple years, it’s nuts to be in a 30yr mortgage paying the rate you are paying. Your net worth is also multiple times your house value so what I am suggesting is not risky.

Good luck. Your generosity to your sibling is amazing…
nalor511
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Re: How to withdraw $250K with the least impact?

Post by nalor511 »

Those rates you've written can be negotiated at Fidelity and Schwab
pasadena
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Re: How to withdraw $250K with the least impact?

Post by pasadena »

Alto Astral wrote: Sat Jul 17, 2021 9:42 pm
KlangFool wrote: Sat Jul 17, 2021 9:27 pm
Alto Astral wrote: Sat Jul 17, 2021 9:23 pm
specific identification (SpecID),
Alto,

You can specify which lot to sell and you know the actual cost basis of each lot.

KlangFool
Okay, thanks. Good to know. I picked that cost basis type a few minutes ago. Vanguard tells me it's going to take a couple of days:
Because you recently changed the cost basis method for this fund, information isn't yet available. You'll be able to view your cost basis details once the information is available.
For details on how these work, see here.

With SpecID, you get to choose exactly which lot to sell, so you know exactly how much tax you will have to pay. Avoid selling shares with short term gains, unless you have super recent ones with barely any gain. Short term gains are taxed at your marginal tax rate. Long term gains are taxed at a special rate (15% or 20%). If you have any lots with losses, sell those first.

With HIFO, Vanguard would select the shares with the highest cost basis. Sounds good in theory, but in a bull market, you will end up with short term gains first. So don't do that if you have shares bought less than a year ago.
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wander
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Re: How to withdraw $250K with the least impact?

Post by wander »

2) $50K+$50K loans from his+her 401k (will pay back in ~1 year). I am okay with temporarily being out of the market. I may need to pause contributions till I replay the loan but I will check the plans rules.
I will go with this choice. Not sure about your companies, but loan rate is pretty low for me. A few clicks will get us $100k from our 401k accounts and we will pay it back in 5 years. The rest, you can get from your upcoming paychecks.
pasadena
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Re: How to withdraw $250K with the least impact?

Post by pasadena »

wander wrote: Sat Jul 17, 2021 10:47 pm 2) $50K+$50K loans from his+her 401k (will pay back in ~1 year). I am okay with temporarily being out of the market. I may need to pause contributions till I replay the loan but I will check the plans rules.
I will go with this choice. Not sure about your companies, but loan rate is pretty low for me. A few clicks will get us $100k from our 401k accounts and we will pay it back in 5 years. The rest, you can get from your upcoming paychecks.
I'd go with a no-cost cash-out refi before a 401(k) loan. Especially when their current mortgage is at 3.625%. Or a HELOC, depending on the rate and how fast they can pay it back.
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Re: How to withdraw $250K with the least impact?

Post by KlangFool »

wander wrote: Sat Jul 17, 2021 10:47 pm 2) $50K+$50K loans from his+her 401k (will pay back in ~1 year). I am okay with temporarily being out of the market. I may need to pause contributions till I replay the loan but I will check the plans rules.
I will go with this choice. Not sure about your companies, but loan rate is pretty low for me. A few clicks will get us $100k from our 401k accounts and we will pay it back in 5 years. The rest, you can get from your upcoming paychecks.
wander,

The problem with 401K loan is that if you are laid off, you have to pay back the loan immediately.

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Watty
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Re: How to withdraw $250K with the least impact?

Post by Watty »

Alto Astral wrote: Sat Jul 17, 2021 10:08 pm Isn't this similar to a 401k loan though? I could loan $100K (his+her) and any interest goes into my 401k? The advantage of the 401k loan would be that I just need to pay back the dollar amount irrespective of the market. And yes, not get fired/laid off at my job or else it becomes due. Or were you trying to avoid this to keep the contributions going as-is?
Be sure to check out the details of a 401k loan since they can vary a lot with different employer plans.

I once worked for a company where if you had a 401k loan you could not make 401k contributions until that loan had been paid off for six months. That would not only cost you the tax advantages of making 401k contributions but it would also cause you to not get an employer match. They really did not want you to take out a 401k loan.

Terms that that bad do not seem to be common but you do need to check the specifics of your 401k plan.
presto987
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Re: How to withdraw $250K with the least impact?

