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  #1  
Old 03-26-2019, 12:30 AM
Jedi7677 Jedi7677 is offline
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Pay Off My Underwater Loan Early?

Long story short I rolled a ton of negative into my CPO, and now owe $38k on a 2015 X5 35D worth $23k.

I know, I'm dumb. Not a day goes by I don't stress about the bad decisions Ive made in the past regarding vehicles. Never again...

Anyways. I'm looking for some advice from those of you much smarter than I. I've recently come into enough cash to pay this loan off entirely. Is there any benefit in doing so?

Truly appreciate any help in this matter!!

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  #2  
Old 03-26-2019, 05:37 AM
rounderman rounderman is offline
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I am a finance guy by trade (MBA, CPA) I don't give investment advice. Okay having said that I have made plenty of dumb investments and vehicle purchases so welcome to the club, the trick is to learn from your mistakes and listen to others and try not to do the same dumb thing twice (I have and I own that)

To answer your question directly it depends sorry I was a consultant too now in healthcare finance and administration and I couldn't resist. Simple rule of thumb, what interest are you paying on the loan, and what could you earn with the money. do the higher one, pay oiff the loan if you can't reasonably earn more with the money. Rule 2 is do what helps you sleep at night which is actually more important than what you can earn. I tell anyone who asks investing is great unless you can't sleep worrying about it. choose the better sleep option. Finally the middle ground is put the money somewhere safe and take some out each month to pay off the loan or subsidize how you are paying it off now. In any case you have learned don't roll negative equity into a car if at all possible. waiting is hard but most often makes outcome feel better and you get the smug feeling of being smart.

Good Luck
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  #3  
Old 03-26-2019, 06:58 AM
Autoputzer Autoputzer is offline
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I have a BSME, but I'm pretty much with rounderman on this. The two big variables are the interest rate on the car loan, and how much money you came into. It's important to have a cash reserve, because **** happens. So, paying off that car loan might not be the best move if you end up having to pay 15% interest on a new refrigerator, transmission, or roof.

We have a 1.9% car loan on our X3. I'm philosophically opposed to car loans in general, and loans on luxury cars in particular. But, at 1.9% I wrote a check to the credit union (for a CD) instead of to the BMW dealership.

The two big-picture numbers that are important in personal finance is net worth (assets less debt), and net wealth accumulation (income less spending). Both of these need to be positive while you are working, and the latter must be positive on the day you assume room temperature.

With BMW (and M-B and VW Group) no longer selling diesel passenger vehicles in the U.S. the value of that F15 diesel will likely hold up better than any non-M BMW. At a book value of $23k, you're driving a cheap car. You might have some maintenance issues going forward, buy they will likely be trivial compared to what deprecation would be on a new car.

A rule of thumb for the annual depreciation of a car driven about 12k miles/year is:

25% of MSRP the first year.
20% of book value the years the car goes out of warranty, becomes seven model years old, and goes over 100k miles.
15% of book value the remaining years.

I track our finances closely. I have an Excel workbook that tracks all our spending, by category. Three of those categories are depreciation of each of our three cars, and I break down those annual depreciations into monthly totals. Once you quantify what depreciation is, you think twice about buying a new car or an expensive car. Actually, I've come to dread buying a new car. The last two cars we sold were twelve years old, and I have another twelve year old car in the garage.

We kept Frau Putzer's previous car twelve years and 147k miles. From 100k to 147k miles, we put over $7k into the car for maintenance and repairs. But, that was nothing compared to what the depreciation would have been on a new car in the first six years. The average monthly depreciation on her X3 in the first year was $840/month.

