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re: What to do w/ $500,000
Posted on 2/9/24 at 10:37 am to Gings5
Posted on 2/9/24 at 10:37 am to Gings5
quote:Let's assume the OP marginal tax rate ($150k/yr MFJ) is 26% fed/state.
For the other stuff, definitely don't pay down house.
---
Can you explain why?
$300K loan at 3.1% runs ~$15.4K in annual interest cost. The $15.4K is deductible at marginal rate, so real cost of carry totals ~$11.4K. Paying off the home would save that $11.4K/yr
Meanwhile, ROI on $300K at 5.4% (his current MM rate) is $16.2K (+$4.8K over paying off the home). Were he to invest the $300K at a 10% ROI, he'd be ahead $18.6K/yr.
The combination of a low (3.1%) rate, and tax advantage, makes it a fairly straightforward decision.
2
Posted on 2/9/24 at 10:43 am to NC_Tigah
Great explanation, thank you!
Posted on 2/11/24 at 8:10 am to NC_Tigah
quote:
The $15.4K is deductible at marginal rate, so real cost of carry totals ~$11.4K
Realistically most filers are just going to take the standard deduction $29200. Even if OP itemizes, only the portion above standard deduction is an additional benefit of holding the loan.
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