Financing a Minivan: Options and Considerations

Inherited IRA offers a strategic opportunity for financing a minivan purchase without sacrificing tax-free growth.

### Financing a Car Purchase: Considering Options for a Mid-30s Couple with $1M in Retirement Savings
* 💰  The couple is in their mid-30s and is considering financing a **$45,000 minivan purchase**. They have several options to fund the purchase, including an inherited IRA with **$30,000**, HSA receipts with **$20,000**, and Roth IRA contributions with **$100,000**.
* 🚗  The financial advisor advises against using the HSA receipts and Roth IRA contributions for the minivan purchase due to the **long-term growth potential of tax-free dollars** in these accounts.
* 💼  The inherited IRA is seen as an interesting option, as it may be subject to **ordinary income tax but not the penalty for early withdrawal**. The advisor suggests comparing the tax implications of using the inherited IRA with **potential financing options**.
* 💵  The advisor recommends investigating financing offers from car dealers, which can sometimes be as low as **0.9-2.9%**. This should be compared to the potential tax consequences of **cashing out the inherited IRA**.
* 📊  The advisor emphasizes the value of **tax-free growth** in Roth and HSA accounts, and suggests preserving these accounts for **long-term retirement savings**.
* 📝  It is important to consider the **tax implications** and **future growth potential** of different funding sources when making decisions about financing a large purchase.
* 🛠️  Additional resources, such as a car buying checklist and calculator, are available at moneyguy.com/resources to help make **informed decisions** about financing a car purchase.

[Music] All right, Intentional Life's question is up next. It says, We're buying a minivan for about 45k. Oh yeah, soon. But we are short on the cash, and he says, Foo failure. Should we finance or should we use an inherited IRA that's about 30k, or should we use HSA receipts, which is about 20k, and/or should we take our Roth IRA contributions, which is about 100k? They're in their mid-30s, they have 1 million in IRAs and 401ks. So, that's a lot of information, but I think this is an interesting question. When do you finance a vehicle purchase? 'Cause he does technically have options. They are not all created equal, which obviously I know you're going to speak to, but what do you think? I want to make sure that I have the four. We can finance it, we can take out Roth IR contributions, inherited IRA. Oh yeah, Roth IRA contributions was the last one, or an inherited IRA, which was about 30k.

or use HSA receipts and cash in on about 20K. Uh, this is again, this in uh, intentional life. This is where personal finances are so personal because you have a lot of options here, and it's very, very difficult to tell you which one is going to make the most sense because you said uh, you have a million dollars in IAS across Roth and Roth and regular, right? Um, did they say how old they are? Mid-30s, mid-30s, awesome. So one of the problems uh, and oh my gosh, this is a hard one. Okay, we love tax-free dollars. We love tax-free growth. Like, it is so, oh, it's just awesome. So tax-free dollars are great. So when I hear you saying, Hey, I have, we have receipts where we could potentially use our HSA dollars, and for those of you that don't know, one of the things you can do if you fund an HSA, you can then invest the dollars to grow, and if you save your receipts from previous uh, doctor bills and expenses.

you can reimburse your future self for those expenses. It's a great way to turn your HSA into like a supercharged Healthcare Roth. While we love that, I hate you thinking. I hate thinking about you taking those soldiers out of your army of dollar bills in your mid-30s because you know what's even cooler? When those tax-free dollars grow and grow and grow and grow and grow. So, I don't love using the HSA while you could do it right. So, you could do that. I don't love that, so I'm going to mark that one off the list. Next is Roth contributions. Same sort of mindset here holds in your mid-30s. I'm going to argue those dollars that you have in Roth are so, so, so valuable. And a commonality between Roths and HSAs is that you're limited every year into how much you can put into them. You can only put, you know, up to the family max or individual max in HSA. You can only do up to $7,000 in a Roth IRA.