One of the ways I resist scratching the new-car itch is to mechanically and cosmetically maintain my old cars. If a car looks and runs good, you don't think about replacing it.
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  #4  
Old 03-26-2019, 10:29 AM
Jedi7677 Jedi7677 is offline
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Quote:
Originally Posted by rounderman View Post
I am a finance guy by trade (MBA, CPA) I don't give investment advice. Okay having said that I have made plenty of dumb investments and vehicle purchases so welcome to the club, the trick is to learn from your mistakes and listen to others and try not to do the same dumb thing twice (I have and I own that)

To answer your question directly it depends sorry I was a consultant too now in healthcare finance and administration and I couldn't resist. Simple rule of thumb, what interest are you paying on the loan, and what could you earn with the money. do the higher one, pay oiff the loan if you can't reasonably earn more with the money. Rule 2 is do what helps you sleep at night which is actually more important than what you can earn. I tell anyone who asks investing is great unless you can't sleep worrying about it. choose the better sleep option. Finally the middle ground is put the money somewhere safe and take some out each month to pay off the loan or subsidize how you are paying it off now. In any case you have learned don't roll negative equity into a car if at all possible. waiting is hard but most often makes outcome feel better and you get the smug feeling of being smart.

Good Luck
Quote:
Originally Posted by Autoputzer View Post
I have a BSME, but I'm pretty much with rounderman on this. The two big variables are the interest rate on the car loan, and how much money you came into. It's important to have a cash reserve, because **** happens. So, paying off that car loan might not be the best move if you end up having to pay 15% interest on a new refrigerator, transmission, or roof.

We have a 1.9% car loan on our X3. I'm philosophically opposed to car loans in general, and loans on luxury cars in particular. But, at 1.9% I wrote a check to the credit union (for a CD) instead of to the BMW dealership.

The two big-picture numbers that are important in personal finance is net worth (assets less debt), and net wealth accumulation (income less spending). Both of these need to be positive while you are working, and the latter must be positive on the day you assume room temperature.

With BMW (and M-B and VW Group) no longer selling diesel passenger vehicles in the U.S. the value of that F15 diesel will likely hold up better than any non-M BMW. At a book value of $23k, you're driving a cheap car. You might have some maintenance issues going forward, buy they will likely be trivial compared to what deprecation would be on a new car.

A rule of thumb for the annual depreciation of a car driven about 12k miles/year is:

25% of MSRP the first year.
20% of book value the years the car goes out of warranty, becomes seven model years old, and goes over 100k miles.
15% of book value the remaining years.

I track our finances closely. I have an Excel workbook that tracks all our spending, by category. Three of those categories are depreciation of each of our three cars, and I break down those annual depreciations into monthly totals. Once you quantify what depreciation is, you think twice about buying a new car or an expensive car. Actually, I've come to dread buying a new car. The last two cars we sold were twelve years old, and I have another twelve year old car in the garage.

We kept Frau Putzer's previous car twelve years and 147k miles. From 100k to 147k miles, we put over $7k into the car for maintenance and repairs. But, that was nothing compared to what the depreciation would have been on a new car in the first six years. The average monthly depreciation on her X3 in the first year was $840/month.

One of the ways I resist scratching the new-car itch is to mechanically and cosmetically maintain my old cars. If a car looks and runs good, you don't think about replacing it.
Thank you both for the advice, you are much wiser than I but I am taking it into account. I really appreciate it.

As far as how much I've got to throw around, I suppose thats up for debate. I have $50K in savings not including an extra $40K I've just received.

I do love the X5 I have and plan to drive it well into the 100k+ mile zone. What you say is right about keeping the car up to avoid the new car itch. I've just made a few minor improvements (like adding Apple CarPlay to the native NAV) which make the car feel fresh and modern. No more new cars for me!

