Finance or cash?

I have a Lunar ORP coming in July. What rates are buyers getting on a new 4Runners these days? I may pay cash but would have to take from an inherited IRA so it creates taxable income. I wouldn’t think of pulling from my retirement funds but this IRA must be withdrawn in next 5 years anyway. 800 credit so should get the best rates but dealer is only allowing their banks.

 

Your post sounds like a personal decision. I wouldn’t seek financial advice on a public social network. Besides, we can’t even agree on oil and tires.

 

I would talk with your tax advisor and investment advisor. Depending on your taxable income and how your investments are doing it may or may not make sense to take the money out at this point. Or depending on your age maybe you can just take the minimum required distribution.

With stellar economy we have had though over the last 2.5 years I’d be inclined to try to recoup any losses first but that’s just me.

 

Why is the dealer only allowing financing from their banks? I never heard of that. I only ever finance through my bank. If that's the case I'd steer away from using the dealer leading options.

Also welcome to the club

 

As a non financial guy what I think is...

I personally like to keep in finance as I think insurance would think twice when it comes to claims vs the vehicle is only own by you.

I'm also someone who don't like to pull funds available to me. Keeping them for any emergency.

 

If the dealer is only allowing their banks then it should be a simple matter to find out the cost of the loan and compare it to the cost of taking cash out of the IRA.

 

This is strange. I normally go with who ever give me lowest rate. At this point one 4Runner is with Toyota Financial and other is under a credit union. My TRD ORP was also under a credit union (different one from what I have now). But none of these 2 credit unions affiliated with dealership. In my experience credit union financial institutes have better rates.

 

I agree with what others have said about the dealer only allowing financing from their banks. They get paid for the car either way. They should not be demanding how it is done.

 

When I got mine in 2019 I could have paid cash, but opted to pay most of it up front, and finance $7k (an arbitrary number at the time - I got my wife a car) through my credit union. I got a 5-year loan with a low interest rate, then paid it off in 18 months. Just another idea.

 

Dealer is selling at MSRP with no dealer adds. From my time as an FI guy at a dealership years ago I know they get a payment from the banks when using dealer arranged financing, no such kickback when you use your own outside bank. We used to really push our banks to get that payment. I’m sure Toyota financial will be an option. My thought is to maybe finance with them for simplicity sake and pay it off a couple months later. This is a small town dealer and has been good so far.

I’m way too young to have RMD but have to move the money within a few years due to inherited account rules.

 

I'd tell um to pound sand if they tried telling me I can only use their bank.

They are full of shit.

 

The dealer is only allowing their banks?? You should be able to present a site draft or cashiers check from any bank. If the dealership provides the bank they get paid extra by that bank as long as you carry the loan to full maturity. If you pay it off early then the dealership has to pay back the bank.

 

When I was in the business the buyer had to carry the loan for 3 months. If it got paid before that we would get charged back. Dealer around here are making up all kind of restrictions. Several wouldn’t sell to me as an out of state buyer. Most dealers here in Dallas are still charging market adjustments too.

 

Take the money out of your IRA, the longer you let it sit in the inherited account up to those 5 years and make earnings your going to pay more in the end. Its a big tax bill the following year but thats tax free money you can make earnings on.

 

I think 4.54% is about as good as it gets right now. That’s at Navy Federal Credit Union prior service by you or a family member required.

 

That's actually not terrible considering interest rates are still supposed to be high. Not as good as the 1.5-2% or whatever ridiculous rate my wife got a long time ago but on par for what my 4runner was financed at in 2019 before interest rates went bezerk (and that was with good credit). It's still a lot of extra money if you don't pay off the loan early

 

Ask the finance manager what the buy rate is on the loan. The buy rate is what they pay. Whatever rate they are offering you is probably 1-2% higher, which is why they require you to use their banks. Dealers hate cash buyers because they make more in the loan. I would pull that money from the inherited IRA, pay the tax liability, and feel that I had made a responsible decision with the money of my lost love one.