Post by presto987 »

grkmec wrote: Sat Jul 17, 2021 10:24 pm I am gonna go against the grain here and suggest the following:

Do a max cash out refi to whatever you can avoiding PMI via a 5yr ARM. With a new money discount to either BAML or Schwab, your rate should be 2% or less. I would even suggest raising the interest rate by 0.25% to get a 1 point closing credit so this turns into a zero cost refi. Since you plan to sell and move in a couple years, it’s nuts to be in a 30yr mortgage paying the rate you are paying. Your net worth is also multiple times your house value so what I am suggesting is not risky.

Good luck. Your generosity to your sibling is amazing…
Absolutely +1 on this. Your current 30-year rate is quite high, so you should be looking to refi anyway.

Cash out pricing tends to be a bit worse than non-cash out pricing, but if you get above $300k, you'll get better pricing as well (pricing tends to be less generous under $300k).

You should be able to do quite well if you refinance into another 30-year, but as the previous poster noted, rates on 5y ARMs are very attractive, and there's no reason not to take one of those if you're not planning to stay in the house for a while.

Definitely make it a zero cost refi or even a money-making refi via lender credits. LoanDepot is competitive on ARM pricing. Better Mortgage is also worth a look, especially if you have an Amex card as you can earn an extra $2k with their current Amex offer.

I recently closed a refi with LoanDepot for a 5y ARM at 2.5%. I could have had a much lower rate, but by going with 2.5%, I was able to get over 2% in lender credit AFTER all closing costs, which I was able to apply to my property taxes and insurance, plus some cash back at closing. (Note, this was not a cash out.)
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Alto Astral
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Re: How to withdraw $250K with the least impact?

Post by Alto Astral »

pasadena wrote: Sat Jul 17, 2021 10:54 pm I'd go with a no-cost cash-out refi before a 401(k) loan. Especially when their current mortgage is at 3.625%. Or a HELOC, depending on the rate and how fast they can pay it back.
grkmec wrote: Sat Jul 17, 2021 10:24 pm Do a max cash out refi to whatever you can avoiding PMI via a 5yr ARM. With a new money discount to either BAML or Schwab, your rate should be 2% or less. I would even suggest raising the interest rate by 0.25% to get a 1 point closing credit so this turns into a zero cost refi. Since you plan to sell and move in a couple years, it’s nuts to be in a 30yr mortgage paying the rate you are paying. Your net worth is also multiple times your house value so what I am suggesting is not risky.
For refinance, RocketMortgage has Rate=2.75%/APR=3% for 30 year fixed and Rate=2.25%/APR=2.684% for 15 year fixed. I can't easily find rates for 5/1 ARMs but yeah its intriguing as I am planning to relocate within 5 years. If I don't end up moving, I could refinance to another 30y FRM, the risk being a higher interest rate environment.
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Alto Astral
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Re: How to withdraw $250K with the least impact?

Post by Alto Astral »

Watty wrote: Sat Jul 17, 2021 11:09 pm Be sure to check out the details of a 401k loan since they can vary a lot with different employer plans.

I once worked for a company where if you had a 401k loan you could not make 401k contributions until that loan had been paid off for six months. That would not only cost you the tax advantages of making 401k contributions but it would also cause you to not get an employer match. They really did not want you to take out a 401k loan.

Terms that that bad do not seem to be common but you do need to check the specifics of your 401k plan.
Yes, on one of my prior plans years ago, I could not contribute till I paid off the loan. At the time, I did not have an employer match.
presto987
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Re: How to withdraw $250K with the least impact?

Post by presto987 »

I recommend running a search on Zillow Mortgage for refi rates. Make sure to check the "no fees, no points" checkbox, and then you can sort by lender fees with lowest on top. This will let you identify options that will give you lender credit. Ideally you want the refi to be no-cost or better, even if it means going up on the interest rate (you will still be well below your current rate).
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wander
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Re: How to withdraw $250K with the least impact?

Post by wander »

KlangFool wrote: Sat Jul 17, 2021 11:04 pm
wander wrote: Sat Jul 17, 2021 10:47 pm 2) $50K+$50K loans from his+her 401k (will pay back in ~1 year). I am okay with temporarily being out of the market. I may need to pause contributions till I replay the loan but I will check the plans rules.
I will go with this choice. Not sure about your companies, but loan rate is pretty low for me. A few clicks will get us $100k from our 401k accounts and we will pay it back in 5 years. The rest, you can get from your upcoming paychecks.
wander,

The problem with 401K loan is that if you are laid off, you have to pay back the loan immediately.

