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Message
Inheritance investment question(s)
Posted on 6/18/24 at 1:20 pm
Posted on 6/18/24 at 1:20 pm
Coming to the wise sages on the money board for some advice because my head isn't completely clear.
Lost my mom 10 days ago, buried her last Thursday. Still in the middle of the grieving process, but want to settle as much of her estate as possible as quickly as possible. I'm an only child and sole heir. Once all debts are settled and life insurance policies are claimed, it appears that there will be somewhere in the $400k - $500k range, along with a lake house that she and my dad built in the early 90s (value in the $250k range, we want to keep it, but needs some renovation work done on it. Nothing critical or immediate need).
My wife and I both work full time. I'm 48, she is 41. We have two children - 2.5 and 4 months. I have my work 401k (roughly $100k) and an IRA (roughly $48k). Wife has a 403b through work (roughly $50k). Both kids have 529 plans (2 year old has about $5,000 in his, 4 month old has a couple of hundred in hers.) He also has a basic savings account with around $1,000 in it. My stock portfolio is worth about $40k.
Our debts are about $3000 on a car loan (3.49 APR), $80k in a HELOC on our home (adjustable APR based on prime), and roughly $150k mortgage (3.625 APR).
Trying to figure out the best thing to do with the money. I am thinking pay off the car and HELOC, but then what. Dump a ton into the kids' 529s and savings? Add on to my IRA? Open an IRA for the wife? Invest a ton of it?
Lost my mom 10 days ago, buried her last Thursday. Still in the middle of the grieving process, but want to settle as much of her estate as possible as quickly as possible. I'm an only child and sole heir. Once all debts are settled and life insurance policies are claimed, it appears that there will be somewhere in the $400k - $500k range, along with a lake house that she and my dad built in the early 90s (value in the $250k range, we want to keep it, but needs some renovation work done on it. Nothing critical or immediate need).
My wife and I both work full time. I'm 48, she is 41. We have two children - 2.5 and 4 months. I have my work 401k (roughly $100k) and an IRA (roughly $48k). Wife has a 403b through work (roughly $50k). Both kids have 529 plans (2 year old has about $5,000 in his, 4 month old has a couple of hundred in hers.) He also has a basic savings account with around $1,000 in it. My stock portfolio is worth about $40k.
Our debts are about $3000 on a car loan (3.49 APR), $80k in a HELOC on our home (adjustable APR based on prime), and roughly $150k mortgage (3.625 APR).
Trying to figure out the best thing to do with the money. I am thinking pay off the car and HELOC, but then what. Dump a ton into the kids' 529s and savings? Add on to my IRA? Open an IRA for the wife? Invest a ton of it?
17
Posted on 6/18/24 at 1:56 pm to PJinAtl
I’m not a financial advisor and not going to pretend to be one… but being debt free (house cars student loans) etc… that’s got to be an amazing feeling.
I’d try and pay off all debts, and start using the extra income to fund retirement/kids accounts as you mentioned
I’d try and pay off all debts, and start using the extra income to fund retirement/kids accounts as you mentioned
Posted on 6/18/24 at 2:04 pm to PJinAtl
First things first, sorry for your loss.
Can you tell me more about the breakdown of the 400-500k? Is it all life insurance/cash or is some of it in IRA's?
I have a tendency to say to pay off the HELOC. Odds are that you're paying 9+% on it at this point. No need to pay off the car, though it sounds like it may be done in a few months either way so might as well.
I don't know anything about the GA 529 plans, but a quick glance says you can get a tax deduction up to $8,000 per year per kid. I wouldn't overfund this just to do it though.
I'd focus on moving the money into Roth IRA's for you and the wife, and adding more to the retirement plans at work. You've got some ground to make up, but the silver lining is there is money to help you get a bunch into tax qualified vehicles in a hurry.
Good luck.
Can you tell me more about the breakdown of the 400-500k? Is it all life insurance/cash or is some of it in IRA's?
I have a tendency to say to pay off the HELOC. Odds are that you're paying 9+% on it at this point. No need to pay off the car, though it sounds like it may be done in a few months either way so might as well.
I don't know anything about the GA 529 plans, but a quick glance says you can get a tax deduction up to $8,000 per year per kid. I wouldn't overfund this just to do it though.
I'd focus on moving the money into Roth IRA's for you and the wife, and adding more to the retirement plans at work. You've got some ground to make up, but the silver lining is there is money to help you get a bunch into tax qualified vehicles in a hurry.
Good luck.
Posted on 6/18/24 at 2:16 pm to PJinAtl
Good idea to pay off those debts.