 

Although I think some time and effort should be spent with someone like an accountant, tax specialist, financial advisor, etc (some kind of professional who knows more than me), I would also lean towards using the IRA simply because it has to be used in the next 5 years. Houses, renovations, and vehicles are probably the biggest cost items you would finance and spend way more than original purchase price. If you are going to take a hit on the IRA either way (unless there is a way to reinvest without penalty, such as rolling it into your own IRA) then using it for big purchases and not paying interest is probably the way to go.

 

Not a financial expert. I would talk to one if I were you. I believe you can roll an IRA into your IRA and avoid income tax on that. At least find out what is the best way to avoid income tax. I wouldn’t put the money towards a depreciating asset. Kinda counterintuitive for whoever you inherited it from. But you do you. Just saying I would get financial help.

 

Depending on your taxable income and age could always inquire about converting that Ira to a Roth IRA also

 

Sadly, an inherited IRA can not be rolled in to a normal IRA

 

I have an inherited IRA, and only have to take minimum distributions each year. Why does this one have to be cashed out?

 

Do the math. What rate can you borrow money at. Determine how much you will finance and what the cost will be after making all payments. Then find out what the cost of distribution of the IRA will cost you. And the take the option that saves you the most money.

When it comes to purchasing, math should dictate your decision. If you don't have to take early distributions on the IRA, then the money your IRA could be earning over the life of the loan, could potentially be more than the total interest you pay on the car loan.

 

Thanks for the input. The Secure act of 2019 changed the rules for non spouse beneficiaries, I actually have 7 years left but 5 makes sense for my circumstances. I’m leaning to taking the IRA money and not having the interest cost.

 

I believe for non spouse beneficiaries you have 10 years to take all the money out of the account before the govt taxes you 50 percent on it. Your best bet would be withdraw all the money in the first 2 or 3 years and move it into a roth ira since you cant put it in your own retirement acccount. Its going to be a big tax bill depending on how much you were left but you can use the money you withdrew to pay that back. Once you get all the money out of the account put it in your own roth ira its all tax free since its already been paid and everything you earn depending on how you invest it will grow tax free. The longer you let the money sit in the current account as it gains interest your going to pay more taxes since the account is growing. ex: if you have 100k in it now and you dont withdraw untill year 10 at a moderate rate of growth that 100 could turn into 500, now your paying a lot more in taxes at year 10.

Edit- i just saw it looks like your already 3 years in, I just inherited the same kind of account so I am still learning the rules myself. Seeking a financial advisor would be ideal but be picky about who you choose some are only looking out for their best interest not yours.

 

I'd just talk to a financial advisor and see what they say. Find out the rate you'd get with a loan and compare the amount you'd pay in interest to what you'd have to pay in taxes for the IRA. Take the cheaper option.

 

So you're saying that he should forego the additional earnings of future years as a way to 'save money'? Not sure I understand the math. If OP leaves the money in the IRA and it increases in value he's absolutely going to be paying more taxes but he'll also have more left over.

For simple math, let's say he has $100 in the IRA and he's paying 15% taxes. Let's also assume the market grows 5% over the next three years.

Take it out now, the $100 drops to $85. Three years at 5% and he'll have $98.40, but he'll have to pay 15% tax on the earnings so net will be $96.39
Keep it in for 3 years, the $100 grows to $115.76. 15% tax on that total is $17.36, so he will net $98.40.

@kcjon - vehicle purchase aside, if I was in your situation I might look at strategic withdrawals from the IRA up to the limits of your current tax bracket each year, basically maximizing the withdrawal opportunity without pushing yourself into the next tax bracket in any given year.

Having said all that, as @Slopemaster suggests there are probably better sources of advice. Good luck with your decision.

 

"dealer is only allowing their banks".....walk away and give them the 'you're number one!" salute on the way out

 

Law was passed in 2019:

Under this 10-year rule, annual RMDs must be taken over the life expectancy of the designated beneficiary beginning by Dec.31 of the year that follows the year the participant dies. In addition, the inherited account must be fully distributed by Dec. 31 of the 10th year following the year the participant dies.

 

Can only contribute $6000/yr in to a Roth or $7000 if over 50