KlangFool
I think this is different between retirement plans. For my old employer retirement plan, when I switched jobs, they allowed me to continue paying 401k loan off. If this is not the case, then the taxable account is handy.
With my current employer, when I borrowed money, they still allowed me to max out my 401k. So I did not lose the company match. I considered the borrowed money as bond and adjusted the portfolio accordingly.
My experience with borrowing money from 401k was good (no credit check is required, low interest, and the interest goes back to my pockets). Of course, one should read the rule before making a decision.
$100,000 is a small chunk for OP, so I guess they will pay it back in a very short time.
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Alto Astral
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Re: How to withdraw $250K with the least impact?

Post by Alto Astral »

grkmec wrote: Sat Jul 17, 2021 10:24 pm I am gonna go against the grain here and suggest the following:

Do a max cash out refi to whatever you can avoiding PMI via a 5yr ARM.
presto987 wrote: Sat Jul 17, 2021 11:18 pm Absolutely +1 on this. Your current 30-year rate is quite high, so you should be looking to refi anyway.

Cash out pricing tends to be a bit worse than non-cash out pricing, but if you get above $300k, you'll get better pricing as well (pricing tends to be less generous under $300k).

You should be able to do quite well if you refinance into another 30-year, but as the previous poster noted, rates on 5y ARMs are very attractive, and there's no reason not to take one of those if you're not planning to stay in the house for a while.
I do have AmEx and looking into Better.com evaluating to refi anyway. I see 2 options if I pursue this:
  • Refi for a better rate and just stop there. I could optimize to lower my monthly payment. Right now I pay $450 towards Principal and $650 in Interest. When I started this 5 years ago, I was paying $380 towards Principal and $720 towards interest. What would be the goal if I plan to stay < 5 years in the house? Lesser interest paid from now till I sell?
  • Refi for a cash out. Although higher than a regular refi, It seems I will still get a better rate than what I have now (3.625%).
presto987 wrote: Sun Jul 18, 2021 1:14 am I recommend running a search on Zillow Mortgage for refi rates. Make sure to check the "no fees, no points" checkbox, and then you can sort by lender fees with lowest on top. This will let you identify options that will give you lender credit. Ideally you want the refi to be no-cost or better, even if it means going up on the interest rate (you will still be well below your current rate).
I tried this and Better and Reali Loans Inc show up.

FRM no-cashout:
30y : Better: Rate=2.5%/APR=2.572 %, Reali Loans: Rate=2.5%/APR=2.566 %
15y : Better: Rate=2%/APR=2.13%, Reali Loans Rate=1.875%/APR=1.973 %
5/1 : FirstBank: Rate=2.5%/APR=3.101%

FRM $100k cashout:
30y : Better: Rate=2.75%/APR=2.80 %, Reali Loans: Rate=2.75%/APR=2.753%
15y : Better: Rate=2%/APR=2.09%, Reali Loans Rate=2.00%/APR=2.051 %
5/1 : FirstMorgageDirect: Rate=2.75%/APR=3.026%

Maybe I am not looking at the right places but ARM does not seem better than any of the others.Which is odd. I must be missing something. But a 30/15y FRM seems more conservative in case things go sideways in 5 years
Last edited by Alto Astral on Sun Jul 18, 2021 1:51 pm, edited 1 time in total.
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gobel
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Re: How to withdraw $250K with the least impact?

Post by gobel »

Also, make sure to pay all bills directly to the hospital and doctors (ie. don't give the money to the patient to pay) to avoid gift tax issues.
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Alto Astral
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Re: How to withdraw $250K with the least impact?

Post by Alto Astral »

Watty wrote: Sat Jul 17, 2021 11:09 pm Be sure to check out the details of a 401k loan since they can vary a lot with different employer plans.
wander wrote: Sun Jul 18, 2021 6:52 am
KlangFool wrote: Sat Jul 17, 2021 11:04 pm
wander wrote: Sat Jul 17, 2021 10:47 pm 2) $50K+$50K loans from his+her 401k (will pay back in ~1 year). I am okay with temporarily being out of the market. I may need to pause contributions till I replay the loan but I will check the plans rules.
I will go with this choice. Not sure about your companies, but loan rate is pretty low for me. A few clicks will get us $100k from our 401k accounts and we will pay it back in 5 years. The rest, you can get from your upcoming paychecks.
wander,

The problem with 401K loan is that if you are laid off, you have to pay back the loan immediately.

