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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10097
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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My wife inherited $400k last year. We have it invested in a

Customer Question

My wife inherited $400k last year. We have it invested in a USAA mixed portfolio. Ups and downs of the market have only lost about $10k. I dont see huge changes in the market and am considering to take $100k form it and pay off my home that is at a fixed interest rate of 4%.
If I pull this out and pay off my house I understand I loose the interest deductions but what penalty would I have to pay on the withdrawal if I have not made any money off the original investment?
Submitted: 5 months ago.
Category: Tax
Expert:  Lev replied 5 months ago.

When the money are invested - they are used to purchase shares or other financial assets.

There is no income or loss recognized when the value of these assets are changed - but when assets are disposed - that is treated as the sale transaction - and the gain or loss is recognized.

Expert:  Lev replied 5 months ago.

As you likely will have a loss - that will be capital loss - and may be fully used to offset other capital gains,

but if you have net capital loss - only up to $3000 may be used to offset other taxable income.

Otherwise - there is should not be any penalty unless your specific investment option has any specific penalty clause.

Let me know if you want to elaborate or

if you need any help with reporting.

Expert:  Lane replied 5 months ago.

Hi,

...

I have a different answer.

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First USAA funds are varied in redemption costs. For Example, the USAA Emerging Markets Adviser fund charges 1% of the amount redeemed.

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And although the ongoing costs (many range over 1%) are on the higher end of the average, USAA fund DOn't charge front end loans (a haricut, if you will, on the money when you first invest in the fund).

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thsi REAL cost here of liquidartiong NOW, however is the fact that you will most likely be locking in a loss that is now only on paper ... The VERY shport toime you've been in the market coincides with a much neede breather we've seen in equity markets after the market has TRIPLED sing the bottom in 2009, having double digigits every year except 2011 (from 2009 through 2014)

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We are seeing now, what we almost always see in years of both political and global uncertainty, a market that is essentially volatile and going "sideways," for a while.

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I would submit that waiting until we see the correcting back up thay we always see in years after an uncertain election AND as supply and demand for oil begins to normalize, will get you back to that AVERAGE of high single digit returns/low double digits that we always see in equity markets IF we look at market cycles of 6 years or so.

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Making a judgment on how well markets do over a year ot two is FAR too short a time period really to represent what these investments do over the appropriate long term measurement for these types of investments.

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Every year Lipper Analytical tells us how the average equity mutual fund performs... and every year DALBAR tells us how the average investOR performs.

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At the end of april, the average equity mutual fund was at 10.3% and the averqage invetos return was 2.7%, Why?

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Why? ... Becasue investors notoriously sell when things are down (as you're considereing) and then speculate (jump in) whenshare prices are high.

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Had tey stayed IN that fund for those 10 years, they would have seen that 10.3% return.

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I'm attaching a one page fact shee on a USAA fund. Note the rather flat (and somewhat volitile) returns in the yearly and monthly return sections on the left side of the page .... THEN look at the 3, 5 and 10 year averages.

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If you can hold on a bit until we get that snap back up correction that inevitably comes (perversely but understandable after the worst times), before selling, you'll do much better.

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be right back with that fact sheet

Expert:  Lane replied 5 months ago.

heres the one page fact sheet on USAA Growth ... again, not the difference in the short and long term returns (the long term return being a true reflection of the long term performance of equity markets.

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Also, if you'd like to give me the funds you're in, I can tell you the specific redemptoin charges that may apply. SOME USAA funds DO have them

Expert:  Lane replied 5 months ago.

[NOTE the difference ...]

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Please let me know if you have any questions at all. AND if youd like me to look up the redemption charges on your specific funds

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If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the faces or stars on your screen, and then clicking “submit")

JustAnswer will not credit me for the work unless you do.

...

Thank you!

Lane

I have a law degree, (Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986

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