Personal Finance

I feel like there are always personal finance topics coming up - post about them here.

To start, I’m looking at refinancing my current mortgage, and there are a couple of things that are interesting to me. I’m about 8 years into a 5/1 ARM, and the current rate is 5.125%. I’m looking to accomplish 2 things:

  1. Get a lower rate.

  2. Pull out some cash in order to renovate our master bathroom. (This could be a thread on its own.)

I contacted the mortgage broker that we used for our existing mortgage, and it looks like I can get a 30-year fixed at 3.75%. That’s absolutely insane to me, and I’m likely to do it just for the rate benefit. Even in a world where I don’t get to deduct my mortgage interest, I’m pretty happy to borrow money at 3.75%.

The other thing that was super interesting to me is that when the mortage broker was looking at my records, he was like, “Hey spidercrab. It looks like you transferred your house’s title to a trust since you took out the mortgage. [True, when we did our estate documents 5-6 years ago.] Technically, transferring ownership of title generally makes the mortgage note immediately due. In practice, this rarely happens, but it’s something to look out for, and will make the refinance a little more complicated.”

So it was a combination of funny/scary that setting up this trust might have generated a really big surprise bill. Now, I’m a little skeptical that it would have happened in our case, since we used an attorney specializing in estate planning, and he was the one who created the trust and transferred the property. But it’s a reminder of how easy it can be to make decisions with enormous financial consequences when you don’t have any real knowledge of the situation.

My wife inherited tens of millions of dollars and then paid off my $20k student loan. Now I’m questioning my identity as a self-sufficient man and there is a new awkwardness in our relationship. Please advise!

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Just pay her back, I’ve found one surefire trick that works every time.

Imgur

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Do you still deduct your interest even under the new tax law? With the larger standard deduction and changes to the SALT deductions a lot of people no longer deduct all or any of their mortgage interest.

I’m also curious, assuming it still makes sense for you to deduct interest considering the above, if you can legally deduct the interest with the mortgage being held in a trust? I have no idea but that sounds like something I would discuss in depth with my accountant.

I take the standard deduction now under the new tax law.

I never thought about deductability of interest in prior years (when I did deduct mortgage interest). I’m almost positive that it’s a revocable/living trust, so assets placed in that trust are not protected from creditors, nor do they have any tax consequences (including deductability of mortgage interest). So I think the mortgage broker is actually wrong in my case about the trust violating the existing mortgage note. But I probably should have been more curious.

Ask for a sandwich?

I was hoping the first reply was gonna be “tl;dr, give away your money and worldly shit then atone” but this 1-2 punch is solid.

So, if someone has a modest middleclassish 401k and a decent amount of equity in their home, and is concerned that both the housing market and the stock market are due for a correction any minute, and further is leaning more and more toward detaching from the US and relocating, what would be the play to get the money out and what would be the sensible options to do so?

Like I know I can expect to lose an extra 10% of the 401k over the taxes if I cash out, but if I am okay with that weighed against the risk of the value dropping 10% anyway, is there something else to consider? (I also understand that I will be taxed at higher marginal rate.) Are there other options if I am really pulling up stakes to jet?

The house is the house. I just gotta sell it I guess.

Any obvious things to consider to get the money transferred to Canada from the US?

Why would you cash out your 401K if you don’t need the money? I assume that your fund company has more conservative offerings you could move your money into. In fact, although I think it would be foolish to do so, you could probably transfer all of your money into a money-market account.

Remember, if you don’t actually cash out you do not owe any penalties or taxes.

I don’t know what a money market account is. I suppose the answer to that question is I kinda expect the market to tank soon, but I don’t know. I feel like I should at least hedge by getting at least some of it out of the market. Also, if I were to move from the US to Canada, is there any issue in accessing from there if I need it?

A “market money” account is essentially a cash account that invests only in high quality, short-term bonds. Their goal is to remain at $1.00 per share, and they do pay interest, although in this current market they pay very little interest. Curiously, you may already have a money market account in your 401k, since many fund companies handle deposits and withdrawals by using internal money market accounts as intermediary vehicles.

It shouldn’t be difficult to access your money from outside of the country, but that’s a question to ask of the fund company. As long as you remain a US citizen, I can’t see why you couldn’t leave your money in a tax-sheltered retirement vehicle like a 401k or IRA indefinitely.

I’m not a citizen, I have a green card that I will have to relinquish.

I would recommend you contact the fund company and/or search the IRS site for rules pertaining to non-citizens.

Nonetheless, my advice remains that you should not actually cash out until you are required to by law, assuming your fund company has the more conservative options you want.

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JT

Chesspain is correct. You don’t need to get out of your 401K to get out of the market. You can sell your stock, mutual funds, or whatever and basically hold it in cash within the acct.

As far as withdrawal is concerned, it has been a while since I looked it up, but basically the play is that once you leave your job you roll over the plan into an IRA. Then you can withdraw several thousand a year tax-free every year (assuming that you are not a citizen AND you don’t have any other US income).

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JT,
Definitely ask about 401k investment options before cashing out.

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My wife and I recently moved to Austin… and we recently discovered that after we’ve been here a year we can take a couple of classes at Austin Community College and buy into their excellent health insurance.

I’m self employed so having access to insurance outside of a job is a very big deal. It’s also a big deal because it would allow my wife to go back to nursing school full time to advance her career (she’s a nurse ldo) without having to worry about what we’d do for health insurance.

The fact that the classes only cost 75 bucks an hour really tempts me to take some coding classes honestly. I feel like Expert Sales + Expert Business Operations + Intermediate Tech is a stupid valuable skill stack and would make me very very secure in terms of being able to sell my time for money down the road.

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Thanks guys, sincerely. This is exactly why I asked. The 401k is with a company I don’t work for anymore but they are still managing it. I think I feel pretty comfortable moving some of it to a money market and keeping some of it in an index, especially if I am avoiding the taxes and penalties i was ready to pay to liquidate it. I should probably figure out rolling it over first though. Any recommendations?

Yeah if you’re not working there anymore, then you can convert it to an IRA. Once you do that, then your investment options are essentially unlimited and it will still be in a tax protected account.

The easiest thing to do would be to just stay with the same brokerage firm that’s holding the 401k now. For example if you’re with Fidelity, then just call them up and tell them you want to convert it to an IRA. Then you can invest the funds in whatever you want (cash, stock, bonds, even some derivatives) and continue to get tax-free growth, no capital gains, etc.

If you don’t like the brokerage firm the account is currently with, just pick your favorite one. I’m a fan of etrade, but all the big names are fine. I’ve got experience with Fidelity, Vanguard, and Schwab and they’re alll fine too. They’re also going to be a tad cheaper if you’re buying mutual funds.

The brokerage firm that will be receiving the account can provide you with all the paperwork you need to do the roll over.

Only one:

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I like Bogle as much as the next guy, but there is no real reason to prefer Vanguard for your brokerage. In my experience customer service is slightly to significantly worse than its main competitors.

Also you can own Vanguard ETFs anywhere. I suppose it’s slightly cheaper if you buy Vanguard funds at Vanguard, but Fidelity and others have their own versions of nearly identical low expense index funds.

So Vanguard is fine, but I wouldn’t say it’s necessarily better as far as which brokerage to use. Bogle is still a real fucking people’s hero, though. No argument there.

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