KlangFool
I think this is different between retirement plans. For my old employer retirement plan, when I switched jobs, they allowed me to continue paying 401k loan off. If this is not the case, then the taxable account is handy.
Her 401k loan lets her continue paying in the event of a termination but mine does not. I can't find anything else such as cannot contribute or get a match with an outstanding loan.

His 401k loan Rate: 4.25%, length up to 60 months. From his 401k Plan Administrator:
  • Repayment should be made through after-tax payroll deductions; however, if repayment is not made by payroll deduction, a loan shall be repaid in accordance with procedures provided by your Plan Administrator.
  • In the event of a default or termination of employment, the entire outstanding principal and accrued interest shall be immediately due and payable

Her 401k loan Rate: 3.25%, length up to 60 months. From her 401k Plan Administrator:
  • You may have 2 deductions from your paycheck--one for your savings contributions and the other for your loan repayment.
  • You have the option to continue making repayments on an outstanding loan after you leave the company. You can continue making repayments by sending in a check in each month. If you don't want to continue making repayments after you leave, the remaining loan amount, plus any applicable interest must be paid off completely within 90 days of when your employment ends.
nalor511
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Re: How to withdraw $250K with the least impact?

Post by nalor511 »

Alto Astral wrote: Sun Jul 18, 2021 3:36 pm
Watty wrote: Sat Jul 17, 2021 11:09 pm Be sure to check out the details of a 401k loan since they can vary a lot with different employer plans.
wander wrote: Sun Jul 18, 2021 6:52 am
KlangFool wrote: Sat Jul 17, 2021 11:04 pm
wander wrote: Sat Jul 17, 2021 10:47 pm 2) $50K+$50K loans from his+her 401k (will pay back in ~1 year). I am okay with temporarily being out of the market. I may need to pause contributions till I replay the loan but I will check the plans rules.
I will go with this choice. Not sure about your companies, but loan rate is pretty low for me. A few clicks will get us $100k from our 401k accounts and we will pay it back in 5 years. The rest, you can get from your upcoming paychecks.
wander,

The problem with 401K loan is that if you are laid off, you have to pay back the loan immediately.

KlangFool
I think this is different between retirement plans. For my old employer retirement plan, when I switched jobs, they allowed me to continue paying 401k loan off. If this is not the case, then the taxable account is handy.
Her 401k loan lets her continue paying in the event of a termination but mine does not. I can't find anything else such as cannot contribute or get a match with an outstanding loan.

His 401k loan Rate: 4.25%, length up to 60 months. From his 401k Plan Administrator:
  • Repayment should be made through after-tax payroll deductions; however, if repayment is not made by payroll deduction, a loan shall be repaid in accordance with procedures provided by your Plan Administrator.
  • In the event of a default or termination of employment, the entire outstanding principal and accrued interest shall be immediately due and payable

Her 401k loan Rate: 3.25%, length up to 60 months. From her 401k Plan Administrator:
  • You may have 2 deductions from your paycheck--one for your savings contributions and the other for your loan repayment.
  • You have the option to continue making repayments on an outstanding loan after you leave the company. You can continue making repayments by sending in a check in each month. If you don't want to continue making repayments after you leave, the remaining loan amount, plus any applicable interest must be paid off completely within 90 days of when your employment ends.
But why are you still looking at 401k loans when you can do so much better with Margin Loan + Refi Mortgage?
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Alto Astral
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Re: How to withdraw $250K with the least impact?

Post by Alto Astral »

nalor511 wrote: Sun Jul 18, 2021 3:44 pm But why are you still looking at 401k loans when you can do so much better with Margin Loan + Refi Mortgage?
I'm just thinking through all options. So far:
  • Margin Loan is the least I am familiar with. Margin call etc makes me nervous. I would need to move his/her taxable outside of Vanguard. I need to see how much I will end up paying if I just sell $100K of taxable using SpecID and pay 10% on the gains vs 2% on the margin loan for that amount. Vanguard said it will take them 2 days to let me specify the lot I need to sell. I will post again what the numbers look like.
  • Refi mortgage seems decent. Even with the higher cash-out rate, it seems that the interest rate will be better than my current 3.625%. Even, if I don't do cash-out, I am going to run the numbers to do another 30 y FRM. It will reduce monthly payments but I need to see if its worth it if I plan to move in 2 years.
  • 401k loans are pretty easy, a few clicks and you are done. This has no tax-impact either. But I am thinking its better to sell taxable and let the 401k be. If there is an upside in the market, might as well let it be in the retirement accounts vs outside.
grkmec
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Re: How to withdraw $250K with the least impact?

