trade in dilemmas

I am in the process of deciding to trade or not to trade.

Here is my situation;

My truck is a 09 TRD 4x4 Double Cab with Leer cap, 55K miles. Few upgrades.

I recently got my house back from the bank. I now have 5 year mortgage for 15K.
My thought is that I could trade in my truck and get another Tacoma or maybe a Tundra.
The big deal in all this is that I pulled 10k from IRA to get my house. I was told that If I replace the 10k with in 60 days there would be no penalties. There is a 10% penalty off the top and then taxes.
So, I applied for credit and I was approved.
It seems like it makes sense to do the trade in, get some cash back and re-pay my IRA without penalty.
I dont have the numbers from the dealer yet, I am going to go there tomorrow or Saturday. The finance lady wanted to know what I want back in cash. I said well it all depends on the other end. How much is the truck going to cost. I said thats what I need to know first.

Just wanted to run this by to get others thoughts and opinions.

It kinds seems like a no brainer. I only owe $2500 on my truck. I was originally thinking I could take the cash and pay off my mortgage but then I remembered about the 60 payback.

Damn I like my truck to, there is nothing wrong with it, I have bad ass stereo, amp subwoofers, tinted windows, remote start, alarm, etc..

 

I would keep the truck and eat the penalty personally. If you are in the 25% bracket your tax liability will be ~$3,500 on your ROTH withdrawal. I can almost guarantee you will lose that much when you trade in.

 

Let me get this straight, you borrowed $10K from your IRA to pay off part of the $15K on your house? So by trading in your truck you can pay back the $10K to your IRA and avoid the 10% penalty? How so by trading in?

If that's the case, what is the interest rate on your mortgage? What is the interest rate on your truck? Don't know the full circumstance of your position, but if it were me, I'd sell your truck outright, and pay back the IRA, take the excees cash and put it down on a different car. A Car Loan is lower in APR than a house mortgage. Any money expert will always advise you to pay off loans with a higher APR first.

 

You forgot to factor in the interest he'd be earning if the $10K was still in his account. I disagree with your advice.

 

10k in a ROTH IRA isn't going to earn much.

 

Depending on how long it takes him to ave up 10K. If he adds that 10K back in a year, you are right, but if it takes him say 7 years, then you'd be wrong. The rule of 72 applies when saving money.

 

As do I, not only the compound interest on the 10K, but also the fact that you will never be able to put that money back in the IRA.

Have you considered an outright sale of the truck before you consider letting the dealer attempt to bend you over?

 

Thanks

 

I can change that to something else.

 

I am still processing all this.. Thats why I am asking for input.. I dont have alot of time.. But I am sure if I did sell my own I could get more and get a better price on a new truck.

 

Throw it up on the local lists now, if you don't get a sale or good hits over the next week or two, you can still go back to the dealer. Tacos resell quite well.

 

Based on what you said, I'd sell my truck outright, becasue I'm positive you can get more for it with a private sale. With that, Payback your IRA, thin about it if your tax penalty is say $3.5K with a $1K penalty that's $4.5K blown going towards nothing but taxes and the government.

For an 09, you can probably get close to $25K pay off both your IRA and mortgage, from there you can get a 60month car loan for less than %4 depending on your credit. 4% percent 60 month loan vs a 6% 15 year loan....to me it's a no brainer.

 

My finances are probably much different. When I saw what I could get for my 2009 and looked at interest rates I decided to sell and buy new. Interest rates will only go up. With scores of 800+ i got 1.29%. The money I cleared on my 2009 will help pay for son's college. No way I can get a loan for 1.29%. I was planning to buy in a year and a half anyway. I just bumped it up because of the value of the Tacoma and rates. Like they say "strike while the iron is hot".

 

Ya thats a thought.. Let me meet with them and see what they have to say on the trade in. I like to get an idea of what I could get for it.. I guess its a big misconception that you get a better price on a new truck when you trade in one.

 

Very much a misconception, you just give the dealer two chances to bend you over

But, this all truely depends on if they are giving you a good trade-in value and a good price on the replacement. You have to assess that. Also don't discount the non-PITA factor in having to sell the truck yourself.

 

I would never trade in unless I come out ahead considering sales tax. As another member said, strike while the iron is hot. Sell outright pay off your debt and turn around get a low interest new car loan. New tundra can be had in the low to mid 30Ks with the rebates offered. If you think the dealer is going to give you a cash check without buying a new car, spoiler alert....they're not. List on Craigslist and see what hits you get. I listed my 07 4 months ago for 20k and got 5 takers in an hour, all willing to pay my asking price. Yes location has plenty to do with it, but Tacoma's have ridiculous resale value. Don't be stupid and let a dealer bend you over the table and have them make you feel good because they offered you a reach around

 

Yes.. Thats what I waned to see.. I just wanted to get the numbers from them at this point.. I just know from being around TW peeps most of the time give great feed back.

 

OP just so you know your tax liability might be lower than you think. Let's assume your ROTH balance is 20k of which you have contributed 15K with 5k of earnings. The 10k you withdrew is not subject to ordinary income tax but only subject to the 1k penalty because it is a return of your contributions. If you would like to talk more about the tax consequences you can PM me.

 

If I decide to do this at all, I am sure I will try and sell on my own.. I know it isnt that difficult..
Thanks..

 

Not sure what you're using for price references, but I use Edmunds, as that seems to be the most accurate in my experience, within 500-1000 anyway. Find out the true market value of both the current and replacement truck and also check the difference between the current trade-in vs. owner sold prices. Don't forget taxes.....

You MUST go into the dealer informed, or else,,, assume the position.