It looks like my APR is 2.9%. Do I save by paying the loan off now? Is there a way to call BMWFS and work out an early pay-off deal?
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  #5  
Old 03-26-2019, 12:29 PM
rounderman rounderman is offline
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typically there is no penalty for early payoff so what you save is future interest rates . Mr. Autoputzer is also right, stuff happens so keeping a cash reserve is one of those sleep aids. 2.9% is not awful. my personal choice being the conservative investor that I am, is to not pay off the loan right away. 50K in the bank sounds like a lot but do the math on what you spend each month if you have 3+ months of spending in the bank that is a good starting point for a safety net. How hard would it be to find a job if your current one craters (it happens to pretty much everyone, last time it took me 9 months to find a new one and I have mad skills )

so again I offer a middle ground. Put extra money in every loan payment, ideally double the payment or put next months principal payment in or an extra 100 per payment. whatever you can handle. Effectively you are earning 2.9% on any extra money you put in (not paying interest on the extra payment). It adds up fast while still giving you some flexibility if the need arises plus you will shorten the time you are paying off the loan. I do that with all my loans including mortgage when I had one and car loans. If you are handy with a spreadsheet it is pretty easy to run the numbers so to speak. Simple calculation you pay a months interest each month on the unpaid balance of the loan (2.9%*balance/12 close enough) subtract that from the loan payment and the remainder is principal payment. You can run this out each month and see the impact on loan length and total interest paid.

my 2 cents
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  #6  
Old 03-26-2019, 12:36 PM
Autoputzer Autoputzer is offline
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I'd hang onto that $90k in cash, putting it in a CD, which is now earning more than 2.9% before taxes. If something bad happens, you have a cushion to fall on.

Your BMW FS loan statement has the pay-off-now amount listed on it. The pay-off amount is the balance plus the full amount of interest that would be accrued before the next statement.

Remember though, cars don't last for ever. I've been willing to keep our Honda and our Chevy past 100k miles. I did that with my first BMW, and that last year (102k to 112k) had $7k in repairs and maintenance. My rule now with BMW's is 100k and done.

A good rule to follow in life is to borrow for your first appliance car, pay it off, and then start saving up for your second car. The more you save each month, and the longer you save, the nicer car you can afford. But, when you look back at how long it took you to save all that money you will be more hesitant to spend it.

Actually, it's more of a guideline than a hard and fast rule. I financed the X3, but only because I was getting about the same interest on a CD. I financed a car back in the 1990's. But, I also drove that car on business trips and was reimbursed at the IRS rate (currently $0.58/mile). After paying for gas, I'd often make my car payment from business trips.

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Old 03-26-2019, 01:51 PM
Jedi7677 Jedi7677 is offline
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Thanks for the extra input guys.

It looks like the consensus is to just pay 2x each month so that I save a bit on interest in the end?

The 'total loan payoff' quote (seen below) of $37,486.60 includes interest though doesn't it? I'm honestly not good with spreadsheets/numbers and cant determine whether or not I save by paying it off now vs over the life of the loan.
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  #8  
Old 03-26-2019, 03:00 PM
rounderman rounderman is offline
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the payoff quote is the principal plus up to 1 months interest. It includes interest through the payoff date or approximately $90.00 in interest and the rest is actual principal. It has been a while but you should be able to see an amortization table on the BMWFS website that shows how much each payment is interest and principal. with that low interest rate you are paying mostly principal. The double payments is an easy way to do this and payoff the loan in less than half the remaining payments. I can't calculate it for you since I don't have the particulars but if you can handle the double payments and put the cash in a CD like Autoputzer said you will be a long way down the road to sound financial footing
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Old 03-26-2019, 04:53 PM
Autoputzer Autoputzer is offline
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Quote:
Originally Posted by Jedi7677 View Post
Thanks for the extra input guys.

It looks like the consensus is to just pay 2x each month so that I save a bit on interest in the end?

The 'total loan payoff' quote (seen below) of $37,486.60 includes interest though doesn't it? I'm honestly not good with spreadsheets/numbers and cant determine whether or not I save by paying it off now vs over the life of the loan.
If the statement date is March 26th, that pay out is the balance plus the interest accrued through March 26th.

I have a loan spreadsheet. I had to tweak the interest (from 1.9% to 1.9023% to get the numbers to match BMW FS exactly). Every month the payment is the same. But, every month more of that payment goes to lowering the balance and less goes to interest.

