Buying vs. Leasing a Car

Some people approach buying a car like they approach marriage, “’til death do us part.” Others prefer to keep their options open, trading in every few years for the latest make and model, the most cutting-edge technology, or the highest horsepower. Whichever describes you best, we all face a similar decision when it comes to acquiring a car: finance, lease, or pay cash.

When shopping for new vehicles, about one-quarter of consumers choose to lease, while the majority choose to finance. From an investment perspective, which choice is best? That depends on your lifestyle, cash flow, and personal preferences.¹

For many, paying cash for a car is the simplest way to get one. When you drive off the lot, you own the vehicle outright and are free to do whatever you want with it. You face no penalties or mileage restrictions, and you have no monthly payments. However, you have paid cash for a vehicle that is expected to depreciate over time.

Financing a new car requires a smaller initial outlay of money, usually 20% or more of the vehicle’s value, in the form of a down payment. When you drive off the lot, the bank owns the car, not you. As with most loans, you make monthly payments of principal and interest with the promise of eventual ownership. The amount of your payment depends on a variety of factors, including the value of the car, the length of the loan, and the interest rate offered by the lender. Car dealers sometimes will offer “no money down” or low annual percentage rate loans, which can make financing more manageable.²

If you like to have a new car every few years, leasing is an approach to consider. Leasing a car is like renting an apartment. You pay a monthly fee to use the car for a specific amount of time, usually three to four years. Monthly payments are typically lower than when you finance since you are paying for the depreciation on the car while you drive it. In certain situations, lease payments may also have tax considerations. However, there are caveats to leasing. For one, a lease typically stipulates the number of miles you are permitted to drive during the course of the lease. At the end of your lease, you may face penalties if you have exceeded the total number of miles in the contract.^3,4

Whatever your relationship with your car, it may eventually come time for a new one. Familiarize yourself with your options. You may find that changing your strategy makes sense in light of your lifestyle or financial situation.

Experian.com, June 1, 2023
2. Investopedia.com, January 9, 2023
3. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
4. Bankrate.com, June 1, 2023

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2022 FMG Suite.

Dr. Jason Van Duyn
586-731-6020
AQuest Wealth Strategies
President

Dr. Jason Van Duyn CFP®, ChFC, CLU, MBA is a Registered Representative with and Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA & SIPC. The LPL Financial registered representative associated with this site may only discuss and/or transact securities business with residents of the following states: IN, IL, TX, MI, NC, AZ, VA, FL, OH and CO.

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Terry Lee, CFP®

Net Unrealized Appreciation (NUA) Explained

If you have built up company securities within your employer-sponsored retirement plan, you may find yourself with a range of choices when the time comes to take a distribution. If those securities have experienced appreciation, it’s worth considering the potential benefits of utilizing the net unrealized appreciation (NUA) tax treatment.

Remember, this article is for informational purposes only and is not a replacement for real-life advice. Make sure to consult your tax professional to get more detailed information on any company stocks you may own and how unrealized appreciation may be used.

What is the Net Unrealized Appreciation Rule?

Net unrealized appreciation is actually a pretty simple concept, but the execution can be difficult to understand. If you choose to invest in your company’s stock and the stock increases in value over time, the difference between the original cost basis (the price at which the stock was purchased) and the current market value of the stock is the NUA.¹

For example, if you were issued employer stock at $20 per share and it is now worth $50 per share, you would have an NUA of $30 per share ($50 – $20 = $30).¹

To qualify for the tax treatment associated with NUA, the distribution must meet the criteria for a lump-sum distribution.¹

Within one taxable year of the recipient;

Has to be in the person’s account at the time of the transaction;

From a qualified pension, profit-sharing or stock-bonus plan, which becomes payable to the recipient

on account of the employee’s death;
after the employee reaches age 59½;
on account of the employee’s separation from service, or;
after a self-employed individual has become disabled.

Downsides of NUA

The NUA strategy may not always be the best choice. Here are a few reasons why:

Concentration risk: You may already have employer stock through other forms of equity compensation. Adding more to your portfolio may not be appropriate, despite tax considerations.

Tax implications: Taxes should always be considered when making financial decisions, but they shouldn’t be the only factor. Tax laws can change, so consider working with a tax professional who can keep you up to date with the new rules.^2,3

No step-up in basis on NUA portion at death: When certain assets are inherited, they receive a step-up in basis to the market value on the date of death. However, when NUA is inherited, it does not receive a step-up in basis.

Ameriprise.com, April 2023
2. Forbes.com, September 8, 2021
3. Kiplinger.com, April 26, 2022

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Dr. Jason Van Duyn
586-731-6020
AQuest Wealth Strategies
President

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Month: July 2023