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Quick Tax Question (Mortgage Interest Related

Discussion in 'Off-Topic' started by mrt144, Jan 29, 2008.

  1. JerichoHill

    JerichoHill Bedrock of Knowledge

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    Better than the 100% guaranteed return with a matching 401K? I don't think so Whomp. The risk is not rewarded that much. Sure, risk pays out a higher reward, but with greater risk comes greater downside.
     
  2. JerichoHill

    JerichoHill Bedrock of Knowledge

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    Normally, its 20% a year for 5 years. Many companies match 100% on the first 3% and 50% on your next 2%, for a total of a 4% match (80% guaranteed return..plus compounding into the future). The US government matches a 5% contribution with a 5% match.
     
  3. Whomp

    Whomp Keep Calm and Carry On Retired Moderator

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    Most matches on plans are 2.5% of payroll and the most common type of match is $.50 per $1.00 up to the first 6% of pay(~26%. of plans).

    http://www.psca.org/

    Probably the one thing the you miss in this equation is emotion and the last few months prove it. The S&P 500 has returned only 5.6% over the last decade through 12/31/07 (less since). In fact, last year was the 5th of the last 7 years the index underperformed treasuries. So much for passivity when financials are your biggest holding in 2007 and tech from 2000-2002.
    I talked to someone on Tuesday that said he was moving to a money market for a few months till things "cool off" because he lost 30k in his 401k. I asked if he thought he was late to the game? Markets were off 20% from the high and have never ended a bull run (Oct. high) at a lower P/E than it started a bull run (late 2002). The market's up 7% since then (a year's return)....this happens a lot.

    Behaviorally, people focus on dollars down but percentages up. It's why the average balanced fund investor outperforms the average stock fund investor. Volatility, risk and poor investment behavior...

    Naturally there's less transparency with real estate so investors don't see their home priced on CNBC every nanosecond so by nature they're less concerned what happens.
     
  4. mrt144

    mrt144 Deity

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    Jericho, I will be first to admit that I am flattered that you think I am talking about my own situation here. I have neither the means nor the desire to own a home in Seattle. (I want a job in NYC or DC in econometric fields; risk analysis for credit companies, economic analyst for the government, and the guilty pleasure of day trading)

    I was actually debating the question of affordability with a few other people when there was a story about condos across the street from me being offered for 250k and how the median income of someone in Seattle is ~51k (where as the median condo price is ~351k). One of the more financially inclined folks on the blog beside myself discussed how someone earning that amount could actually afford such a mortgage and we proposed both ways. i took the 401(k) raiding approach which would suck for that tax year and reduce retirement savings, but would also allow you to contribute more to a 401(k) earlier for at least 10 years based on the idea that instead of paying that 2nd loan, you would be putting it towards the 401(k).
     
  5. Whomp

    Whomp Keep Calm and Carry On Retired Moderator

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    Well I'd say anyone going over 3x their income is insane. Who can live/save when they're putting that much into housing?
     
  6. mrt144

    mrt144 Deity

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    But I have the power of leverage! ;)

    I'll tell you who can; people that don't drive, cook at home, and don't buy things they don't need.
     
  7. Whomp

    Whomp Keep Calm and Carry On Retired Moderator

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    Margin, baby.

    By the way, today the S&P/Case Shiller index #'s came out.
    Surprisingly, Seattle (SPCSSEA bloomberg symbol), Portland and Charlotte are actually up over the last 12 months. Miami and San Diego are fugly.

    http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_012900.pdf
     
  8. mrt144

    mrt144 Deity

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    i find it funny that the orthodoxy of 3x income simply wont work in seattle though. ~51k median income, ~351 median home price. Marriage is looking better and better.
     
  9. JerichoHill

    JerichoHill Bedrock of Knowledge

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    @@mrt144

    I want a job in NYC or DC in econometric fields
    Well, your job choice I can't complain

    I was actually debating the question of affordability with a few other people when there was a story about condos across the street from me being offered for 250k and how the median income of someone in Seattle is ~51k (where as the median condo price is ~351k).
    Seattle is a different monster than DC or NYC. A typical 1 BDR condo in a good neighborhood in DC is 325K. It's worse for NYC

    i took the 401(k) raiding approach which would suck for that tax year and reduce retirement savings, but would also allow you to contribute more to a 401(k) earlier for at least 10 years based on the idea that instead of paying that 2nd loan, you would be putting it towards the 401(k).
    I still don't understand why you would raid your 401k. Wouldn't you be getting higher returns on your 401k money (say 8%) versus returns on paying down a mortgage (5-6%). Mathematically, that makes no sense, and especially not in this market.
     
  10. JerichoHill

    JerichoHill Bedrock of Knowledge

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    That was my main point against his scenario.
     
  11. mrt144

    mrt144 Deity

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    I was trying to come up with a way of saving 20% for a downpayment that had some added benefits (tax, matching) during the time of saving. the best i could come up with was using a 401(k). Personally I am always hoping for a program like 529s for home downpayments but i doubt it will happen soon.
     
  12. Chamnix

    Chamnix Chasing Time

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    Other people have already argued against withdrawing your 401(k) money, but I think someone should mention the fact that the first-time home purchase withdrawal is only available from IRAs - not from 401(k)s (and it's also limited to $10,000 for what that's worth).
     
  13. Whomp

    Whomp Keep Calm and Carry On Retired Moderator

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    As Chamnix mentions another piece to the equation...not that it matters because like anything else...it depends.

    Fyi
    $4k IRA limit for tax year 2007 and 5k for year 2008. Either deductible IRA or non deductible Roth works in this case, I believe.
     

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