There's an interest-only period at the start of the loan. We bought our X3 on the March 13th, but the first payment wasn't due until April 27th. The loan was for $50k even. But, between March 13th and March 27th, we accrued $36.48 in interest. Then, it became a 60 month loan for $50,036.48. Our first payment had $79.32 in interest charges. Our last payment will have $1.38 in interest charges.

With house mortgages (same math), the payments are usually on the 1st of the month, but there is a small interest payment due on the first 1st of the month after closing, and the regular payment start on the 1st of the next month.

I can't attach Excel files to BF posts. If anybody wants a copy, PM me with a real e-mail that accepts attachments.
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  #10  
Old 03-26-2019, 05:29 PM
Alumac Alumac is offline
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Quote:
Originally Posted by Jedi7677 View Post
Long story short I rolled a ton of negative into my CPO, and now owe $38k on a 2015 X5 35D worth $23k.

I know, I'm dumb. Not a day goes by I don't stress about the bad decisions Ive made in the past regarding vehicles. Never again...

Anyways. I'm looking for some advice from those of you much smarter than I. I've recently come into enough cash to pay this loan off entirely. Is there any benefit in doing so?

Truly appreciate any help in this matter!!

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Don't look for financial gymnastics. Pay it off and move on; you have free money. Use that money to clear up any debts you have. The benefit is you are free and clear of debts.
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Old 03-26-2019, 05:49 PM
bzcat bzcat is offline
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Originally Posted by Alumac View Post
Don't look for financial gymnastics. Pay it off and move on; you have free money. Use that money to clear up any debts you have. The benefit is you are free and clear of debts.
That's a really horrible advice to give after OP told us the interest rate is 2.9%

There is no reason to pay off this loan early. The fact that the underlying asset is under water is irrelevant. This interest rate is right at the inflation rate so it is free money.
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Old 03-26-2019, 08:08 PM
Autoputzer Autoputzer is offline
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My credit union is currently offering a 40-month CD for 3.75% APR.

Inflation reduces the real interest rate on amortized loans, because you're paying the loan back with less valuable money. Here's a graph of the real interest rate on a 3.6% APR, 30-year mortgage with 2% inflation. The last few years on the 30 year graph are what a short-term car loan's real interest rates look like. For a 2.9% APR, 60-month loan with 2% inflation, the real interest rates in the last four years are, respectively: 0.57%, 0.46%, 0.24% and -0.41%.

Another reason to not pay off low-interest debt is that you can sock more money away in a tax-advantaged (tax-deferred or tax-free) retirement accounts. If you avoid the 22% tax rate by making 401(k) contributions now, and only have a 12% tax rate when you take the money out, there are huge savings to be had. It's like getting an INSTANT 13% return on your money.

Once we turned 50 and could make catch-up contributions, we re-fi-ed our mortgage and started over on a 30 year schedule so that we'd have more money to throw at our 401(k)'s. Frau Putzer was only working part time, but still maxing out her 401(k). If she worked the minimum 40 hours in a two-week pay period, her paycheck was around $35.

We also delayed replacing our cars during our 401(k) catch-up days, keeping them over twelve years. That 13% instant return on our money was a deal I wanted as much of as I could get.
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Old 03-26-2019, 11:26 PM
Jedi7677 Jedi7677 is offline
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This is all so much more info than I could have anticipated. Thank you guys.

So with my rudimentary understanding of everything above, I believe I will just double-pay each month and hold onto / invest my cash.
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Old 03-27-2019, 12:02 AM
mauicoug mauicoug is offline
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Normally not one to chime in on investing vs. paying off a note. OP do you have an investment experience, 401K, IRA or Roth IRA? I worked as a financial adviser for Morgan Stanley for 8 years, during a very high and low market. Mr. Ultra conservative Autoputzer, is suggesting a CD, which the interest is taxable and would barely equal the average inflation. This actually is terrible investment advice. If you want safe, depending on the state you live in, invest in Municipal Bonds, the interest is tax free, both for Federal and State(if you have State income Tax) and they are insured by either AMBAC or by MBIA. I would venture the interest rate is higher.