Fully fund your retirement.
IF money is left, 529.
IF more money is left, repair house.
How close are you to the lake house?
If more than 4 hours, you may not go as much as you think you might. If it’s close, and you are allowed “work from home,” it could really be great.
Fully fund your retirement.
IF money is left, 529.
IF more money is left, repair house.
How close are you to the lake house?
If more than 4 hours, you may not go as much as you think you might. If it’s close, and you are allowed “work from home,” it could really be great.
Posted on 6/18/24 at 2:20 pm to PJinAtl
1. Payoff all your debt minus your mortgage- you have a really good rate so no need to pay down at the moment
2. Don’t know your monthly income level but put 6 months of expenses is HYSA- $50k?
3. Kids 529 - I would put $250 a month in each. With not having any debt payments any more I am assuming this will be no impact to your budget
4. If your maxed out on retirement shelters like 401 403 and Roth, open a taxable brokerage and dump $200k into s&p index fund and don’t touch it for the next 17-18 years till your 65…will be well over $1m by then
5. Put aside maybe $100k to get your lake house back in order?…have no idea what is required here but you get the idea
Good luck and sorry about your mother.
“May the souls of the faithfully departed though the mercy of God rest in peace!”
2. Don’t know your monthly income level but put 6 months of expenses is HYSA- $50k?
3. Kids 529 - I would put $250 a month in each. With not having any debt payments any more I am assuming this will be no impact to your budget
4. If your maxed out on retirement shelters like 401 403 and Roth, open a taxable brokerage and dump $200k into s&p index fund and don’t touch it for the next 17-18 years till your 65…will be well over $1m by then
5. Put aside maybe $100k to get your lake house back in order?…have no idea what is required here but you get the idea
Good luck and sorry about your mother.
“May the souls of the faithfully departed though the mercy of God rest in peace!”
This post was edited on 6/18/24 at 2:23 pm
Posted on 6/18/24 at 2:21 pm to UpstairsComputer
good advice from @upstairscomputer
Don't waste capital on paying ahead on low interest debt. It will feel good sure but wont get you caught up for retirement savings. After paying HELOC I'd focus on maxing retirement accounts. Until you are on track for retirement to be funded I would stop investing more in taxable brokerage and kids' 529s. Set some aside for maintaining the property and paying tax & insurance. Perhaps spend a bit there so the place is nicely kept up and special way to remember parents' legacy.
Don't waste capital on paying ahead on low interest debt. It will feel good sure but wont get you caught up for retirement savings. After paying HELOC I'd focus on maxing retirement accounts. Until you are on track for retirement to be funded I would stop investing more in taxable brokerage and kids' 529s. Set some aside for maintaining the property and paying tax & insurance. Perhaps spend a bit there so the place is nicely kept up and special way to remember parents' legacy.
Posted on 6/18/24 at 2:50 pm to UpstairsComputer
quote:
Can you tell me more about the breakdown of the 400-500k? Is it all life insurance/cash or is some of it in IRA's?
If I remember correctly, about $250k in brokerage accounts (not sure if traditional or IRA), $25k life insurance, $100k death benefit on an IRA, $30k in CDs, remainder in checking/savings accounts.
Posted on 6/18/24 at 2:54 pm to makersmark1
quote:
How close are you to the lake house?
Two, maybe 2.5 hour drive.
No wired broadband available there but may look into Starlink to get a good connection to work from there on some occasions.
Wife is a teacher, and I do IT work mostly remotely, so we could spend some summer time down there.
Posted on 6/18/24 at 3:05 pm to PJinAtl
I match 80% of the things you describe.
my first thought is to pass on the 529. I have kids 13,9, and 5 years old and the college path has become a pretty large question mark as tradesmen decline and the ROI on a college degree decrease sharply...thats with an unknown impact of AI will bring over the next 5-15 years, which is a consideration in itself.
aside from that, I would push to become debt free with the home but higher interest loans take priority. with a sizable chunk in the 401K, that could really balloon and be a huge lift towards retirement.
my first thought is to pass on the 529. I have kids 13,9, and 5 years old and the college path has become a pretty large question mark as tradesmen decline and the ROI on a college degree decrease sharply...thats with an unknown impact of AI will bring over the next 5-15 years, which is a consideration in itself.
aside from that, I would push to become debt free with the home but higher interest loans take priority. with a sizable chunk in the 401K, that could really balloon and be a huge lift towards retirement.
Posted on 6/18/24 at 3:09 pm to PJinAtl
Important to figure out what type of accounts you inherited and their tax treatment.
