Advice on what to do with 47K lump of cash

[Suzannabanana]

Hi everyone - so I could use your advice on what to do with a lump sum of cash - 47K I am about to get (22K from tax refund and 25K (gross was 50K) from a work bonus). Here's my our situation (My husband and I are in our late 40's - and yes, totally missed out on the early retirement bandwagon, sigh).

401K(s) - 675
IRAs: 12K (haven't done the 2016 contribution yet)
Savings Account: 25K
Regular Investment Account (Vanguard) 57K
I make about $190K per year (I'm a pretty new mustachian so that might explain why my savings are so low compared to my earnings.)

Debt: 295K mortgage;  I just paid off a huge chunk last year (about 75K) and refinanced to a 15 year 2.5% (live in CA, sigh)
Kid's college  (ages 3 and 6) are pretty much handled due to an inheritance they received.

I'm debating putting all the cash in my Vanguard Investment Account 65% Stock Index and 35% Bond Index. I'm feeling like such a jerk because I tried to get (for me) a little sophisticated and implement an "All Seasons" portfolio (Ray Dalio - I read the Tony Robbins book and felt smart - yea) and lost quite a lot in the Bond market recently. I just don't feel like I understand the market very well - and my personality is more inclined towards simplicity anyways - which worked well for me in the past. Invest, Diversify and forget it.

So here's my question. Do I just put the money into the Vanguard Investment account and let it ride? Don't worry if we are at the top of the market and just let it do it's thing over the next 10-15 years?  That is my inclination but just looking for some validation - I think that is what most of you guys do. Or do I pace myself and invest it every month for the next year.

Thanks - you guys are the best.

[Car Jack]

I'm a big fan of paying down the mortgage.  It's a guaranteed savings and I've yet to ever run into anyone who has regretted paying off their mortgage.  Just dump it in there and be that much closer to owning your house.  I paid mine off about 15 years ago and have never regretted doing so for even a microsecond.

[Cwadda]

22K from tax refund

Red flag. In the future, definitely try to avoid getting this big of a refund. Can I ask how this occurred?

Do you make too much to be able to contribute to Roth/Traditional IRAs?

Do you have a Health Savings Account (HSA)?

[Suzannabanana]

Hi - Thank you for responding - so to answer your questions:

L.A.S
 - Yes, what you mentioned, the backdoor ROTH IRA contributions is what my CPA suggested. He had me open traditional IRAs last year and wants me to convert them to ROTHs this year (he may have wanted me to convert them last year but I don't think he mentioned it or I would have done it). I believe that is what you mentioned are Backdoor IRA's - correct? And yes, I will be funding and converting them this year.

Yes, I meant 65%/35% ( I corrected it - thank you).

Car Jack
In terms of the mortgage, I hear you. If I put the entire chunk, I would save $18,600 in interest and pay off 2.6 years early. BUT, I feel a little light in other investments - but maybe I'll put a chunk there to scratch that itch (at least a little). I hate owing the money.

Cwadda
Yes, you can definitely ask. So I feel uncertain about my tax return each year. My company gives me stock every year - and on the years I sell it, it can dramatically alter my tax payment or refund (I've since learned to hold back cash from the sale in my savings to pay for the taxes). Last year, instead of holding so much company stock (not diversified) - I sold it and paid off some of my mortgage. But I'm still figuring out how to balance stock sales without owing the IRS a big check at the end of the year. A few years ago, I owed the IRS 10K - I had reaction to that because writing them that check was not a pleasant experience when they get such a big chunk already.  But I hear you, I think I need to have a goal of a lower tax refund each year - and figure out a way to automatically transfer that money in my paycheck to Vanguard. I'll admit I am guilty of using that refund as a savings tool (and not a brilliant one at that). Honestly, I think I also use it as my husband is more of a spender and I've used it as a forced savings mechanism. But he is becoming more sensitive to how we spend money so maybe a next step is to evaluate this approach more closely.

One other opportunity I have is my company offers a Retiree Medical Savings Account Plan. I think it is like a 401K but can only be used for medical expenses in retirement. I have not contributed to that at all although they put some seed money in there when they initiated it a few years ago. Is that what you meant by an HSA?

[Cwadda]

Cwadda
Yes, you can definitely ask. So I feel uncertain about my tax return each year. My company gives me stock every year - and on the years I sell it, it can dramatically alter my tax payment or refund (I've since learned to hold back cash from the sale in my savings to pay for the taxes). Last year, instead of holding so much company stock (not diversified) - I sold it and paid off some of my mortgage. But I'm still figuring out how to balance stock sales without owing the IRS a big check at the end of the year. A few years ago, I owed the IRS 10K - I had reaction to that because writing them that check was not a pleasant experience when they get such a big chunk already.  But I hear you, I think I need to have a goal of a lower tax refund each year - and figure out a way to automatically transfer that money in my paycheck to Vanguard. I'll admit I am guilty of using that refund as a savings tool (and not a brilliant one at that). Honestly, I think I also use it as my husband is more of a spender and I've used it as a forced savings mechanism. But he is becoming more sensitive to how we spend money so maybe a next step is to evaluate this approach more closely.

One other opportunity I have is my company offers a Retiree Medical Savings Account Plan. I think it is like a 401K but can only be used for medical expenses in retirement. I have not contributed to that at all although they put some seed money in there when they initiated it a few years ago. Is that what you meant by an HSA?

The reason I criticize a $22k refund is that when you get a refund, you have effectively given the government an interest-free loan. For $22k that is nearly $2,200 if you were to put it in the stock market last year. I'm not pointing it out to make you look bad, I just think the refund explanation can highlight the importance of balancing your taxes.

Yes, that is the type of account I'm referring to. It can only be used for qualified medical expenses but you can also choose to allocate the monies into growing assets (i.e. mutual funds). Check into it and see if it is tax-deductible. An HSA can allow one to contribute in the area of $6650/year, tax deductible. In your tax bracket that would be nearly $2000 in savings from the IRS.