Post by grkmec »

Alto Astral wrote: Sun Jul 18, 2021 1:40 pm
grkmec wrote: Sat Jul 17, 2021 10:24 pm I am gonna go against the grain here and suggest the following:

Do a max cash out refi to whatever you can avoiding PMI via a 5yr ARM.
presto987 wrote: Sat Jul 17, 2021 11:18 pm Absolutely +1 on this. Your current 30-year rate is quite high, so you should be looking to refi anyway.

Cash out pricing tends to be a bit worse than non-cash out pricing, but if you get above $300k, you'll get better pricing as well (pricing tends to be less generous under $300k).

You should be able to do quite well if you refinance into another 30-year, but as the previous poster noted, rates on 5y ARMs are very attractive, and there's no reason not to take one of those if you're not planning to stay in the house for a while.
I do have AmEx and looking into Better.com evaluating to refi anyway. I see 2 options if I pursue this:
  • Refi for a better rate and just stop there. I could optimize to lower my monthly payment. Right now I pay $450 towards Principal and $650 in Interest. When I started this 5 years ago, I was paying $380 towards Principal and $720 towards interest. What would be the goal if I plan to stay < 5 years in the house? Lesser interest paid from now till I sell?
  • Refi for a cash out. Although higher than a regular refi, It seems I will still get a better rate than what I have now (3.625%).
presto987 wrote: Sun Jul 18, 2021 1:14 am I recommend running a search on Zillow Mortgage for refi rates. Make sure to check the "no fees, no points" checkbox, and then you can sort by lender fees with lowest on top. This will let you identify options that will give you lender credit. Ideally you want the refi to be no-cost or better, even if it means going up on the interest rate (you will still be well below your current rate).
I tried this and Better and Reali Loans Inc show up.

FRM no-cashout:
30y : Better: Rate=2.5%/APR=2.572 %, Reali Loans: Rate=2.5%/APR=2.566 %
15y : Better: Rate=2%/APR=2.13%, Reali Loans Rate=1.875%/APR=1.973 %
5/1 : FirstBank: Rate=2.5%/APR=3.101%

FRM $100k cashout:
30y : Better: Rate=2.75%/APR=2.80 %, Reali Loans: Rate=2.75%/APR=2.753%
15y : Better: Rate=2%/APR=2.09%, Reali Loans Rate=2.00%/APR=2.051 %
5/1 : FirstMorgageDirect: Rate=2.75%/APR=3.026%

Maybe I am not looking at the right places but ARM does not seem better than any of the others.Which is odd. I must be missing something. But a 30/15y FRM seems more conservative in case things go sideways in 5 years
Look here:
https://www.schwab.com/public/schwab/ba ... gage_rates
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Alto Astral
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Re: How to withdraw $250K with the least impact?

Post by Alto Astral »

pasadena wrote: Sat Jul 17, 2021 10:54 pm I'd go with a no-cost cash-out refi before a 401(k) loan. Especially when their current mortgage is at 3.625%. Or a HELOC, depending on the rate and how fast they can pay it back.
presto987 wrote: Sat Jul 17, 2021 11:18 pm Your current 30-year rate is quite high, so you should be looking to refi anyway.
grkmec wrote: Sun Jul 18, 2021 6:01 pm Look here:
https://www.schwab.com/public/schwab/ba ... gage_rates
Mine is not Jumbo. Schawab shows an APR=2.755% for a conforming 5/1 ARM

I ran some numbers in my spreadsheet on my $200K balance currently at 3.625%. This is a regular refi and not a cash-out one.
  1. If I refi to a 30y at 2.572%
    • My mortgage drops by $250/month and I save $16K in interest over 30 years.
    • If I sell in 2 years, I will save ~$1K in interest (2*$16K/30y) and paid $6K less in mortgage ($250*24 months).
    • Difference = $7K ($1K in interest + $6K in mortgage)
  2. If I refi to a 15y at 2.133%:
    • My mortgage goes up by $300/month but I save $116K in interest over 15 years.
    • If I sell in 2 years, I will save ~15K in interest (2*$116K/15) and paid $7.2K more in mortgage.
    • Difference = $7.8K ($15K interest -7.2K montage)
Is my understanding of the "Difference" above correct?

Option 1 would increase my cash flow now, which should help replenish any other options I take to arrange for the cash.
grkmec
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Re: How to withdraw $250K with the least impact?

