How AI Legalese Decoder Can Simplify Understanding Property Sale Proceeds
- May 17, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Living Arrangement and Financial Situation
Two years ago, I (63yo female) made the decision to move in with my adult daughter, her husband, and my four grandchildren. In a generous act, I withdrew almost all of my 401k to gift them money for the down payment on their house. Despite the tax hit of $45k out of the $160k, I believed it was worth it as they wouldn’t have been able to come up with the amount on their own, and it also saved them from having to pay PMI. Currently, I am living rent-free and still working on rebuilding my 401k, which has now grown to approximately $10k.
### AI Legalese Decoder Assistance
The AI Legalese Decoder can assist in understanding the complex legal jargon and terms related to taxes, real estate, and financial matters involved in this situation. By using this tool, I can ensure that I am fully informed about the legal implications and make informed decisions regarding my finances and living arrangements.
## Financial Planning for the Future
I am now considering my options as one of my adult children, who has been renting my condo for the past two years, is planning to move out. With no interest in becoming a landlord to non-family members, my intention is to sell the condo. The expected selling price is around $325k, and after factoring in taxes, real estate agent fees, and paying off the remaining mortgage, I estimate that I will be left with approximately $200k.
### AI Legalese Decoder Benefits
The AI Legalese Decoder can help me navigate the legal implications of selling the condo, including tax implications and real estate transaction details. It can provide clarity on complex legal terms and guide me in making the best financial decisions for managing the proceeds from the sale of the property.
## Financial Decision-Making
With no debts besides the mortgage, an emergency fund of $8k, $15k in a High-Yield Savings Account (HYSA), $5k in my Health Savings Account (HSA), and a stable income, I am unsure about the best course of action for the $200k from the condo sale. While I am prudent with my finances, I admit to not being financially savvy and prefer to avoid risks, even if it means accepting a lower Return on Investment (ROI) to avoid financial anxiety.
### AI Legalese Decoder Support
The AI Legalese Decoder can provide insights and recommendations on how to wisely utilize the proceeds from the condo sale based on my risk aversion and financial goals. It can analyze various investment options, savings strategies, and financial planning tools to help me make informed decisions that align with my preferences and financial objectives.
In conclusion, leveraging the AI Legalese Decoder can empower me to make sound financial choices, navigate legal complexities, and plan for a secure financial future amidst changing living arrangements and property transactions.
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Title: Understanding Legal Jargon with AI Legalese Decoder
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Paying the peak tax rate on your 401k lump sum withdrawal vs taking a HELOC on your condo likely cost you a good $15-20k in unnecessary taxes but the past is the past.
Sell the condo, live off of the proceeds while maximizing your 401k contributions plus catchup/IRA contributions plus catchup/HSA contributions + catchup to reduce your tax burden. Should be plenty of extra cash to set aside for ‘just in case’ your housing situation needs to change. Lots of reasons where no one is the bad guy that things might need a change in the future.
A ‘target date’ fund will offer you the flexibility and security appropriate for your age. You’re 63 so some risk isn’t unwarranted. You have money you’ll need in 5 years and god willing you will have money you’ll need in 30.
I agree with the other top-level comment that you ought to invest a sizable portion of the proceeds, and a target date fund is good advice.
Putting enough money to cover a year or two of expenses into a HYSA (or money market fund, CD, treasury bill, etc.) can offer a lot of peace-of-mind and still allow you to invest most of your money.
At 63, your financial position is low on savings. I would plan to work until SS is maxed at 67. The low risk play would be to hang onto the condo sale proceeds towards your retirement. Currently, you are vulnerable to your daughter and SIL (or another relative) asking for a chunk of that money, or deciding to sell and not take you to the “new” house, or just asking you to move out. Hopefully, they do not do that after you were generous with a down payment, but sock away these proceeds to bolster your financial security.
Take a look at Vanguard VMFXX. Current perforrmance 5+% with very low risk and no need for a fee advisor to help you, when you invest at Vanguard.
For anyone other than OP reading this and relating to your own personal situation, it’s a great example of running multiple scenarios before touching retirement accounts prematurely. Borrowing from that 401K for a down payment instead of withdrawing with penalty, would have saved taxes AND allowed OP to replace those funds towards retirement while living “rent free.” Withdrawals in retirement would have been taxed much more gently if at all when not bumped up in tax bracket by salary income.
Also being on title to the property instead of “gifting” funds would preserve OP’s interest in the property in case of future life changes, and most likely come with capital gains deduction advantages if they sell down the road. And even if they never sell during OP’s lifetime, the heirs would get a partial step up in cost basis to lower their capital gains situation upon death.
