Pay it off or invest?

[89th]

@horace said in Pay it off or invest?:

It’s easy to justify investing if the return is higher than the loan interest. But people fine debt stressful so it becomes a quality of life issue. Minimizing stress doesn’t always maximize expected money.

Agreed, aside from our mortgage (mentioned above) we avoid any other debt lasting longer than 30 days (e.g., pay of credit card each month). Something about not having the debt, like you said, that is good....even if it's not a perfect financial move.

[Klaus]

@89th said in Pay it off or invest?:

@klaus said in Pay it off or invest?:

We owe money for our house, but the interest rate is so low that I rather invest surplus money on the stock market.

Same here. We're at 2.75%, so we could pay more off but are deciding only to add a little to each mortgage payment.

We pay 1% interest.

[Copper]

IRA all of it, tax free growth

Save until it hurts

[Renauda]

@axtremus said in Pay it off or invest?:

@renauda said in Pay it off or invest?:

Pay off debt.

+1, assuming the interest rate is greater than zero.

I am not familiar with any consumer debt that accumulates 0% interest over time. On the other hand, can people in the US write off medical expense debt and interest from their personal income taxes? If so, that could possibly make investing the money more attractive in the long run.

[George K]

@renauda said in Pay it off or invest?:

can people in the US write off medical expense debt and interest from their personal income taxes?

Only if it exceeds 7.5% of the adjusted gross income. And then, only the portion above that threshold is deductible.
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For tax returns filed in 2021, taxpayers can deduct qualified, unreimbursed medical expenses that are more than 7.5% of their 2020 adjusted gross income. So if your adjusted gross income is $40,000, anything beyond the first $3,000 of medical bills — or 7.5% of your AGI — could be deductible.

That means if you had $10,000 in medical bills, $7,000 of them could be deductible.

The 7.5% threshold used to be 10%, but legislative changes at the end of 2019 lowered it.

[Doctor Phibes]

Like many people, I have absolutely no problem using money, but I have no idea how it actually works.

[Renauda]

@george-k said in Pay it off or invest?:

@renauda said in Pay it off or invest?:

can people in the US write off medical expense debt and interest from their personal income taxes?

Only if it exceeds 7.5% of the adjusted gross income. And then, only the portion above that threshold is deductible.
=-=-=-=-=-=-=-=

For tax returns filed in 2021, taxpayers can deduct qualified, unreimbursed medical expenses that are more than 7.5% of their 2020 adjusted gross income. So if your adjusted gross income is $40,000, anything beyond the first $3,000 of medical bills — or 7.5% of your AGI — could be deductible.

That means if you had $10,000 in medical bills, $7,000 of them could be deductible.

The 7.5% threshold used to be 10%, but legislative changes at the end of 2019 lowered it.

Thanks George. Ours is essentially either 3% of your net income as reported on your tax return, or $2,397 in 2020 ($2,421 in 2021), whichever is lower. But it does vary from province to province and there are other health related expenses which could be deducted under other categories. Needlessly complicated. Like most people I have only tried to use it for after insurance out of pocket charges for prescription drugs, dental work and eye exams and glasses. I doubt whether it much of any difference at the end of the day.

https://www.corkumfinancial.ca/medical-expenses-what-can-you-claim/

[xenon]

I see anything at <4% as a sort of light leverage to invest more money in the market.

If it's above that I pay it off, if it's below that, I let it ride.

[Jolly]

Just not comfortable with that. Life happens. Car wrecks, serious illness, divorce, sick kids, a civil lawsuit...All kinds of things.

No debt gives you wiggle room, that you otherwise would not have.

[George K]

@jolly said in Pay it off or invest?:

No debt gives you wiggle room, that you otherwise would not have.

Indeed. I've been debt-free for a while, and it's nice.

However....

...I'm expecting some major medical expenses in the last few months of this year, so I'll probably be able to take advantage of the medical deduction on my 2021 taxes if I keep my income low enough.

I have a home equity line of credit (about 5% interest) that I intend to take advantage of to supplement my income for the rest of the year. I'd rather pay the bank 5% interest, than a 20% rate in my tax bracket.

Of course, at my age, next year, the RMD (required minimum distribution) kicks in, so I'll float the loan until I must take the money out of my retirement fund.

[Jolly]

I hate RMD's.

Worth it to back-door a Roth?

[George K]

@jolly said in Pay it off or invest?:

I hate RMD's.
Worth it to back-door a Roth?

Not a bad thought, though I'd pay a ton of taxes doing that. At my age, would I recoup that payout by converting to Roth? My guy at Fidelity said I would not.

[Jolly]

@george-k said in Pay it off or invest?:

@jolly said in Pay it off or invest?:

I hate RMD's.
Worth it to back-door a Roth?

Not a bad thought, though I'd pay a ton of taxes doing that. At my age, would I recoup that payout by converting to Roth? My guy at Fidelity said I would not.

Then how about a QLAC?