Post by grkmec »

Alto Astral wrote: Sun Jul 18, 2021 6:33 pm
pasadena wrote: Sat Jul 17, 2021 10:54 pm I'd go with a no-cost cash-out refi before a 401(k) loan. Especially when their current mortgage is at 3.625%. Or a HELOC, depending on the rate and how fast they can pay it back.
presto987 wrote: Sat Jul 17, 2021 11:18 pm Your current 30-year rate is quite high, so you should be looking to refi anyway.
grkmec wrote: Sun Jul 18, 2021 6:01 pm Look here:
https://www.schwab.com/public/schwab/ba ... gage_rates
Mine is not Jumbo. Schawab shows an APR=2.755% for a conforming 5/1 ARM

I ran some numbers in my spreadsheet on my $200K balance currently at 3.625%. This is a regular refi and not a cash-out one.
  1. If I refi to a 30y at 2.572%
    • My mortgage drops by $250/month and I save $16K in interest over 30 years.
    • If I sell in 2 years, I will save ~$1K in interest (2*$16K/30y) and paid $6K less in mortgage ($250*24 months).
    • Difference = $7K ($1K in interest + $6K in mortgage)
  2. If I refi to a 15y at 2.133%:
    • My mortgage goes up by $300/month but I save $116K in interest over 15 years.
    • If I sell in 2 years, I will save ~15K in interest (2*$116K/15) and paid $7.2K more in mortgage.
    • Difference = $7.8K ($15K interest -7.2K montage)
Is my understanding of the "Difference" above correct?

Option 1 would increase my cash flow now, which should help replenish any other options I take to arrange for the cash.
Look, if you are moving in 2 years, the only refinance you should contemplate is a zero cost refi at the lowest rate possible. It doesn't make sense to spend $3-4k in closing costs because you won't recoup those costs. However, if you need 100-120k cash, I see a couple really attractive options:

1) Go to Schwab and use this calculator:
https://www.schwab.com/public/schwab/ba ... calculator

When I plug in 400k home, 300k refi cash out, top FICO, using my zip, with $250k at Schwab, you can do 2.4% 7yr ARM with $3,400 closing costs. You can probably ask then for a higher interest rate to defease the closing costs.

2) Go to https://www.thirdfederal.com/ and get a HELOC. This is zero closing cost and rate is 2.24% variable. Fed isn't raising for about 18 months, and you can pay this off at your leisure. Given your net worth, floating a HELOC a 2-3 years is no big deal.
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cchrissyy
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Re: How to withdraw $250K with the least impact?

Post by cchrissyy »

I agree if your mortgage rate is high, you should refinance, and I agree if you don't plan to stay long then you don't need to very best rate you just need a no-cost deal that beats your current terms.

I don't love this as a way to solve your original question. You have options to pay for the medical needs from your current assets and earnings. If you wrap this expense into mortgage debt you are spreading it over 30 years. That's a lot of unnecessary interest paid on something you can already afford without the debt. I would solve these two issues separately unless you are absolutely sure you're selling in just 2 years.
obgraham
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Re: How to withdraw $250K with the least impact?

Post by obgraham »

I think OP is overthinking this situation, while not recognizing the unpredictability of it all. Particularly the health of the sibling, clearly a serious matter.

Recognizing that the family income is $500k, there is no requirement to solve the problem right away.
I would consider leaving all the taxable snd retirement savings in place as much as possible, and funding this "one time" issue largely from the house -- either a re-fi or a Heloc.
Then, once the medical issues pass, and the extent of the hit is clear, plan to pay off the damage out of current income over, say, three years.
I believe you'll be just fine in the long run.
(I recognize this is the direct opposite of the posts just below!)
presto987
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Re: How to withdraw $250K with the least impact?

Post by presto987 »

Alto Astral wrote: Sun Jul 18, 2021 6:33 pm Mine is not Jumbo. Schawab shows an APR=2.755% for a conforming 5/1 ARM

I ran some numbers in my spreadsheet on my $200K balance currently at 3.625%. This is a regular refi and not a cash-out one.
  1. If I refi to a 30y at 2.572%
    • My mortgage drops by $250/month and I save $16K in interest over 30 years.
    • If I sell in 2 years, I will save ~$1K in interest (2*$16K/30y) and paid $6K less in mortgage ($250*24 months).
    • Difference = $7K ($1K in interest + $6K in mortgage)
  2. If I refi to a 15y at 2.133%:
    • My mortgage goes up by $300/month but I save $116K in interest over 15 years.
    • If I sell in 2 years, I will save ~15K in interest (2*$116K/15) and paid $7.2K more in mortgage.
    • Difference = $7.8K ($15K interest -7.2K montage)
Is my understanding of the "Difference" above correct?