Inherited IRA has a 10 year drawdown period. Unless you need the $, keeping some or all of it tax sheltered an additional 10 years may be beneficial. You dont want to caah out traditional IRA all at once since it is taxed as income and unless a relatively low balance could mean a higher tax bracket than spreading withdrwals over multiple years. If Roth IRA, keep it growing as long as.possible tax free and/or use to max fund your own retirement accounts. If she had.already commnced RMDs you will have to take those or face penalty inculuding this year if it wasnt taken yet. For IRA balances make sure you rollover to an inherited IRA in your name.
Not sure how it works but I think you'll want to get a good appraisal of house value so you get stepped up tax basis since you arent selling immediately and may be more difficult to determine later.
Inherited IRA has a 10 year drawdown period. Unless you need the $, keeping some or all of it tax sheltered an additional 10 years may be beneficial. You dont want to caah out traditional IRA all at once since it is taxed as income and unless a relatively low balance could mean a higher tax bracket than spreading withdrwals over multiple years. If Roth IRA, keep it growing as long as.possible tax free and/or use to max fund your own retirement accounts. If she had.already commnced RMDs you will have to take those or face penalty inculuding this year if it wasnt taken yet. For IRA balances make sure you rollover to an inherited IRA in your name.
Not sure how it works but I think you'll want to get a good appraisal of house value so you get stepped up tax basis since you arent selling immediately and may be more difficult to determine later.
Posted on 6/18/24 at 4:46 pm to PJinAtl
$200k in retirement accounts at 48 puts you waaayyy behind where you should be. While certainly not the most glamorous or exciting way to spend an inheritance, I would definitely consider beefing up your retirement savings to be priority one (along with paying off that HELOC)....with 20ish years until you retire, it's time to get that compound interest working in your favor asap.
Sorry for your loss, man.
Sorry for your loss, man.
Posted on 6/18/24 at 5:52 pm to PJinAtl
Taxable brokerage account makes a lot of sense and can be managed to be very tax efficient, don't go overboard with 401k/IRAs etc. Sorry about your mom, that is always tough.
Posted on 6/18/24 at 7:34 pm to PJinAtl
You are pushing 50, have 2 young kids and only have 200k saved for retirement. You are way behind.
Sell the lakehouse
Take the 650k to 750k and put it to work, even if it's CDs.
at 5%, your money will double every 14 1/2 years which means you will have at least 1.3M-1.5M by the time your kids think about cars and college.
Sell the lakehouse
Take the 650k to 750k and put it to work, even if it's CDs.
at 5%, your money will double every 14 1/2 years which means you will have at least 1.3M-1.5M by the time your kids think about cars and college.
This post was edited on 6/18/24 at 7:35 pm
Posted on 6/18/24 at 9:05 pm to WM88
Pay off the HELOC assuming this is 7%+ rate.
Sell the lakehouse (you can’t afford a second house albeit I hear you on the emotional attachment)
Invest the rest in the SP500 and get compounding rolling.
Do not pay off the house. You have low interest debt. Given your financial position, it would be a terrible idea to give up that low interest debt for “peace of mind”…you need the inheritance to compound for you and it’s not doing that efficiently tied up in a home.
Sell the lakehouse (you can’t afford a second house albeit I hear you on the emotional attachment)
Invest the rest in the SP500 and get compounding rolling.
Do not pay off the house. You have low interest debt. Given your financial position, it would be a terrible idea to give up that low interest debt for “peace of mind”…you need the inheritance to compound for you and it’s not doing that efficiently tied up in a home.
Posted on 6/18/24 at 11:03 pm to lynxcat
Thanks everyone. I knew I could count on y'all for great advice. Got some thinking to do about a few things but will certainly be paying off the heloc and adding to retirement funds.
Posted on 6/19/24 at 5:41 am to PJinAtl
quote:
Wife is a teacher, and I do IT work mostly remotely, so we could spend some summer time down there.
Sorry for your loss.
This could be wonderful for your family.
The idea of being able to “work” from home, and fish/boat some after work sounds great.
Posted on 6/19/24 at 5:56 am to makersmark1
6 downvotes for pay off debt, save for retirement, enjoy the lake house?
Posted on 6/19/24 at 6:38 am to PJinAtl
First, sorry for your loss. Moms are special. Had a similar experience with the death of my wife's mom a few years ago.
I'd say first thing is don't rush it. Processing grief takes time. It's a PIA to find accounts, know what's due, collect policies, settle bills, close out accounts etc. If you have access to any cash on hand, or as it comes in, maybe initially just place it in a high yield checking or savings account. Ours is at Fidelity. Pays 5%.
