trade in dilemmas

I'm interested, are you a financial advisor, becasue your advice contradicts everything any expert would advise? Not trying to be a jerk, I'm just surprised anyone would advise someone else to pay a penalty they can avoid. I love my Tacoma sure, but I love my finanacial stability more.

 

Sounds to me like convoluted rationalization towards new truck fever! Borrowing money to service borrowed money is never a good idea.

I'd say...keep the '09 truck, make the payments, and eat the IRA penalty. If you are having to get your house back from the bank, your financial situation sounds tenuous at best, and the last thing you need is a new truck with an extended loan period so you can afford the new payments.

Hard to give up on that new truck fever....

 

Please explain the rationale? I'm really not advocating purchasing a new car, the OP sounds like he's leaning that way. I'm advocating selling his 09 and paying back his IRA and his mortgage. The OP really needs to look at buying a cheaper car and getting out of debt, but I think them smart thing to do is to not throw money away right? Paying a $1K penalty on top oaf any tax penalty it doing just that right?

 

Very simple, the OP is much better off in both the short and long run by keeping his '09 truck and continuing to service his truck loan for the remainder of $2500 owed. In the meantime, take whatever he is able to save and apply that amount to restoring his IRA account.

This is why you don't borrow from retirement accounts if at all possible. But maybe he had to in order to take care of the house mortgage issues.

A new truck with an associated loan for an extended period of time to get manageable monthly payments makes absolutely no sense at all in this situation.

In the end, the OP is going to do what he wants to do no matter the advice being given.

 

What about trading in towards a slightly used truck? I'm not a financial adviser, but I can't help but think avoiding thousands of dollars in penalties and getting the money back into your IRA where it belongs is a good thing. Right now you owe $15k on the house, $2500 on the truck and $10k to yourself (your IRA). If you could owe $12.5k on the truck and nothing to yourself and avoid the thousands of dollars in penalties that sounds like a winner in my book.

The problem as I see it, then, is how to avoid taking a hit on the transfer (by way of new car depreciation, taxes, etc.) that's equal to or greater than the IRA penalty. Buying a less expensive used truck that's already taken the initial depreciation hit would, I think, minimize that.

Selling the truck outright would definitely be the best option. Only problem I see with that is that you still owe on the truck, which complicates a private sale. You can't just hand the buyer a signed title and a transfer form in exchange for cash - you have to work out the logistics of getting the title to a location where the buyer can pay off the balance of your loan and give you the rest of the money and the bank can hand over the title to the buyer. Little bit of a hassle and will probably alienate a portion of your potential buyers (I wouldn't want to deal with that as a buyer, and I'm certainly not giving someone a bunch of cash and accepting that they'll send the title later).

 

Yeah no doubt, the OP is going to do what he wants, we're just run of the mill people with opinions and you know how the saying goes.

Just for the sake of discussion, because finances interest me and I consider myself good at it, I'd like to hear a different perspective. You're saying the OP would be better off
- continue paying his $2,500 loan on the truck at let's say 4%
- continue paying a $15K home loan at 6% for 5 years
- pay a penalty of $1K, taxes (possibly up to $3.5K)and lost compounded interest on his IRA and lose average return of 7% interest a year on his IRA

Rather than
- Pay off a $2500 loan at 4%
- Pay off a 15K loan at 6% over 5 years
- Recoup his $10K IRA, no penalty, and accrue compounded interest/return with an 7% average return
- start with a clean slate with a 1.9-4.0% 5 year loan on a new/different vehicle that he can afford

What am I missing, that doesn't add up to me.

You should always liquify hard assets first, house car, possessions rather than touch financial assets, in the OP's case, it's obvious he dipped into his IRA to save his house. Reality should of been to sell his truck, save his house then purchase a cheaper truck that suits his needs. Luckily for him his bank and Investment firm worked with him, and he can correct his issue by redirecting $10K back into his IRA without penalty in 60 days. With that, I don't see why you're telling him to start over with his savings when he doesn't have to if he sells his Tacom outright.

 

i agree with you, especially since he's got good enough credit to get a low interest loan for a new vehicle. if he didnt have the credit for a "new" vehicle loan i'd say go with the other option

 

Even if he had average credit, he could probably still get a loan for 5%-6%. I think lost in this the other side is advocating he put his money in to "lost" return. Meaning he pay fines, penalties, lost interest and to continue making payments on an item with no return (car). A house and an IRA are the only two items here that will provide a return, put your money there first so your money works for you.

