Should I break CD early?

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Topic Author
hungrynow
Posts: 21
Joined: Mon Aug 08, 2011 12:21 pm

Should I break CD early?

Post by hungrynow »

Have a 5 year CD with 3 years 9 months left. It pays 4.75% and 1 year early withdrawal fee. I’m in 35% tax bracket and 9.3% CA. I e the CA bonds fund pays 3.36 tax free. Should I break the CD early and pay the fee? One unknown variable is if I lost my job then the tax savings would go away and the CD would be the better deal especially when considering the early withdrawal fee
hudson
Posts: 7348
Joined: Fri Apr 06, 2007 9:15 am

Re: Should I break CD early?

Post by hudson »

hungrynow wrote: Wed May 15, 2024 6:01 am Have a 5 year CD with 3 years 9 months left. It pays 4.75% and 1 year early withdrawal fee. I’m in 35% tax bracket and 9.3% CA. I e the CA bonds fund pays 3.36 tax free. Should I break the CD early and pay the fee? One unknown variable is if I lost my job then the tax savings would go away and the CD would be the better deal especially when considering the early withdrawal fee
No recommendations...just discussion
The 4.75% is a good rate.
What CA muni bond fund? Vanguard has a good CA only one. Many others are high expense; I'm sure that you'll do your homework.
The early withdrawal fee will help with taxes.
Topic Author
hungrynow
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Joined: Mon Aug 08, 2011 12:21 pm

Re: Should I break CD early?

Post by hungrynow »

This fund https://investor.vanguard.com/investmen ... file/VCADX

Being able to deduct the early withdrawal fee cuts the amount in half. It has nothing to do with itemizing or standard deduction right?
hudson
Posts: 7348
Joined: Fri Apr 06, 2007 9:15 am

Re: Should I break CD early?

Post by hudson »

hungrynow wrote: Wed May 15, 2024 8:13 am This fund https://investor.vanguard.com/investmen ... file/VCADX

Being able to deduct the early withdrawal fee cuts the amount in half. It has nothing to do with itemizing or standard deduction right?
I don't think so; it comes off the 1040 SR on line 10. The standard deduction is on line 12.

The Vanguard CA long muni's duration is 7.7 years and pays a little more.

Some CA expert muni folks can better answer your question.
You are on the right track with Vanguard.

There may be another choice equal or superior to munis for your situation. Grabiner could answer that.
Here's one of his earlier contributions. I don't know if he would still answer it that way.
viewtopic.php?p=7444259#p7444259
Topic Author
hungrynow
Posts: 21
Joined: Mon Aug 08, 2011 12:21 pm

Re: Should I break CD early?

Post by hungrynow »

Also what are everyone’s thoughts on the med vs long term CA bonds
soccerrules
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Joined: Mon Nov 14, 2016 3:01 pm

Re: Should I break CD early?

Post by soccerrules »

how big is the CD? What percentage of your total invested monies is it?

Others can help you with the actual calculation for return--i'll just comment that you don't have to optimize every financial decision. I have about $28K sitting in a bank savings earning .001% or something. I plan to use the funds in a few months so the hassle of moving it back and forth from my settlement account at VGD, is not worth the extra few dollars. FWIW it represents a very small portion of my invested assets.
Don't let your outflow exceed your income or your upkeep will be your downfall.
bombcar
Posts: 1058
Joined: Sun Aug 12, 2007 6:41 pm

Re: Should I break CD early?

Post by bombcar »

Besides the size (calculate the actual dollar amount per year and see if it is even worth bothering with) - you will want to consider:
  • Why did you get the CD originally?
  • What do CDs now pay?
  • Why do you want CA bonds vs TIPS or I Bonds or other bond-like devices, anything besides tax?
  • Could you ever move from CA?
  • If you lost your job would you be out of work for a whole tax year?
  • What is the purpose of the CD? Would you put it in retirement account(s) if you had the chance? Is it an emergency fund?
  • Can the CA bond fund go down in value if interest rates rise? Are you adding risk?
Topic Author
hungrynow
Posts: 21
Joined: Mon Aug 08, 2011 12:21 pm

Re: Should I break CD early?

Post by hungrynow »

The CD is size able amount and about 20% of my total portfolio.

Main motivation is to maximize the after tax earnings for my fixed income investments. I don’t plan to move away from CA in next 5 years. I have 80% stocks, this CD and then 6 month emergency fund in savings
Topic Author
hungrynow
Posts: 21
Joined: Mon Aug 08, 2011 12:21 pm

Re: Should I break CD early?

Post by hungrynow »

Hoping someone can help run the numbers
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