Option 1 would increase my cash flow now, which should help replenish any other options I take to arrange for the cash.
Your math on the interest savings is not correct. You would get a closer approximation if you take the difference between the new interest rate and your current interest rate, multiply by the loan balance, and then multiply by 2 years. That is still not correct, but much closer than your calculation. If you want to get an exact number, then pull up an amortization calculator online.

I'd caution you against using APRs. In theory, APR should give us a more complete picture than the interest rate. In practice, there are a lot of problems with APR, including:
- Lenders use different assumptions to calculate it when showing rate quotes online.
- APR assumes that the loan is held until maturity, which is not so useful if you sell in 2 years.
- APR includes certain costs that should not be included, like prepaid interest that you would pay anyway. Meanwhile it does not include lender credit, even though lender credit is just negative points, and points are included.

Ideally you should run your calculations using the actual interest rate, and just add the dollar amount of the net closing costs/credits into your analysis.
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Alto Astral
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Re: How to withdraw $250K with the least impact?

Post by Alto Astral »

presto987 wrote: Sun Jul 18, 2021 10:40 pm Your math on the interest savings is not correct. You would get a closer approximation if you take the difference between the new interest rate and your current interest rate, multiply by the loan balance, and then multiply by 2 years. That is still not correct, but much closer than your calculation. If you want to get an exact number, then pull up an amortization calculator online.

I'd caution you against using APRs. ...

Ideally you should run your calculations using the actual interest rate, and just add the dollar amount of the net closing costs/credits into your analysis.
$15.3K = Total of 24 interest payments in my original amortization schedule starting next month. The original rate is 3.625% over 30 years starting 2016

$10.3K = Total of 24 interest payments on the balance of ~$200K over 30y at the new rate of 2.5%
$4.6K = Total of 24 interest payments on the balance of ~$200K over 30y at the rate difference 3.625-2.5=1.125%

$8.0K = Total of 24 interest payments on the balance of ~$200K over 15y at the new rate of 2.5%
$6.5K = Total of 24 interest payments on the balance of ~$200K over 15y at the rate difference 3.625-2.0=1.625%

So, excluding costs, I should be saving $4.6K an $6.5K respectively in interest, over 24 months, for the new 30 y and 15 y rates?

The mortgage difference is roughly the same. I pay $6K less for 30y vs $6 more for 15y over 24 months at the new rates (2.5% and 2% respectively)
Topic Author
Alto Astral
Posts: 737
Joined: Thu Oct 08, 2009 10:47 am

Re: How to withdraw $250K with the least impact?

Post by Alto Astral »

grkmec wrote: Sun Jul 18, 2021 8:09 pm Look, if you are moving in 2 years, the only refinance you should contemplate is a zero cost refi at the lowest rate possible. It doesn't make sense to spend $3-4k in closing costs because you won't recoup those costs. However, if you need 100-120k cash, I see a couple really attractive options:

1) Go to Schwab and use this calculator:
https://www.schwab.com/public/schwab/ba ... calculator

When I plug in 400k home, 300k refi cash out, top FICO, using my zip, with $250k at Schwab, you can do 2.4% 7yr ARM with $3,400 closing costs. You can probably ask then for a higher interest rate to defease the closing costs.

2) Go to https://www.thirdfederal.com/ and get a HELOC. This is zero closing cost and rate is 2.24% variable. Fed isn't raising for about 18 months, and you can pay this off at your leisure. Given your net worth, floating a HELOC a 2-3 years is no big deal.
I am assuming you are saying that do both: Take 100K out using cash-out refi and do a HELOC on the 20% equity left? Does it matter which order I do this? I believe it's going to be hard credit pull in both cases. Do a cash-out refi now and wait for 3 months to do a HELOC?
obgraham wrote: Sun Jul 18, 2021 9:10 pm I would consider leaving all the taxable snd retirement savings in place as much as possible, and funding this "one time" issue largely from the house -- either a re-fi or a Heloc.
I believe you are assuming this would be cheaper than the long term capital gains I would incur with taxable? Or do you just prefer the money stay in the market for growth?
cchrissyy wrote: Sun Jul 18, 2021 8:50 pm I agree if your mortgage rate is high, you should refinance, and I agree if you don't plan to stay long then you don't need to very best rate you just need a no-cost deal that beats your current terms.

