Community Forums

ttowntrouble · 09-07-2020, 09:31 AM

We are retired, and are in the process of looking for an RV to travel in. Due to trying to avoid a large tax liability in one year by paying cash for the coach, we are considering financing, so we can control the amount of income tax we have to pay per year. Our plan is to make the payments out of our retirement fund. We have no other debt, and so far just using SS for our main expenses, and withdraw money from retirement as we need it. We are not within the minimum required distribution age group. Our concern is that since we don't have earned income showing to make the payments, we might get turned down for the loan. I would appreciate hearing anyone's experience with this.

Gary RVRoamer · 09-07-2020, 12:12 PM

I got 3 RV loans after retirement and never had a problem getting them. Plus a dozen car loans as well. You don't need "earned income", just the ability to pay and a good track record on previous loans. If you have money on the bank or investment, that counts. You are much more likely to have loan approval problems if you have no borrowing & repayment record.

Alan_Hepburn · 09-07-2020, 12:26 PM

We retired back in 2008 and refinanced our RV in 2009. We refinanced with the same bank that held the original loan, and even though we had documents showing that we had a savings account with enough money in it to actually pay off the loan, we still had to show enough income to handle the refi. We were too young to collect SS and were living off our savings, and retirement packages from our work so we didn't really NEED an income. Most banks need to see a debt ratio that they are comfortable with, and when they see $0 on the income side they get nervous! Now that we're drawing SS, pension, and income from other sources it's a lot easier to get a loan!

dmctlc · 09-07-2020, 12:26 PM

Quote:

Originally Posted by ttowntrouble

We are retired, and are in the process of looking for an RV to travel in. Due to trying to avoid a large tax liability in one year by paying cash for the coach, we are considering financing, so we can control the amount of income tax we have to pay per year. Our plan is to make the payments out of our retirement fund. We have no other debt, and so far just using SS for our main expenses, and withdraw money from retirement as we need it. We are not within the minimum required distribution age group. Our concern is that since we don't have earned income showing to make the payments, we might get turned down for the loan. I would appreciate hearing anyone's experience with this.

We just did exactly the same thing you mentioned. The loan for our 2018 Used DP in May was taken entirely based off our retirement income. Of course they will look at not only the amount of loan you want and then determine what you can afford based off your income. If you have great credit rating that helps determine what you pay for a finance charge. Along with that information they looked at my 401, net worth of my property, etc. which I'm sure was to provide them a level of confidence that if I stopped paying they could attach a lien to something to assure they get paid in full.

ttowntrouble · 09-07-2020, 02:27 PM

Thanks for all the info. It's been a long time since we borrowed any $, and it was when we had steady earned income. This retirement thing is a new adventure for us!

cataska · 09-07-2020, 04:35 PM

I am ok with borrowing to pay for an RV but i would not borrow from my home or my retirement to buy a money pit

The interest is detectable from your taxes.

ttowntrouble · 09-07-2020, 05:37 PM

We aren't planning to borrow from our retirement account, just making a payment from it as needed. I agree, not a good idea to borrow against any assets for something like this. Also, the interest is only deductible if you itemize. We don't.

pc500 · 09-07-2020, 09:27 PM

Retirement distribution money can count as "income" for the banks perspective.

A willing credit union may give you a very low (3%) rate if you allow them to use your retirement bank account as collateral.

RickLight · 09-12-2020, 09:34 PM

This is question for a financial planner or real tax expert. (from personal experience I can assure you not all 'experts' fit the description)

SKP Kirk · 09-13-2020, 05:41 AM

I would be very careful about making sure that they income tax saved by financing will be greater than the interest and other costs of the loan.

dmctlc · 09-13-2020, 06:50 AM

Quote:

Originally Posted by SKP Kirk

I would be very careful about making sure that they income tax saved by financing will be greater than the interest and other costs of the loan.

So very true especially with today's federal tax standard deduction so high most retired folks can't use their mortgages for home or motorhomes etc. Anymore unless you have some heavy debt.

TJFogelberg · 09-13-2020, 06:54 AM

TT's plan makes good sense. The retirement funds will remain intact and earn interest or potentially other income. They'll stay in a low (or no) tax bracket and gradually payoff the loan. Things get trickier once on SS, it becomes partially taxable if income gets too high. I build an rv payment into my budget (my only debt) and keep my savings and investments in play.

kcdogger · 09-13-2020, 05:21 PM

Quote:

Originally Posted by SKP Kirk

I would be very careful about making sure that they income tax saved by financing will be greater than the interest and other costs of the loan.

I believe their concern is taking a large withdrawal from tax benefited account will push them into a higher tax bracket than a steady, smaller withdrawal will. That is very much a concern if they are looking at an expensive RV. Buying a $150,000 rig with a withdrawal from an IRA would likely have at least a portion of that withdrawal taxed at a Federal rate of 37% and could also bump them into a higher state tax bracket. If they drew the money out over 5 years, they might be able to keep themselves in the 15% bracket. That could be a much more significant tax savings than the interest hit on a loan with a 4% rate.

SKP Kirk · 09-13-2020, 05:41 PM

Quote:

Originally Posted by kcdogger

I believe their concern is taking a large withdrawal from tax benefited account will push them into a higher tax bracket than a steady, smaller withdrawal will. .

Having traveled that very road, both when we bought our fulltime RV and again when we left the road after 12 years and bought a home-base, I do have some experience that may be related. The point is that a great deal depend on how long the RV is financed for. We did that same thing but we paid off the RV loan in only 5 years, even though it could have gone for 10. Most people do not bother to look at the total cost of letting a loan pay out over it's full term.