 

Damn, I have to leave work. But will follow up with later.. Lot of good info..
Thank you.

 

Here's another thought - are you a member of a credit union, perchance? Credit union might be willing to let you refinance your own truck and cash out just enough equity to pay back the IRA. No hit from a dealer, no hassle of selling, you keep your truck that you admittedly like and likely end up with a lower interest rate than you're paying on the truck now. Essentially you'd be selling the truck to yourself for $10k more than you owe.

Hell, my credit union even gives you $100 for moving your car loan over to them.

 

No I am not, I am an accountant working towards my CPA with 2 sections passed.

I hate being out of tax season and giving tax advice, I get a little rusty. What I said earlier was incorrect. Anyways, his tax liability would really can't be determined because we don't know how his ROTH is made up. He may pay a penalty, he may not.

What we do know is that the OP had troubles with money at some time and my advice was to keep the 09' pay the remaining balance of the loan and have a paid off vehicle instead of spending more money on a new truck (which is what he wants to do).

 

^^ I completely agree with the CPA to be.

 

I agree, there are several unknown variables in this equation, like you mentioned how is his Roth set up, maybe he has a Traditional IRA and not a Roth....big difference, what interest rate he is paying on the truck, he owes $2500 how much longer is his loan? With what has been disclosed, any money/financial expert would say, sell the car first and pay the bills that matter, and avoid at all cost dipping into retirement unless it's absolutely necessary. Which it sounds as if he did it backwards, probably to keep the truck.

OP, keep in mind your truck depreciates every year, will you bet your truck will depreciate less than what you will lose on your interest, penalties, and potential tax penalty on your IRA? My bet would be no.

 

This has been a process that evolved over time. I bought the truck in Dec of 08.. A few months later I filed BK and kept the truck. At that time I included the house and wanted to give it back to the bank.
The plan was to buy truck and then move to Colorado, which I did for 6 months. Now I am back in MI but plan on going back in Oct. So I wanted to have a great truck, hell I still have the platinum warranty. 7yr/125 miles (haven't used it BTW)
The bank never came and got it. But I did plan on giving it back. Long story short but the note got sold a couple times. Well last August I was approached by investors, the ones who now bought the note.
It took awhile but we were finally able to work out a deal. There were many times I thought the deal was never going to go through. So, I wasn't about to sell my truck in hopes this deal with the house would work out.

Yes, I agree it would have made sense to sell the truck and use that cash. But at that time I didnt know I could get financed. Once I found out (like yesterday) my wheels started spinning on how I could pay off the 15K.
The interest rate on my truck loan is 1.9%

And then I remember the Charles Schwab guy telling me if I pay the money back in 60 days then there would be no penalty.
So, I started thinking what the hell if I am going to have a payment I'd rather have a NEW truck payment and pay off my IRA and not pay off the mortgage.

But now after reading all the posts and processing the whole deal it seems to make the most sense to sell the truck put the 10k back in the IRA and avoid the penalty and interest.
I can use whats left to find a used truck.. At least that is where I am at now..
I guess thats it in a nut shell. I really do appreciate all feedback
Thanks.

 

No, I am not.

 

Might be worth looking for one to join since you've got some time...

 

I thought tax penalty for early withdrawal from IRA was now 25% as per President Obama.

 

I ran some numbers using a financial calculator. If you were to continue your IRA take the hit and lose interest, using the figures of say adding 3% of a 1500 a month paycheck with an Annual expected return of a modest 7% you would lose over $119,000 over the course of 35 years than if you left your $10K. So to those who say take the hit, you're losing more than 10% penalty and a tax hit.

 

I know you are right.. I sure hate to give up my truck but its only temporary. I really got a hell of a deal on my house or I would not have done that..

 

Ok, I called a credit union. Here is what they want to do..
13,500 for 60 months 5.49% Need to pay off truck, and I actually need 10,700 to put back in IRA and I $2500 payoff. SO actually 13200.
$258 a month
$1970 in interest over 60 months.
HMM.. is that a good way to go or not.. Should I keep it or just sell it, pay back the IRA and get a used :-( truck?
Selling it some how seems like the better way to go.
I'd save the $3500 hit but then I'd be paying $1960 in interests.
But I have my IRA money back.