What to do next? Seen some good advice here in this thread. But that's a lot of money. Consider finding a fee based financial planner if there's one around. We did years ago, and it was well worth the time and effort to get organized and work with him.
Generically, if it was me, I'd consider the following:
1. Definitely pay off the HELOC immediately. Might as well pay off the car loan too. Not that much money. Personally, I wouldn't pay off the mortgage as that's a great rate and you can certainly do better than 3.625% over time.
2. Some might not agree, but we used a large portion of the inheritance paying off our kid's student loans. They loved their grandmother, and we could think of no better legacy for them.
Georgia 529
In Georgia, the total contribution limit for a child’s 529 plan is $235,000. In your case, that could be a decision point. Using it to help them get through college. The amount would be determined by other wants or needs.
2. You guys have a great start on your 401ks and IRAs! Assuming there's a company match, at least fully fund up to the match the employer matches.
3. Consider setting up ROTH IRAs. We did some for my wife.
4. Nice to be altruistic, but you're young still and who knows what life will bring. Allocate some for things you want. New car? Travel? New 4 wheeler?
5. We have several friends with lake houses. With kids that age, it'd bring special memories to keep over the years. "Could" be a good investment as well down the road when you're ready to sell (could you? I have a friend with a lake house in Alabama and they can't get rid of it right now and it's sucking them dry with maintenance costs given they're retired and on a fixed income. It can happen! Only you know the market there. Maybe talk to a local realtor about trends there and get a feel for the market).
Best of luck!
I'd say first thing is don't rush it. Processing grief takes time. It's a PIA to find accounts, know what's due, collect policies, settle bills, close out accounts etc. If you have access to any cash on hand, or as it comes in, maybe initially just place it in a high yield checking or savings account. Ours is at Fidelity. Pays 5%.
What to do next? Seen some good advice here in this thread. But that's a lot of money. Consider finding a fee based financial planner if there's one around. We did years ago, and it was well worth the time and effort to get organized and work with him.
Generically, if it was me, I'd consider the following:
1. Definitely pay off the HELOC immediately. Might as well pay off the car loan too. Not that much money. Personally, I wouldn't pay off the mortgage as that's a great rate and you can certainly do better than 3.625% over time.
2. Some might not agree, but we used a large portion of the inheritance paying off our kid's student loans. They loved their grandmother, and we could think of no better legacy for them.
Georgia 529
In Georgia, the total contribution limit for a child’s 529 plan is $235,000. In your case, that could be a decision point. Using it to help them get through college. The amount would be determined by other wants or needs.
2. You guys have a great start on your 401ks and IRAs! Assuming there's a company match, at least fully fund up to the match the employer matches.
3. Consider setting up ROTH IRAs. We did some for my wife.
4. Nice to be altruistic, but you're young still and who knows what life will bring. Allocate some for things you want. New car? Travel? New 4 wheeler?
5. We have several friends with lake houses. With kids that age, it'd bring special memories to keep over the years. "Could" be a good investment as well down the road when you're ready to sell (could you? I have a friend with a lake house in Alabama and they can't get rid of it right now and it's sucking them dry with maintenance costs given they're retired and on a fixed income. It can happen! Only you know the market there. Maybe talk to a local realtor about trends there and get a feel for the market).
Best of luck!
Posted on 6/19/24 at 6:44 am to PJinAtl
Your mom blessed you. I would use that to wipe away debts, especially the house. I was in a similar financial situation like you not too long ago, and during that time while I was working my arse off my biggest concern was the debt on the house and the volatility of my job while being the breadwinner. You are in a situation where if you lost your job or you had to take a LOA due to an illness you could be up the creek and get behind on mortgage payments.
Yes you can theoretically make more money investing in other things, but think of it, how would you feel to be debt free with an extra $200K in the bank to then consider investing? You will feel liberated.
Yes you can theoretically make more money investing in other things, but think of it, how would you feel to be debt free with an extra $200K in the bank to then consider investing? You will feel liberated.
Posted on 6/19/24 at 7:09 am to PJinAtl
You didn’t mention her primary residence, but along with the lake house it is important to establish their current value in a defensible documented manner (appraisal). This will come in to play later if and when they are sold. You will likely need the help of an accountant and a lawyer, if for no other reason peace of mind. Having recently settled a similar estate, the overall costs weren’t that much. I’d pay off the Heloc and put any leftover cash (life insurance, IRA benefit) in a HYSA. I’d consult accountant on best way to deal with the other accounts to minimize taxes, no matter what I ultimately did with the money. I’d wait as long as I needed (legally) to do any of this, grieving is hard.
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