Lastly, if you have never met with a financial planner, you may want to look into that... You would need to put in a little time to select a good one, unfortunately there are plenty of bad ones out there. Good Luck.
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Old 03-27-2019, 06:43 AM
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need4speed need4speed is offline
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Quote:
Originally Posted by Autoputzer View Post
My credit union is currently offering a 40-month CD for 3.75% APR.

Inflation reduces the real interest rate on amortized loans, because you're paying the loan back with less valuable money. Here's a graph of the real interest rate on a 3.6% APR, 30-year mortgage with 2% inflation. The last few years on the 30 year graph are what a short-term car loan's real interest rates look like. For a 2.9% APR, 60-month loan with 2% inflation, the real interest rates in the last four years are, respectively: 0.57%, 0.46%, 0.24% and -0.41%.

Another reason to not pay off low-interest debt is that you can sock more money away in a tax-advantaged (tax-deferred or tax-free) retirement accounts. If you avoid the 22% tax rate by making 401(k) contributions now, and only have a 12% tax rate when you take the money out, there are huge savings to be had. It's like getting an INSTANT 13% return on your money.

Once we turned 50 and could make catch-up contributions, we re-fi-ed our mortgage and started over on a 30 year schedule so that we'd have more money to throw at our 401(k)'s. Frau Putzer was only working part time, but still maxing out her 401(k). If she worked the minimum 40 hours in a two-week pay period, her paycheck was around $35.

We also delayed replacing our cars during our 401(k) catch-up days, keeping them over twelve years. That 13% instant return on our money was a deal I wanted as much of as I could get.
Everyone should.
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Old 03-27-2019, 07:27 AM
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quackbury quackbury is offline
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You don't mention how many miles you have on the X5. I ask because we had a ton of very expensive problems with our 2011: problems with the DEF tank, the EGR system, and whatever BMW calls the thing that burns off soot from the particulate filter. Fortunately, those were all covered by the 70,000 mile extended emissions warranty. Maybe BMW fixed all those issues between 2011 and 2015, and maybe you have very low miles and will have your loan paid off (or at least have chipped away at the amount you are underwater) before you face any big out-of-warranty repairs.

2.9% is CHEAP MONEY. If you have any balances on your credit cards (paying 15% to 20% interest) I'd pay those off first. Keep at least $5 grand set aside just in case you have any big out-of-warranty repairs on your X5. Figure out how long you think you'll want to keep the X5 (another 3 years?), use Autoputzer's formula to figure out what it's likely to be worth at that point, and then use a spreadsheet to calculate how much you'd have to increase the monthly payment on your loan to erase your negative equity by the time you're ready to trade her in. E.g. if the X5 should be worth $18,000 in 2022, figure out how much you have to increase your monthly payment ($100?) to have your loan balance at or below $18,000 in 2022. At least that way you won't be rolling over negative equity.

Something else to keep in mind: This approach (which AP, rounderman and others seem to agree with) will help you if you keep the car as long as you intend. BUT... If some Millennial is texting, runs a red light, T-bones you and totals the X5 tomorrow, you're going to feel the immediate pain of being upside down. State Farm, Allstate, etc. is going to send you a check for what the car is worth ($23,000? Less?) and you're going to have to write a check to the lender (BMWFS?) for the balance of what you owe on the loan ($15,000 or more out of pocket). Plus then you need to get yourself a new car.

