Author Topic: How to sell VTSAX and VBTLX...or should I?  (Read 5031 times)

lizzzi

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How to sell VTSAX and VBTLX...or should I?
« on: May 26, 2016, 02:47:15 PM »
So I put in a new heating and cooling system for $7400. I put it on my American Airlines credit card to get the travel points. I can pay this CC debt in three months, thus incurring some finance charges...or sell some of my 70/30 VTSAX/VBTLX (have 122K in there) and just pay the CC bill in full immediately. So which should I do, and which fund should I sell? Or should I sell some of each to keep the proportions the same? And what will that mean in terms of taxes? 

CmFtns

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Re: How to sell VTSAX and VBTLX...or should I?
« Reply #1 on: May 26, 2016, 02:52:58 PM »
You're probably going to have around $100-150 in interest charges if you can pay it in 3 months...
Are your stocks in a normal taxable brokerage accounts? can you sell shares that were bought recently and have not appreciated enough to have significant capital gains?

lizzzi

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Re: How to sell VTSAX and VBTLX...or should I?
« Reply #2 on: May 26, 2016, 03:01:01 PM »
Yes, they are in a taxable account. I have some in a trad. IRA, too, (I'm 66), but I know I would be paying taxes there, too. I could probably pay the credit card in two months if I went on strict austerity, but as you said, Comfy Futons...finance charges. I'm just thinking now that it might be simpler to just do the CC thing. I can't even remember the last time I carried a balance on a CC...have not paid a finance charge in years. I suppose it wouldn't kill me. I had really planned to leave the Vanguard alone, keep stoking it, and just letting it crank for years to come...so I'm not at all educated about the mechanics of selling off part of the funds. Yes, I could sell off the most recent shares if that would be best.

Shor

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Re: How to sell VTSAX and VBTLX...or should I?
« Reply #3 on: May 26, 2016, 03:37:24 PM »
Simply based on the fact that I assume the CC has a terrible interest rate >4%, I would highly suggest you sell from the taxable account to pay it off in full.
There is little chance that the Vanguard money you spend would rise 15%+ over a few months, any more than it is likely to suddenly drop 15%+ over a few months. So just pay it off to minimize money lost through interest charges.

You might get taxed a bit on the capital gain, but it's fine. Unless you are carefully structuring your earned income, it might be best to simply sell shares that will produce a long-term capital gain to minimize your capital gains tax.
Are you still working? Are you drawing down the tIRA  over the years if your earned income is low?
If you're at or under the 15% Federal tax rate for taxable income then long term capital gains tax is 0%

https://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States

Vagabond76

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Re: How to sell VTSAX and VBTLX...or should I?
« Reply #4 on: May 26, 2016, 05:10:34 PM »
Simply based on the fact that I assume the CC has a terrible interest rate >4%, I would highly suggest you sell from the taxable account to pay it off in full.
There is little chance that the Vanguard money you spend would rise 15%+ over a few months, any more than it is likely to suddenly drop 15%+ over a few months. So just pay it off to minimize money lost through interest charges.

https://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States

Given the scenario, I would pay the credit card over two months

The investment accounts may not rise "15%+ over a few months" but it doesn't have to to break even. If OP can pay off the CC in two months, and the interest rate is 15%, then the accounts need to only go up 2.5%, which is entirely doable. They could also go down--we never know.

Had I done this transaction from the start, I would have looked into a no interest for 90/180/365 days arrangement. No travel benefit is worth a regular credit card interest rate.

Another Reader

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Re: How to sell VTSAX and VBTLX...or should I?
« Reply #5 on: May 26, 2016, 06:16:00 PM »
Apply for another credit card with a zero percent balance transfer option with no or a very low balance transfer fee.  If you have not had a Chase Slate card, that's one of the best.  Usually it has a no balance transfer fee 0 percent offer for 15 months.  Try the various credit card sites/forums to find it.  Then take a few months to pay it off, while stashing more into the market.

lizzzi

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Re: How to sell VTSAX and VBTLX...or should I?
« Reply #6 on: May 26, 2016, 06:26:46 PM »
When I had the new system installed last month, I intended to pay the CC in full--then got hit with two unexpected drains on my emergency fund. (Dontcha love it?) Right, Vagabond, I would never purposely incur CC debt to get travel points.

I'm out of the workforce now on an NY state pension, a piece of an Air Force pension, and SS survivor benefits until I hit age 70 and take my own, higher SS benefit. Tax bracket is 28%. Mortgage-free and no debts in extremely LCOL area with great quality of life.  Neither the HVAC company nor the gas company was running any promotions for interest-free financing at the time. Maybe I should have gone down and talked to the bank, but I honestly intended to just pay for it all at once out of the emergency fund, so it wasn't an issue.  I'll talk to my tax accountant and see if he has any words of wisdom.

