Author Topic: Advice on a $35,000 Inheritance  (Read 1805 times)

SeattleStache

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Advice on a $35,000 Inheritance
« on: October 10, 2016, 10:29:52 AM »
I recently received a $35,000 inheritance and could use some advice about how to best allocate it.

Mid 30s, single, no kids, steady employment.

Assets:
401(k): $94,000 (contribute 12% of income)
Roth: $38,000 (already maxed for 2016)
HSA: $3,100 (set to max out for 2016)
Emergency cash: $7,000
Condo: assessed at $260,000

Liabilities:
Mortgage: $171,800 3.9% interest, no PMI
Down payment loan from dad: $19,000 4% interest

No credit card, student loan, or car debt.

I recently moved from Washington State to California and am leasing out my condo in WA. I am renting an apartment in CA and don't plan on buying another place for at least a couple of years. I would sell my Seattle condo before buying a place here. I'm considering taking $19,000 to pay my dad back rather than hold it in cash for a potential future down payment. This will save me the 4% interest which is more than I could get in a CD or other savings account. I'll max out my 2017 Roth in January which leaves me $10,500 to figure out what to do with.

My initial thought is to bump my cash savings up to $10,000 but would appreciate any advice.
« Last Edit: October 11, 2016, 09:58:51 AM by SeattleStache »

FIPurpose

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Re: Advice on a $30,000 Inheritance
« Reply #1 on: October 10, 2016, 10:44:13 AM »
I agree with your assessment. Order I would go:

1. Pay back dad
2. Retirement accounts
3. Mortgage / Taxable investments

human

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Re: Advice on a $30,000 Inheritance
« Reply #2 on: October 10, 2016, 10:46:42 AM »
Unless pops is Mr. money bags and really doesn't need the money I would pay him off first because he's family and it's actually a higher interest rate than the mortgage.  Doesn't leave much left, bump cash to 10k and then put the rest in your HSA and Roth to max out early and open a taxable account for the rest of the savings this year. I'm Canadian so am not sure how maxing out works on those accounts . . .

nobody123

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Re: Advice on a $30,000 Inheritance
« Reply #3 on: October 10, 2016, 10:57:21 AM »
I agree with your assessment. Order I would go:

1. Pay back dad
2. Retirement accounts
3. Mortgage / Taxable investments

+1.  Pay back Dad.  If I lent one of my kids money and I knew they received an inheritance that could cover the loan, I would fully expect to be paid back in full ASAP.  After maxing the Roth, I'd dump the remainder towards your existing mortgage and be done with it.

Mother Fussbudget

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Re: Advice on a $30,000 Inheritance
« Reply #4 on: October 10, 2016, 11:30:38 AM »
+1 on paying your dad back first.

Second, if you're over the max annual contributions to your tax-deferred retirement accounts, I'd setup a standard taxable investment account for use when this happens again in future years.  There's a possibility you'll need a taxable account for funds after you pull the trigger on FIRE - BEFORE you can use your IRA account without paying a penalty, and perhaps even if you're using a Roth conversion ladder, and you spend more than your annual allotment (your 'laddered amount') from retirement funds.  In a taxable account, you pay 15% capital gains tax on long-term withdrawals.  Start a taxable account now, and contribute to it when you have additional funds after investing your maximums to retirement accounts in future years.  You can always invest in the same investments you invest in a 401k/IRA/Roth/HSA.

SeattleStache

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Re: Advice on a $30,000 Inheritance
« Reply #5 on: October 11, 2016, 09:58:00 AM »
Thanks everyone. I plan to pay my dad back in full, save $5,500 for my 2017 Roth, put $3,000 into my cash savings to bring it to $10,000, and put the rest into a CD. I may potentially sell the Seattle condo and buy a place here in the next 2 - 5 years so I'm wary about investing any extra cash outside of retirement accounts. Do you think it's worth putting it to the mortgage knowing I plan to sell in the next few years?

lhamo

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Re: Advice on a $35,000 Inheritance
« Reply #6 on: October 11, 2016, 10:27:27 AM »
Is your 401k maxed or not?  I would put money there before paying extra on the mortgage, since you will get current tax benefits for doing so (and presumably you are in a fairly high tax bracket as a single person in tech).

Throwing extra at the mortgage may get lower returns than what you could get in a brokerage account, but given that you might sell in 2-3 years you would be avoiding taxes on interest/dividends and simultaneously leveraging the $250k capital gains exclusion, which you can probably milk to the hilt given Seattle RE appreciation.  Do be sure you sell before your rental period moves you out of eligibility for the exclusion, though.  Paying down the mortgage also would give you more money in your pocket following the sale of your Seattle place for a future purchase in LA.


I'm a red panda

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Re: Advice on a $35,000 Inheritance
« Reply #7 on: October 11, 2016, 10:34:39 AM »
I'd pay back Dad.
Since what is left is not much, I'd put it on the mortgage. If it was a lot more I'd split it between additional investments and mortgage.  I don't typically pay down my mortgage, but a small windfall is the way to do it.

SeattleStache

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Re: Advice on a $35,000 Inheritance
« Reply #8 on: October 11, 2016, 11:15:49 AM »
While I work as a contractor at a tech company, I unfortunately don't make tech money as I work in a separate (and sadly less lucrative) part of the business. I sort of like the idea of putting any extra cash (~$10k) into the mortgage to save a bit on interest over the next few years before I sell and then use it for a future home purchase. In the long run, I don't think it'll make too much of a difference either way. Thanks again everyone.