STAY LIQUID. AP's advice about a CD is very sound. (Having worked in the financial services industry for almost 40 years, with a whole bunch of letters after my name, I'll give you some free advice: Never take financial advice from someone who worked X years at Morgan Stanley, UBS, Wells Fargo, etc. The fact they are no longer there tells you they were not a success. And the muni bond idea was truly stupid. When the Fed starts raising rates again, the market value of those bonds will fall. And the last thing you need is finding out that the $$$ you thought was "safe" is worth less than you thought, right when you need it the most. Plus advising a client to purchase muni's when you know nothing about their tax bracket is financial malfeasance, and will get you fired from most major firms. "Know Your Client" is the mantra these days, and FINRA takes it pretty seriously).
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Old 03-27-2019, 08:12 AM
ard ard is offline
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Well... I stayed at a Holiday Inn last night....

OP- do you have Gap Insurnace on that car/loan? Just curious. I think usually just leases, but not sure. Anyone know?
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Alignment here: The Definitive Alignment Thread

OE is Original Equipment aka 'BMW Original Parts' aka 'What you buy at the BMW dealer with a BMW label'

OEM is Original Equipment Manufacturer... EITHER the company that made the OE part or.... A part this is identical to the OE part, but is sold by the OEM under their own label


OEM is not what BMW sells


http://www.bimmerzone.com/category/T...ricks_OEM.html

https://www.turnermotorsport.com/t-OEvsOEM
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Old 03-27-2019, 09:40 AM
Autoputzer Autoputzer is offline
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Quote:
Originally Posted by mauicoug View Post
Normally not one to chime in on investing vs. paying off a note. OP do you have an investment experience, 401K, IRA or Roth IRA? I worked as a financial adviser for Morgan Stanley for 8 years, during a very high and low market. Mr. Ultra conservative Autoputzer, is suggesting a CD, which the interest is taxable and would barely equal the average inflation. This actually is terrible investment advice. If you want safe, depending on the state you live in, invest in Municipal Bonds, the interest is tax free, both for Federal and State(if you have State income Tax) and they are insured by either AMBAC or by MBIA. I would venture the interest rate is higher.

Lastly, if you have never met with a financial planner, you may want to look into that... You would need to put in a little time to select a good one, unfortunately there are plenty of bad ones out there. Good Luck.
CD's are where I park petty cash and safe-keeping money. Also, I'm old and have enough money to last me until I'm about age 110, another 50 years. I don't want to risk having to go back to work. That being said, I still have seven figures in the stock market. I don't have a penny in muni' bonds.

I really doubt the OP has a "tax problem" that requires him to get into tax-free muni's. I don't have a tax problem that requires me to get into tax free muni's. The first way to avoid taxes is 401(k)'s, IRA's, and other retirement savings. Only after those are maxed out should one go looking for some other tax-free investments.

Here's an example of what Duck's saying about the mega-banks.

Mama Putzer suffered from dementia the last year of her life. I was on all her accounts except her IRA's, where I was the secondary beneficiary. Mama Putzer had a savings and checking account at Wells Fargo. She just used the savings account as a place where money would alight (like a bird) in between real investments. Once, she had a few $100k land in in the Wells Fargo account. I needed to move it down the street to a credit union. I was in town visiting Mama Putzer at the nursing home and she was feeling pretty good. So, I decided to take her along while I physically went down to the WF branch, get a cashier's check and dropped it off at the credit union before catching my flight back to Floriduh.

As we entered the WF branch, the branch VP asked if she could help us. I said yes, we were there to make a large withdrawal an her assistance would be appreciated. The branch VP said a teller can take car of us. When I asked the teller to withdraw a few hundred thousand from our savings account, **** hit the fan. They first practiced due diligence, making sure we were how we said we were, and that the money really was in the account. The teller was on the phone with somebody at the home office, and whomever that was on the other end of the phone was adamant that the teller not give us the money, until they could send out a WF annuity or bond fund salesman to the branch office to **** us. The teller told the person on the phone "They are who they say they are, the money really is in the account, and they are demanding to withdraw it." I was getting annoyed, but I didn't want to upset Mama Putzer. Normally, I would have climbed over the counter to get the teller's and the branch VP's undivided attention at that point.

