Author Topic: What Should I Do With $5000?  (Read 1659 times)

PJS

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What Should I Do With $5000?
« on: April 02, 2018, 07:49:18 PM »
Long time lurker, first time poster. Any help would be appreciated.

I received a larger than normal bonus from my job this year and have an unexpected $5000. My wife and I have been discussing the best way to invest/use the money. Here are our ideas:

1. Put the money in Roth IRAs - 2017 is the last year we will qualify, so we have until April 17 2018 to contribute if we choose to go this route. Both of us are already contributing to 401k accounts, and I recently opened a Roth IRA and contributed $3500. Could max mine out and open one for my wife for the rest of the money.
2. Contribute to our kids' 529 accounts - We have two children, ages 1 and 3.5, both have 529 accounts. The young one has about $2600 and the older has $8800. I know some people here see 529s as a lower priority, but it's very important to us that our children don't take on a ton of debt to go to college.
3. Pay off our car loan - We owe $4800 on our vehicle, financed at a pretty low rate (3.5%), but paying it off would save us about $90 in interest.
4. Put it towards our mortgage - Our interest rate is low (3.625%), but we're paying PMI because of a low downpayment. We're about $40k away from being able to get rid of PMI.

What is the smartest way to use this money?

Nudelkopf

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Re: What Should I Do With $5000?
« Reply #1 on: April 02, 2018, 08:13:28 PM »
I'd pay off the car, then snowball those payments onto the mortgage.

sol

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Re: What Should I Do With $5000?
« Reply #2 on: April 02, 2018, 08:17:25 PM »
50% index funds, 30% hookers, 20% blow.

Failing that, if you're not maximizing your tax-advantaged space, and you're in a high enough tax bracket that you will no longer qualify for a Roth IRA next year, then I suggest your option 1.  Take it now, you never get it back.

529 accounts are fine after you've maxed your other tax-advantaged space, but I personally see little advantage  in giving myself future withdrawal restrictions.  If you want to pay for you kids' college, you can do that from your Roth, or your taxable accounts, by paying off their student loans when they graduate, or any of a thousand other ways.  The 529 is a solution in search of a problem, IMO.  I still have one, it's just a low priority for us.

Clearing the car loan is also a fine option, if you're the sort of person to value the psychological thrill of clearing a debt over the statistically more profitable option of investing your money.

PMI sucks, but 5k towards 40k isn't going to make a lick of difference.  I'd only consider clearing PMI when you have enough cash on hand to do the whole thing at once, because then you get to keep that cash on hand and available for emergencies in the meantime, instead of losing access to it by putting it towards a mortgage for no material benefit other than an adjustment in an account ledger somewhere.
« Last Edit: April 02, 2018, 08:34:46 PM by sol »

Goldy

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Re: What Should I Do With $5000?
« Reply #3 on: April 02, 2018, 08:24:20 PM »
Assuming you are maxing your 401k id Toss the 5k into the roth.  Next year you can do a back door roth and not need to worry about the income limit.

PJS

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Re: What Should I Do With $5000?
« Reply #4 on: April 10, 2018, 02:15:35 PM »
Thanks for the advice. We went with a compromise, $3000 in Roth IRA and $1000 in each kid's 529.

eljefe-speaks

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Re: What Should I Do With $5000?
« Reply #5 on: April 10, 2018, 02:25:57 PM »
50% index funds, 30% hookers, 20% blow.

LOL!

Reynolds531

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Re: What Should I Do With $5000?
« Reply #6 on: April 11, 2018, 01:55:42 PM »
20% index funds, 50% hookers, 30% blow

Is this going to be another do I invest or get hookers thread? Haven't we fought about this enough?