so if you begin pulling out those basis contributions, you pull out that $30,000, $440,000 to go buy that car. That's a huge chunk. So if you think about $40,000, that could continue to compound for the next 20 or 30 years tax-free. It becomes very, very expensive to do that. So I don't love tapping into the Roth dollars now. All right, so let's take out Roth. Let's take out HS. By the way, this is not specific advice. I'm just kind of going through a stream of consciousness, what I'm thinking as I'm looking at this. The inherited IRA is really interesting, right? Because this is something with most IRAs and 401(k)s. If we want to draw out the money before we reach the age of 59 and a half, not only do we have to pay ordinary income taxes, we have to pay a penalty on that. Inherited IRAs are a little bit different. When you inherit an IRA under the new inherited laws, you

have 10 years that you have to deplete that. So, I don't know when this came into your possession, if it was before the law changed or after the law changed. But one of the great things is it's not subject to the same penalties. So, depending on your income tax situation, if you have $30,000 in that inherited IRA at some point in the future, I'm going to argue again, let's assume this was after the tax law change. In the next decade, you're going to have to pull those dollars out, and you're going to have to pay ordinary income tax on that. Well, if your income is going up and you're going to be in a higher tax rate in the next decade than you are now, it might not be crazy to use those inherited IRA dollars. One, it's one less account; it'll clean up the account. You're going to be required to take a distribution out of it anyways, so long as it's not like incredibly cumbersome from a tax standpoint. So, I'm looking at your situation; inherited IRA seems like

a really, really interesting opportunity there. And then, if that's not, and then I would think through, okay, uh, what's the tax bill associated with that? And I compare the taxes I would pay, ordinary income tax, to what my financing options are. If I'm going to, I mean, there's some automobile companies that Brian loves that are doing like 0.9% right now, right? I don't think that's for a minivan. They don't make minivans. But if you're going to buy, you know, like a, you know, Honda Odyssey or Toyota Sienna or one of those brands, it's not uncommon that dealers will have like very attractive uh leasing offers that you might be able to get 0.9, 1.9, 2.9. I don't know what they're offering right now, but I would at least go investigate that. And I would say, okay, if I'm going to follow 238 in finance, how much am I going to lose in interest over that financing period versus how much will I pay in taxes if I cash out the inherited.

IRA, and I'll have to make an assessment between those two, which one do I feel better about. I think both of those are viable options. I don't love the idea of tapping into the tax-free dollars. Yeah, I knew I was interested to see what you're going to say about the inherited Roth IRA, so there you go. Um, and I would, I mean, I have to say, and this is part of the equation then, part of the decision that Bo just talked about making. Um, make sure you check out 2038. Go to moneyguy.com/resources. We've got a car buying checklist on there to make sure you're doing it in a smart way if you're going to finance a car. Um, and yeah, also our car buying calculator is at money.com/resources too, so all kinds of car buying resources at your disposal. And we really appreciate your question and hope that helps.

What Is the BEST Way to Pay for a $45,000 Minivan?

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The individual is considering buying a minivan for $45k and has several options for financing, including an inherited IRA, HSA receipts, and Roth IRA contributions.

They have a total of $1 million in IRAs and 401ks and are in their mid-30s.

The decision is complicated by the desire for tax-free growth and the potential to use HSA dollars for the purchase.

Reimbursing Future Self: HSA and Roth Contributions

Using an HSA to reimburse future expenses can be tempting, but it may hinder the growth of tax-free dollars.

Roth contributions are also valuable and limited, making it costly to withdraw funds early.

Inherited IRAs offer a different dynamic, as they have unique rules for withdrawing money without penalties.

Inherited IRAs have a 10-year depletion requirement and are not subject to the same penalties as other accounts.

If the account was obtained after the tax law change, there may be a higher tax rate in the future, making it beneficial to use the inherited IRA dollars now.

It's important to compare the ordinary income tax from the IRA withdrawal with financing options, such as low-interest leases for vehicles, to make an informed decision.

The speaker is considering between tapping into an IRA or an inherited Roth IRA, finding both options viable.

They express reluctance about using tax-free dollars and emphasize the importance of making an informed decision.

The speaker also promotes car buying resources available at moneyguy.

com, including a checklist and calculator.