What to do with my bonus?

[navystache]

What would you do?  24 Y.O. married with 2 young children acquiring $28000.  Then every year for the next 5 years i'll be getting a $5000 bonus in January.
Retirement fund: $5000
Savings: $12,000
Pre-tax monthly income: $4000
Debts:
$167,000 @ 4.25 mortgage 2.5 years / 30 years
$13,000 @ 1.24 car note 1.5 years / 5 years 2012 hyundai sonata
No credit card debt

[StarryC]

I'm not sure it makes the most financial sense, but I would either pay off the cars and put the rest straight into the retirement. 

Then you could lower your monthly expenses providing flexibility, and then increase your monthly savings by the car payment amounts and reduce your insurance. 

Then, do 401k with the remaining $15,000 or so: It would put you in a much better spot to retire on time/ early, and prevent you from spending it here and there each month. 

In future years, just put it in the 401k or other investment account.

[Johnny Aloha]

I think it depends what your goals are.  I assume you are planning to stay in the military?

If you are planning to stay in for at least 20, your options include:
- investing in Roth IRA, Roth TSP, or traditional TSP (I'd probably do Roth TSP if I was you)
- open a 529 college account for kids (or maybe transfer GI Bill?)
- buy a rental house
- open taxable investment accounts

If you are going to leave active duty before 20, I'd probably recommend building up a nice taxable account.  I was happy to have that when I left as a cushion!

[Jwesleym]

If I were you, here is what I would do.

I'm assuming approx $75,000 total bonus before the 28% tax.

First bonus would be $27,000 after tax, or...
Change traditional TSP bonus contribution to 100% that will take out $17,500 before taxes.

This will leave you a payment of $14,400 to put in a Roth IRA (max out 2013 before April 2014, then put the rest toward 2014 you and spouse) or put it toward debt of your choosing. 

This makes $17,500+$14,400=$31,900 which is greater than the $27,000 I estimated.

The result would be more little green employees working for you and less for Uncle Sam.

Congrats on reenlisting! Would you believe they are going to give me a bonus to reenlist past 20 years.  What a scam.

[arebelspy]

I'm a believer in setting aside 10% of your bonus for a treat.  A little for today, a lot for tomorrow.

I agree with the idea (depending on the person), but a flat "10%" always seemed silly to me.  In a case like 28k, I'd say more like 1% ($280) could even be a really big treat, depending on what level your lifestyle and expectations are.  Heck, even .1% ($28) could be a nice little lunch out to celebrate.

Like I said though, it depends on the person.  :)

Either way I agree with you though, throw most of it at whatever you'd like to spend it on (investments, IMO, rather than paying down that debt), but splurge a little.  ;)

[destron]

I, personally, would not use it to pay off the car. That rate is way too low (aka less than inflation so free money). Paying down the mortgage is a tougher call, but at 4.25% I would still invest it. However, if you have a desire to become debt free faster, this is a healthy chunk off that reasonable mortgage.


If you want to invest:

Do you have a 401k through your job? Max it out if you do and you are not already doing so and use some of this money to offset your income.

Use some to max out your Roth IRA in January. If your wife works, max out hers as well.

Use the rest to invest in index funds in a brokerage account. Remember to follow the principals of tax efficient fund placement: http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement.

[ender]

I'm a believer in setting aside 10% of your bonus for a treat.  A little for today, a lot for tomorrow.

My treat from my December bonus is it is allowing me to hit my savings goal for cash savings this year.

I... think I'm doing it wrong if I'm supposed to spend it hahaha.

[ShortInSeattle]

I'm a believer in setting aside 10% of your bonus for a treat.  A little for today, a lot for tomorrow.

I agree with the idea (depending on the person), but a flat "10%" always seemed silly to me.  In a case like 28k, I'd say more like 1% ($280) could even be a really big treat, depending on what level your lifestyle and expectations are.  Heck, even .1% ($28) could be a nice little lunch out to celebrate.

Yeah. No more than 10% is what I was thinking. :)

[navystache]

So me and my wife have decided to each splurge on a $1000 each.
Up my TSP withdrawal from 7% to 12% per pay check(pre-tax retirement)
Start a ROTH IRA and max it out $7500
Do a light DIY kitchen remodel $3000
put away $2000 into our savings
and the remaining we will probably invest into a taxable account. 

[Zaga]

So me and my wife have decided to each splurge on a $1000 each.
Up my TSP withdrawal from 7% to 12% per pay check(pre-tax retirement)
Start a ROTH IRA and max it out $7500
Do a light DIY kitchen remodel $3000
put away $2000 into our savings
and the remaining we will probably invest into a taxable account.

One comment.  You can each put $5,500 a year into a Roth, so your $7,500 number doesn't make any sense.

Start a Roth for you and your wife (only one member of a couple needs to have earned income, but both can contribute to an IRA), put $5,500 into each of them for 2013 before April 15th.  Then, you have all of 2014 to see if you can put another $5,500 in each IRA to max out for 2014.

[navystache]

So me and my wife have decided to each splurge on a $1000 each.
Up my TSP withdrawal from 7% to 12% per pay check(pre-tax retirement)
Start a ROTH IRA and max it out $7500
Do a light DIY kitchen remodel $3000
put away $2000 into our savings
and the remaining we will probably invest into a taxable account.

One comment.  You can each put $5,500 a year into a Roth, so your $7,500 number doesn't make any sense.

Start a Roth for you and your wife (only one member of a couple needs to have earned income, but both can contribute to an IRA), put $5,500 into each of them for 2013 before April 15th.  Then, you have all of 2014 to see if you can put another $5,500 in each IRA to max out for 2014.

I guess I'll be putting in $11,000 in then.

[Cooperd0g]

I like your plan.