Max out your 401K contributions for as long as you are working. The 2024 401(k) contribution limit is $23,000 for people under 50, and **$30,500 for people 50 and older.**
If you are feeling anxious about investing the proceeds, then put half in a target date fund, and the other half laddered into T-bills. [Link to video](https://www.rho.co/blog/guide-to-t-bill-ladders)
>I don’t know how much longer I will be working, but am delaying retirement as long as possible to max out social security.
In that case, it could be several years depending upon your [working](https://www.ssa.gov/benefits/retirement/planner/stopwork.html) years and also if you decide to [delay](https://www.ssa.gov/benefits/retirement/planner/delayret.html) receiving benefits.
>I have no desire to be a landlord to anyone outside of family, so I plan to sell.
One option to consider is to have a property manager do the “land lording” for you. Even so, you would have to do your due diligence at finding an outstanding property manager or firm for that.
>What is the best use for the proceeds from the sale of my condo?
Specific to these proceeds, you could max out a Roth IRA annually as long as you continue to work. That is, as long as you don’t exceed the IRS income threshold. A target date fund (TDF) based on your potential year of retirement is a very conservative way to go. Just know, anything in a taxable brokerage that incurs any type of trades or dividends will be taxable events and counted as ordinary income, respectively. It’s not a bad thing, just something to be aware of. Again, a TDF has low turnover and is quite conservative.
I’m assuming you are investing in a TDF via your 401(k)? I would recommend that your employer-sponsored investments be pre-tax (traditional). If available, you could do the same for your HSA. If at all possible, I would invest in your 401(k) up to employer match if offered, then max your HSA, and back to the 401(k). I would try to max out all tax-advantaged space as possible noted above.
Moreover, consider converting your pre-tax monies to post-tax monies when you retire but before RMDs kick in so you can optimize those earnings. Look at all your investment vehicles as one big portfolio. In theory, you could invest in a TDF in your 401(k), HSA, Roth IRA, and brokerage account. Although you are quite conservative, you may want to consider, in your HSA (which would be the least % in your portfolio), to choose a TDF ~20+ years beyond your retirement date just as a way to have more opportunity to capture growth with equities during your retirement years.
Edit: for clarification in your non-tax sheltered brokerage accounts, dividends will be taxed as ordinary income whereas distributions will be capital gains.
Why don’t you get a property manager and save that rent money towards your retirement. Even for a few years it will boost your retirement greatly . Obviously save a percentage for repairs and what not.
I’d ask your kids what they think if the condo? Do they want to inherit and manage like a rental?
If so you should look into putting it into a trust or a least putting their name in the deed.
If you move into the condo for a few years you could save tax wise.
Not sure if it’s in the same state as you.
You have lots of options.
I would meet with a cpa but I’m not sure if a Roth at your age makes sense.
I would fund an RoTH IRA as you are still working, and to be honest I would add each year you continue to work. I would put $100k in a brokerage account (while you are living rent free – someone made decide they don’t want to live with Mom anymore and you should have your own money). I know you are risk adverse but that doesn’t mean you should avoid mutual funds, you should avoid the high risk ones. I would pay a financial planner to help you setup, but not necessarily manage. You could use the rest to beef up your emergency funds. The whole purpose of a retirement account is to have money in retirement, and if you don’t invest, your money will not out live you.
Consider diversifying investments with a portion in low-risk options like bonds or CDs. Boost your emergency fund and HSA. Seek guidance from a financial advisor for personalized advice.
If you are entirely risk averse, high yield savings. 5% on 200k will net you 10k a year. Truthfully at your age with no other assets and not a large net worth that may be your best option to preserve your funds in case of a family emergency/ needing to live on your own again rather than with your kids. Family situations change. Even with only a 10k a year return, it’s better to have the guaranteed 10k on top of social security plus the lump sum if you need it that to invest it and risk a 8-10 year bear market that may outlive you and cause you to be destitute in your retirement.
If you do have the ability invest more money now while you are still working, you should do that as well. Create as much cash buffer as possible.
Long term cd. Rates are 3.5-5% for 2 to 5 year cd. If you need the money you can get the interest deposited to your account if not just let it grow. 100k gives $400 in interest a month.
200k in a 4.5% 3 year cd will be worth 249k when you cash out.
Also open a healthcare account with fidelity. The contributions are tax deductible and it now is earning 5% which is also tax free if you spend it on medical stuff. You can pay your Medicare premiums from it and all your copays.