Thanks, "Another Reader", that's a good idea.

This is kind of a first world dilemma, isn't it?

lizzzi

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Re: How to sell VTSAX and VBTLX...or should I?
« Reply #7 on: May 26, 2016, 06:35:35 PM »
Oops...meant to say 25% tax bracket.

BigHaus89

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Re: How to sell VTSAX and VBTLX...or should I?
« Reply #8 on: May 27, 2016, 02:02:38 PM »
Apply for another credit card with a zero percent balance transfer option with no or a very low balance transfer fee.  If you have not had a Chase Slate card, that's one of the best.  Usually it has a no balance transfer fee 0 percent offer for 15 months.  Try the various credit card sites/forums to find it.  Then take a few months to pay it off, while stashing more into the market.

This is your best option imo.

boarder42

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Re: How to sell VTSAX and VBTLX...or should I?
« Reply #9 on: May 27, 2016, 02:05:59 PM »
yep get another CC and transfer the balance with all those pensions and that tax bracket you have a ton of income and should get approved easily

lizzzi

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Re: How to sell VTSAX and VBTLX...or should I?
« Reply #10 on: June 10, 2016, 06:41:27 PM »
I never look at CC interest rates, because I always pay in full. Yikes, the American Airlines CC has a 20% interest rate. I definitely needed to get my balance out of there. I did just pay half of the $7,425 though. ($3713.) So I checked the Chase Slate, but it said in the fine print that you might not be able to transfer a balance to it. Hmmmm. I was a little afraid to take out a new CC just for the balance transfer, and then find out that it wouldn't let me transfer it. So my USAA Visa, that I have but seldom use, has approx. a 6% interest rate. It cost me $75 to transfer a balance of $4226. (Had a couple nights stay in a motel this month added to the cost of the new heating/cooling system on the AA credit card.) I should be able to pay off the balance in 2 months. So I will pay some charges for the first time in years, but I think I'll just chalk it up to the White Cliffs of Dover. Not ideal, but not terrible, either. A learning experience and something that I will handle better the next time.

Retire-Canada

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Re: How to sell VTSAX and VBTLX...or should I?
« Reply #11 on: June 11, 2016, 04:42:24 PM »
Get a line of credit from the bank for a small amount say $10K. Interest rate should be much lower than your CC and it's a great buffer for your EF that costs nothing unless you need it.

lizzzi

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Re: How to sell VTSAX and VBTLX...or should I?
« Reply #12 on: June 12, 2016, 04:59:16 AM »
Get a line of credit from the bank for a small amount say $10K. Interest rate should be much lower than your CC and it's a great buffer for your EF that costs nothing unless you need it.

I am actually talking with the bank tomorrow about something else, so will bring this up. It sounds like a good idea.

human

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Re: How to sell VTSAX and VBTLX...or should I?
« Reply #13 on: June 12, 2016, 05:51:17 AM »
Apply for another credit card with a zero percent balance transfer option with no or a very low balance transfer fee.  If you have not had a Chase Slate card, that's one of the best.  Usually it has a no balance transfer fee 0 percent offer for 15 months.  Try the various credit card sites/forums to find it.  Then take a few months to pay it off, while stashing more into the market.

This is your best option imo.

My opinion is worthless but I agree with this. I've done this a bunch of times for vacations, but back then I didn't have any savings. Just make sure you don't miss a payment. I think I always had a small fee though, 0 percent would be great.

Greenpez

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Re: How to sell VTSAX and VBTLX...or should I?
« Reply #14 on: June 12, 2016, 07:23:11 AM »
Apply for another credit card with a zero percent balance transfer option with no or a very low balance transfer fee.  If you have not had a Chase Slate card, that's one of the best.  Usually it has a no balance transfer fee 0 percent offer for 15 months.  Try the various credit card sites/forums to find it.  Then take a few months to pay it off, while stashing more into the market.

This is your best option imo.


 
My opinion is worthless but I agree with this. I've done this a bunch of times for vacations, but back then I didn't have any savings. Just make sure you don't miss a payment. I think I always had a small fee though, 0 percent would be great.

I  don't tend to have much cash sitting around. If I do have some it goes into investments or a house project, so I take full advantage of these types of offers to smooth out the money I pay out. Because I have used these offers for a number of years (and paid them off of course) my credit is great and I continue to get more of these offers (typically 0% for 18-21 months) almost literally every day. For me, its better to put expenses on the card and build up cash to use on the project or if I can use the card directly for all project expenses even better. Then I'll pay larger chunks as I go so instead of 5K in one pop I'll pay 5X 1K.

