Assuming an 8% return for 30 years your money will increase by 10x at retirement. You should be considering how much the withdrawl will cost now vs paying it off using your future income. Your estimate of $100k to pay off the $65k debt after penalty and taxes (all at your marginal rate in 2020 or higher) sounds reasonable. So with compound interest you’re giving up $350k.
Have you considered your options for negotiating or restructuring the debt?
Since you are not in a huge rush because you’ve already determined that waiting until 2020 is the better move tax wise, I think you should register for an account on the bogleheads forum and ask for advice on your specific situation. Be prepared to share budget info, income, etc. You will receive very good advice assuming you are willing to share the info they ask for.
Off topic but I think anything over a 3% real return on US equities over the next 30 years is massively optimistic.
Does that mean you expect a fairly large correction soon?
I don’t believe there is any way to know for sure. In the late '80s and early '90s we were supposed to be doomed due to US debt burden and Japan buying up the world, etc. Dozens of books were written and all the financial people explained how royally fucked the US was.
Since then the market has increased massively, with of course a few big bumps in the road, but for the most part straight up.
I think it was 2010/2011 that all the finance geniuses on 2+2 were talking about the big correction that was coming and how they were 100% cash and would have lots of “dry powder” to invest into the meltdown. Wonder if they are still waiting?
In the short term, nobody knows anything.
In the long term, there are major headwinds.
US politics are a complete mess. The US is hopeless when it comes to competent fiscal policy. Monetary policy is increasingly politicized. The debt is, at some point, going to be an issue.
Demographics are bad. Thanks to boomers, millennials don’t have any fucking money and can’t afford houses and kids. Further, the US consumer is already up to their eyes in debt, a bubble that is sure to burst eventually.
Current valuations are very high.
Muy caliente!
Not really. The counterpoint is that we have the capacity to make more stuff every year… and the older I get the more I suspect that money isn’t real, never has to balance, and that we’re just pretending to know what’s going on.
When idiots insist that stocks go up forever I always point out that if you invested in Japan’s market in 1987, you still have lost money on your investment in 2019. As you’ve noted, it’s a completely different long term than the previous one outlook wise in the US right now.
As for me, I look more at specific stocks/industries nowadays than I do overall markets. I was bearish this year but mostly went against the stuff that gets out there in the public hype sphere (ie when marijuana stocks got ridic on them–the market took forever to finally correct that nonsense and yet I still didn’t really get much there as I was a little too soon entering that one) tl;dr everyone can be a moron for a long, long time.
I’m actually overall bullish this upcoming year. So the market will tank hard, sorry.
Re: Edward Jones
I’m trying to navigate a mortgage refinance right now, and I wonder if anyone can help me think about some variables in the process. Here are the facts:
As I understand it, this is going to be treated as a cash-out refinance because the HELOC doesn’t count as purchase debt. I think, but am not certain, that it doesn’t matter whether the cash-out uses are limited to the HELOC or whether they also include the student debt.
What I would like to understand better is:
TIA!
I don’t have much to say, other than I’ve been through a similar process recently. Some random thoughts:
I worked with a mortgage broker that I had used when we first bought the house in 2010. I’m sure that cost me some unknown dollar amount, but I was happier dealing with a single entity than interacting with a bunch of direct lenders.
I took out a $380k mortgage, which included about $60k of cash out. The house appraised at $585k, which was deemed “acceptable” for my refinance transaction, according to the broker. That’s right at 65% LTV, but I’m not sure if going to 60% or 70% would have changed the rate I got (3.625% on a 30-yar fixed in September 2019). Given the scummy nature of some lender/appraiser relations, it wouldn’t surprise me if the broker/lender said to the appraiser, “this thing needs to appraise at at least $585k”, which would imply that the 65% LTV threshold actually was meaningful.
My reading of IRS publication 936 is that interest on the cash out dollars used to pay off the HELOC wouldn’t be tax deductible, but I could imagine an argument to be made that if the HELOC was originally used to purchase or substantially improve the home, then paying off that HELOC would result in tax-deductible interest as well. But I’d want a tax attorney’s blessing on that before trying it. (Aren’t you a tax attorney?)
It’s hard to imagine there being a no fee transaction - the only question is how those fees are going to be captured. I paid just under $4k of fees:
Maybe some of those fees are scams, but I assume that most of them are effectively mandatory and, again, the only question is whether they get rolled into the loan balance (as mine did), whether they’re paid upfront, or whether they’re baked into the interest rate.
Mostly I’m replying because I want more information on the $100k of car loans and what you’re driving.
God I hate title insurance. Absolute scam.
Thanks! I think it is pretty clear under Reg 1.163-8T that you trace the use of debt through refinancings, so as long as the HELOC is traceable to renovation costs, then I feel pretty good about the refi mortgage being a substantial improvement loan as well.
I double checked and the car loans are actually $125k 
. In my… defense?.. it’s two new cars we bought at the same time to replace 2007 and 2009 cars. But yeah, one of them is a very sweet Tesla Model X. I’m saving so much on gas!
This is interesting - thanks for the reference about tracing. Two follow-up questions this raised:
I also seem to remember reading something about how extending the life of an existing loan via a refinance changes the characterization of that loan (makes it harder to consider it a purchase loan), but I don’t recall the details.
Congrats on the cars. I had actually assumed that you typo’d $10k of car debt into $100k, but your reality is more interesting.
Hopefully you’ll keep the thread updated with what you end up doing.
Notice 88-74 has the rules about tracing for acquisition indebtedness purposes.
On student loans, a qualified education loan has to be incurred “solely” to pay qualified higher education expenses (section 221(d)(1)), so if you refinance a QEL together with other debt, the interest is no longer deductible (at least as student loan interest). The preamble to the 2004 regs says this:
Another requirement of a qualified education loan is that the borrower obtain the loan solely to pay higher education expenses. One commentator suggested that if a taxpayer refinances a qualified education loan and receives an amount in excess of the original qualified education loan, the taxpayer may take an interest deduction under section 221 for interest paid on the refinanced loan. The commentator is correct, but only if the taxpayer uses the excess amount solely to pay higher education expenses and satisfies all other requirements of a qualified education loan. Thus, if the taxpayer uses the excess amount for any other purpose, the refinanced loan is not solely to pay higher education expenses, and no interest paid on the loan will be deductible.
I have no idea about the bankruptcy question. Intuitively, it’s hard to see why a mortgage lender should get more protection on a cash-out mortgage if the excess debt was used to repay a certain kind of lender, but it’s possible they just do.
Judge discharged about $225k in student loans in bankruptcy yesterday. Would not be surprised to see more of this, and probably wouldn’t repay student loans beyond the minimum required payments at this point (assuming a reasonable interest rate).
Yeah I’ve been planning around eventual forgiveness for a few years now.
Wife is supposed to have 6 payments left and then government forgiveness on $200k worth of student loans. Our fingers are crossed that Florida Man and Betsy don’t fuck us over.
