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Paying off car loan

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  • Paying off car loan

    First time poster and appreciate the advice! l have a 17K loan on a car we purchased 1 year ago with an interest rate of 4.1%. Since I paid off my student debt I have shifted my payments to the car loan and will have it paid off in approximately 5 months. I also have an American Funds account with about the same amount of money to just pay off the loan tomorrow if I sold everything in it. I don't plan to contribute to that account anymore due to high fees and loading costs. I would have to pay long term capital gains tax on it though. This year its earned 13% but total annualized return is 4.9%. I'm debating if I should a. sell the American Funds and just pay off the car loan then I can start my taxable account at vanguard. This option would also help simplify my overall portfolio or b. hold onto the account just let it ride and pay off the car loan over the next 6 months.

  • #2
    Depends how large and LTCG rate


    • #3
      Do you donate $17k to charity per year or two? If so donate the American fund to a DAF, take the tax deduction, avoid the LTCG tax, and clear the loan from your income/cash flow.


      • #4
        In general, I would have strong feelings about ditching a 4.1% car loan (going to the ditch, obviously). You didn’t give us the amount of LTCG you would owe on liquidating, but it shouldn’t be significant on $17k. Impo taking this step is as much about or more than principles than math.
        Financial planning, investment management and CPA services for medical professionals | 270-247-6087


        • #5
          Thanks for the comments/advice! I don't have a DAF set up yet. I am in my 3rd year out of residency and just finished paying off 230K of student loans so I want to keep the momentum up and just kill the rest of my debt.  I'm not sure exactly how to figure out the amount of LTCG I would owe. I think the percentage bracket I would be in is 15%.


          • #6
            Long-term gains are those on assets held for over a year. Below, the percentage of taxes paid are listed on the left with the corresponding income on the right.

            Long Term Capital Gains Tax Brackets
            Tax Bracket/Rate
            Married Filing Jointly
            Head of Household
            $0 - $39,375
            $0 - $78,750
            $0 - $52,750
            $39,376 - $434,550
            $78,751 - $488,850
            $52,751 - $461,700

            •Sales price - cost basis= gain

            Finish your house cleaning. The dishes are in the sink, put them in the dishwasher. Clear out your advisor account and move on.


            • #7
              You won't pay capital gains on the entire amount, only on the difference between the gross redemption amount minus your cost basis (the amount you paid to purchase the investments).


              • #8
                5 months to pay off a 17k car note as an attending doc? Interesting. Where does all your money go?

                Regardless, dump those American funds and pay off the car loan. You'll be better off getting rid of both.