Mama Putzer had a sweet tooth, and she was eyeing the bucket of lolly pops sitting on the teller's counter to give to kids. Mama Putzer asked me if she could have one. I said yes, and she took out of the bucket. I then told Mama Putzer that we can take some for later, too. I emptied the bucket of lolly pops into Mama Putzer's purse and handed the empty bucket to the teller. Stealing all of Wells Fargo's lolly pops was just enough to convince the teller and the branch VP that I was a violent psychopath. They wrote us the check.

Mama Putzer didn't lose one penny during the 2007-2009 meltdown. By that time, she only had one stock left, Par Pharmaceutical (PRX). She was in at maybe an average of $5/share. The last pile I sold after she died was $100/share when the company went private. The sale was about 53 weeks after Mama Putzer died, so I only had to pay long-term capital gains tax. PRX was how Mama Putzer became a multi-millionaire... and she never owned any muni' bonds or annuities.

Last edited by Autoputzer; 03-27-2019 at 09:43 AM.
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  #19  
Old 03-27-2019, 10:23 AM
namelessman namelessman is offline
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My choice probably will be to pay off all debts if possible, so that there is no committed cash flow in the future.

And potential market gains are basically bets for the future, and even risk free CD rates need to be discounted after tax to be fair comparison to % rate paid on loans.

Last edited by namelessman; 03-27-2019 at 10:25 AM.
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Old 03-27-2019, 10:27 AM
namelessman namelessman is offline
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Quote:
Originally Posted by Autoputzer View Post
As we entered the WF branch, the branch VP asked if she could help us.
WF, as in Whole Foods?!?
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Old 03-27-2019, 10:32 AM
namelessman namelessman is offline
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Originally Posted by Autoputzer View Post
My credit union is currently offering a 40-month CD for 3.75% APR.
Our local CU had a 3-year tiered [email protected]%/3.5%/4.0% bumped every year. It was non-IRA though but still quite good.

There were muni's @3-4% tax free available but most of those probably will be called soon.
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Old 03-27-2019, 10:37 AM
namelessman namelessman is offline
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Originally Posted by quackbury View Post
And the muni bond idea was truly stupid. When the Fed starts raising rates again, the market value of those bonds will fall.
Haven't looked into muni until recently, 3-4% tax free is not bad although many selling close to par is likely to be called soon(the market is efficient, and everything is priced in), so the net gain is close to 0%. Those with long call dates usually do not pay more than 2%-ish ytw so it depends on one's goals.
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Old 03-27-2019, 11:20 AM
Autoputzer Autoputzer is offline
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Originally Posted by namelessman View Post
WF, as in Whole Foods?!?
I told them "I want my lettuce! Ö now!"
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Old 03-27-2019, 11:25 AM
Autoputzer Autoputzer is offline
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For non-millionaires, the best way to avoid paying taxes on interest is Roth IRA's. You can still put in $5.5k for 2018 (though April 15th), and can put in $6k/person for 2019. If the OP is married, that's $23k he could put in now. You can withdraw the principle anytime you want. A lot of credit unions let you add to IRA CD's later, too. So, the OP and wife could add another $12k next year.

Tax-free muni's, bla, bla, bla, are only for Thurston Howell III.
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Old 03-27-2019, 11:40 AM
namelessman namelessman is offline
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In the context of OP's question, my thinking is still to pay off any debt with % rate that is higher than risk free rate(tax adjusted).

In this context, roth-IRA/tax free/tax deferred rates should not be used since for most those are not liquid.

So if one pays 5%(e.g.) auto loan rates, that is effectively 10% before tax gain(assuming 50% fed + state).

It is not likely one can make 10% risk free on taxable accounts.

As others said, debt retirement should be done in order of highest effective interest rates(e.g. 20% CC rate) first.
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