The important thing is to never miss a payment and always pay off the full amount before the 0% time period expires. If you can not do this, do not use these offers!

lizzzi

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Re: How to sell VTSAX and VBTLX...or should I?
« Reply #15 on: June 12, 2016, 10:39:30 AM »
Apply for another credit card with a zero percent balance transfer option with no or a very low balance transfer fee.  If you have not had a Chase Slate card, that's one of the best.  Usually it has a no balance transfer fee 0 percent offer for 15 months.  Try the various credit card sites/forums to find it.  Then take a few months to pay it off, while stashing more into the market.

This is your best option imo.


 
My opinion is worthless but I agree with this. I've done this a bunch of times for vacations, but back then I didn't have any savings. Just make sure you don't miss a payment. I think I always had a small fee though, 0 percent would be great.

I  don't tend to have much cash sitting around. If I do have some it goes into investments or a house project, so I take full advantage of these types of offers to smooth out the money I pay out. Because I have used these offers for a number of years (and paid them off of course) my credit is great and I continue to get more of these offers (typically 0% for 18-21 months) almost literally every day. For me, its better to put expenses on the card and build up cash to use on the project or if I can use the card directly for all project expenses even better. Then I'll pay larger chunks as I go so instead of 5K in one pop I'll pay 5X 1K.

The important thing is to never miss a payment and always pay off the full amount before the 0% time period expires. If you can not do this, do not use these offers!

This is a great strategy I had just never thought about...but definitely will in the future. I don't want to keep much in the EF...prefer to have it invested in the Vanguard accts. But when issues of fairly large house maintenance or repair bills come up, it would be great to have a way to put it on a 0% credit card and pay it off over several payments, rather than keeping a large EF "just in case" of money that would be more useful if invested.

talltexan

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Re: How to sell VTSAX and VBTLX...or should I?
« Reply #16 on: June 13, 2016, 07:40:53 AM »
I recently used the slate balance transfer, and they charged me a 2% fee (it wasn't a promo for opening the card or anything). If your credit card charges 24% interest--less is possible--then you're only looking at 2%/month to pay off the balance, which you're talking about doing in 2-3 months. I don't think it's worth the hassle to open a new line, etc., just to try to save this interest, honestly. Especially if paying it in 2 months is within reach for you.

lizzzi

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Re: How to sell VTSAX and VBTLX...or should I?
« Reply #17 on: June 13, 2016, 11:32:40 AM »
TallTexan, I transferred the balance from a 20% CC to a 6% CC for a charge of $75. I plan to pay the balance in 2 months.

Today I was in the bank for other business, so sat down with them and got the information about a HELOC, which I've never been interested in. I've always preferred to save the cash in my emergency fund at very little interest, and then pay for whatever the high-ticket item was after I had the cash in hand. TBH, that is still my preference emotionally, but I realize I am tying up money that would be likely making more gains for me in the Vanguard account.

My bank can do a $75,000 HELOC with a fee of $50 per year at 3.14% interest, good for 10 years.  No cost to open up the account. Supposedly those would be the only costs, but I have not sat down and perused the fine print. I'm just going by what the bank manager told me verbally.
So I don't know...intellectually I understand the rationale, but emotionally, as I said, I just don't like to buy anything unless I can pay for it outright--whether it be four new pairs of jeans, or a car, or a house.

My favorite suggestion is finding CCs with 0% introductory offers, using them to pay for whatever it is--screened porch renovation maybe-- and then closing the CC after a few months after the balance is paid and while I've been stoking the Vanguard funds the whole time. But I'm pondering all this for the moment. 

Retire-Canada

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Re: How to sell VTSAX and VBTLX...or should I?
« Reply #18 on: June 13, 2016, 12:02:30 PM »
My bank can do a $75,000 HELOC with a fee of $50 per year at 3.14% interest, good for 10 years.  No cost to open up the account. Supposedly those would be the only costs, but I have not sat down and perused the fine print. I'm just going by what the bank manager told me verbally.
So I don't know...intellectually I understand the rationale, but emotionally, as I said, I just don't like to buy anything unless I can pay for it outright--whether it be four new pairs of jeans, or a car, or a house.

They may also be able to offer you a LOC with no home equity consideration that should not cost anything if you don't use it, but the interest rate will likely be higher than the HELOC.

The point of either the HELOC or LOC is not to plan to use it for purchases you didn't bother saving up for. It's purpose is as a cashflow cushion when you are faced with unexpected costs that are higher than you can pay down in a credit card cycle. Ideally you rarely or never use the HELOC/LOC, but [particularly if it's free] it's a nice tool to have in your financial tool box.

I have a $30K LOC that costs me nothing and I use it as my emergency fund so I don't have cash sitting around being eaten way by inflation.