Three issues (not saying it doesn't work for you):I used to pay our estimated taxes with a 2.625% credit card and net about 0.8% in the process. With the current interest rates, it makes more sense to me to do a Roth conversion in December and withhold the whole year's taxes from it. This nets ~2.6% for the year because the money that would have been used for estimated taxes can sit in the Vanguard money market making 5.27% or so for most of the year. When interest rates go lower, I will obviously reevaluate, but $30k * (2.6% - 0.8%) = $540 a year saved and no hassle of making the estimated tax payments each quarter (not that it's a big hassle).... A lot of our 2.625% BOA spending is est tax...Agreed, likely the best case for THESE folks is the person who has $100K combined in checking and Smartly savings thinking 4.1% (current rate) is good enough for them and jump for the 4% Carrot.…… But I don't think we are their "target market".
If you look at the opening post in the BofA thread, this is basically the opening salvo of that thread—-how are they making money off of ME?
-As mentioned, assume >59.5 yrs old
-the 0.8% is nontaxable, the 5.26% pre tax. 5.26% on VUSXX is 3.9% after tax for me. It will likely decline soon but as you say can reconsider then.
-At 3.9% after tax there's another ~0.57% in float on top of the 0.80% by charging eg. Sep 15 and paying the CC bill Nov 8 (w/ my bill date).
So for me would be ~(2.6%*.74-1.37%)=.55%, still definitely more for a bit less work as you say.
But, that also assumes at least neutrality to doing the Roth conversion itself as a standalone, increasing taxable income now rather than leaving it tIRA. That could be true or the Roth conversion itself a plus w/o even considering this tax payment timing benefit (the trick being that withholding up to Dec 31 2024 is 'timely' to cover 2024 tax liability regardless of when during that year income was earned, but backloading estimated tax to the Q4 payment on income earned earlier in the year would not be). But in my current v projected tax situation I don't believe Roth conversion makes sense as standalone so I'd have to subtract that (partly subjective) value too. It's nonetheless a good point you raise.
However if we could get *4%* from US Bank on est tax payments (2.20% net w/ 1.87% convenience fee) that would definitely change things. My question there being USB's tolerance for this sort of maneuvering. I know BOA allows federal and state est flowing through their cards (at my level of est tax which is larger). Although I applied for a line limit increase to fit both federal and state payments on my UCR card (for that 0.5% float) and they turned it down, even when I offered to have lines reduced on other cards to offset. I do state tax on my PR card (or sometimes to trigger bonuses on new cards, like a pair of Chase Sapphires recently for self and wife, bonuses worth $3.2K value of Hyatt points with that further conversion). I'm laying off calling BOA about anything (like changing the bill date on the PR card). I might do the US Bank thing, including new brokerage account and asset transfer hoop jumping, then find they're stricter than BOA. I'm mulling whether to try. I might apply for the card and see if they give me a big enough line for 4-2.625 to be worth doing the brokerage account thing.
Statistics: Posted by JackoC — Tue Sep 10, 2024 10:03 am