I don't love this as a way to solve your original question. You have options to pay for the medical needs from your current assets and earnings. If you wrap this expense into mortgage debt you are spreading it over 30 years. That's a lot of unnecessary interest paid on something you can already afford without the debt. I would solve these two issues separately unless you are absolutely sure you're selling in just 2 years.
I believe this is the counter argument to the 2 above. We strongly want to move in 2 years and there''s no logistical issues as such. But I am not absolutely sure if life throws another curveball. I see where you are coming from - just deal with the immediate issue within the shortest possible impact period.
Topic Author
Alto Astral
Posts: 737
Joined: Thu Oct 08, 2009 10:47 am

Re: How to withdraw $250K with the least impact?

Post by Alto Astral »

KlangFool wrote: Sat Jul 17, 2021 9:27 pm
Alto Astral wrote: Sat Jul 17, 2021 9:23 pm
specific identification (SpecID),
Alto,

You can specify which lot to sell and you know the actual cost basis of each lot.

KlangFool
pasadena wrote: Sat Jul 17, 2021 10:41 pm With SpecID, you get to choose exactly which lot to sell, so you know exactly how much tax you will have to pay. Avoid selling shares with short term gains, unless you have super recent ones with barely any gain. Short term gains are taxed at your marginal tax rate. Long term gains are taxed at a special rate (15% or 20%). If you have any lots with losses, sell those first.
ChiKid24 wrote: Sat Jul 17, 2021 5:19 pm You should be able to specify which lots you want to sell in the taxable. Sell the highest cost basis shares that are over 1 year old to minimize any gains. And yes, you can and should turn off dividend reinvestment for the time being, until you've built up what you need.
Okay, I have the Spec ID and able to pick lots to sell. The oldest lot I have in LongTerm is May 2017 and latest is Dec 2019. Their respective Est. gain/loss per share are $47.72 and $27.13 respectively. Which is the highest cost basis of these? Pick the ones with the minimal gain per share to sell?
  • I picked the lots with the est. gain/loss per share from $27.13 to $36.89. They add upto $103K and have Total estimated gain/loss of $32.6K. So would I pay Long term capital gains tax on the $32.6K? I should be at a 15% rate this year so would that be ~$4.9K in tax?
  • I tied out the same thing as above with the lots having the highest gain per share and the total gains turned out to be $43K for a similar amount. So I am guessing don't do this and do the above
Last edited by Alto Astral on Mon Jul 19, 2021 9:54 pm, edited 2 times in total.
KlangFool
Posts: 21618
Joined: Sat Oct 11, 2008 12:35 pm

Re: How to withdraw $250K with the least impact?

Post by KlangFool »

Alto Astral wrote: Mon Jul 19, 2021 9:43 pm
KlangFool wrote: Sat Jul 17, 2021 9:27 pm
Alto Astral wrote: Sat Jul 17, 2021 9:23 pm
specific identification (SpecID),
Alto,

You can specify which lot to sell and you know the actual cost basis of each lot.

KlangFool
pasadena wrote: Sat Jul 17, 2021 10:41 pm With SpecID, you get to choose exactly which lot to sell, so you know exactly how much tax you will have to pay. Avoid selling shares with short term gains, unless you have super recent ones with barely any gain. Short term gains are taxed at your marginal tax rate. Long term gains are taxed at a special rate (15% or 20%). If you have any lots with losses, sell those first.
ChiKid24 wrote: Sat Jul 17, 2021 5:19 pm You should be able to specify which lots you want to sell in the taxable. Sell the highest cost basis shares that are over 1 year old to minimize any gains. And yes, you can and should turn off dividend reinvestment for the time being, until you've built up what you need.
Okay, I have the Spec ID and able to pick lots to sell. The oldest lot I have in LongTerm is May 2017 and latest is Dec 2019. Their respective Est. gain/loss per share are $47.72 and $27.13 respectively. Which is the highest cost basis of these? Pick the ones with the minimal gain per share to sell?

I picked the lots with the est. gain/loss per share from $27.13 to $46.89. They add upto $103K and have Total estimated gain/loss of $32.6K. So would I pay Long term capital gains tax on the $32.6K? I should be at a 15% rate this year so would that be ~$4.9K in tax?
Correct! But, is this ETF or mutual fund? Those are priced as per today's closing price. So, it could be a bit more or less depending the price when you sell.

KlangFool
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