Unlocking the Secrets of Inheritance: How an AI Legalese Decoder Can Simplify the Process
- May 22, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Deciding How to Handle a $100,000 Inheritance
Sorry if this doesn’t fit this sub, I’ve tried posting to other subs and it’s being blocked for some reason.
We received a $100,000 inheritance and are curious what others think would be a wise way to handle it.
We are in our mid-30’s and have kids. Here is the financial situation (not including the inheritance):
### Current Financial Situation
Investments
IRA: $112,300
401k: $85,400
College savings: $9,000
Cash on hand: $5,000
Investments Total: $211,700
Debts
House: $131,000
Car: $1,700
Credit card: $3,300
Personal loan: $2,000
Debts total: $138,000
—
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****** just grabbed a
What’s your mortgage interest rate?
I’d pay off the credit card, car loan, and personal loan, and put the rest in a HYSA account while you learn about investments.
3-6 month expenses in a HYSA. Pay off credit cards, personal loan, car. Max your IRAs and/or 401ks.
Personally? I’d put some money in the bank in a high yield savings account, pay off everything but the house and pay off a big chunk of the house.
Then I’d take the savings from not having a car payment, credit card, and personal loan and start more aggressively putting money into retirement savings and the college fund.
Try r/personalfinance and its “windfall” FAQ wiki.
ETA: pay off the car, loan, and credit cards. With the rest, fully fund your emergency fund. If still have money left, fully fund your Roth IRAs (you and spouse) for the year. If still have money left…use some and maybe take a vacation or do some home improvement, then invest the rest in a regular brokerage account.
Hey op,
Pay off all the debt that isn’t mortgage.
Do something nice to enjoy the inheritance.
Max out yours and spouses roth ira for the year or set one up. You can max out 2023 also so thst would take 27k
Put some into a high yield savings or money market for your emergency fund if you don’t have one. (3 to 6 months salary)
You could then pay off house or whatever else, but these would be golden things to set you up financially.
I had an inheritance of about 225k and I paid off house. I should have invested more of it, but hindsight is 20/20. We took a trip to Europe for 2 weeks and a cruise there (before kids) that cost like 10k. It was a blessing that set us up for success. I’m 40 now and this was about 7 years ago.
Pay off the car, the credit cards, the personal loans. Sock away $30K for your emergency fund.
Leaves you with $63K
Without knowing interest rates on your home or how old the children are hard to say if throwing more to college savings or to the house.
[deleted]
Definitely get rid of the $7K on small debts immediately. With the $93K remaining, figure out what a generous six-month’s expenses would be and stick that in a high-yield account, tax-advantaged, if you can (sorry, I’m from Canada and don’t know which of the various numbered accounts/Roth/etc. are; we have tax-free savings accounts here, where you put in money you’ve already paid taxes on, and the interest or share price growth is sheltered and can be withdrawn tax-free, so something like that, if it exists). Take $2K and do something celebratory or “spoiling yourselves”, maybe that you know your relative would be happy to know you were enjoying. Put the rest into VTSAX.
Pay off the $38k of non-mortgage debt and out some toward the mortgage if you plan to stay there long term. Put up $50k in HYSA to bulk up your emergency fund. Spend the remaining $12k on a nice vacation.
Pay the credit card, the personal loan the car and put money into a Roth IRA, if you are under the income requirements.
r/personalfinace or r/investing, or one of them in that realm, has a Wiki for windfalls, inheritance, settlements, etc..
Are you paying the credit card off in full every month?
We inherited 108,000 in 2016. We kept it in the inherited IRA account. We needed $20,000 to help with closing costs on the purchase of a house in 2019. We also had to take out RMDs each year (approximately $3-$5k a year) and we rolled those into my Roth IRA. This year I developed a disability that created the need for a different vehicle. We were able to take out $60,000 cash to cover the unexpected expense and when I checked the account this week it had $67,000 remaining. At this point/baring any more unexpected expenses, we will leave it to continue to mature. I told you the specific items we have taken out of it so you can see how it has served us to keep it in savings for things we didn’t previously foresee. I like sometimes “forgetting” we have that money because it offers me some level of comfort/security in this crazy world.
most suggesting HYSA but you pay taxes on the “earnings” which removes most of the the marginal gains you would be getting from it.
Right now you pay 327.50 each month in just interest on your home loan. I would pay the high interest debt first and put the rest on the mortgage.
I don’t know what the inheritance situation is, but if it’s taxable, don’t forget to set aside that money. My brother passed last year and had all his siblings set up to get a chunk of his 401k, but it had to be taxed (they took 20% out when they disbursed it to me, but it was slightly more). So look into that before anything else. I’d literally move it all to an HYSA before you do anything else (just remember you’re limited in savings account withdrawals monthly).
I’d echo the person who said car, credit card and personal loan. Then, what you can do with the amount you were paying on those monthly is put more into savings in the future.
You can get an HYSA with higher interest than your mortgage, so don’t pay down the mortgage.
Idk how old your kids are and how many you had, but you need more college savings. I’d put a good chunk aside for that.
The issue with this type of question is determining if you would like a Math based and driven answer, or one backed by psychology and logic driven thought processes.
The other things are, time horizon, expectations of things surrounding the market, and your risk tolerance.
If you expect market to tank in X time frame, I wouldn’t recommend investing in market in that time.
So I’ll advocate to you like I would my father/mother.
Pay the credit card off.
Pay the car off.
Pay the personal loan off.
No ifs and or butts on those. That’s a for sure. This to me isn’t really negotiable.
Next is a question on the house, I was going to ask the interest rate, but I’ve seen you replied 3%.
So if you are a math driven person, paying off house will save you 3% a year. A 10k payment saves you 300$ a year in interest, (not going to factor tax benefits for the purpose of this).
There are many things in the market, that timed over the same duration as your house note, would pay greater than 3% a year, and would have a near 0% chance of losing you the money.
Note return and risk are directly correlated.
Some will say “investing in XYZ index funds over Q duration average a 10% return”. Which is true.
But some people don’t have the stomach for that risk, if you don’t, I wouldn’t recommend it. Even if it mathematical is your best option.
Alternatives of bonds/cd’s/treasury notes are really low risk, and you can find a plethora of options greater than 3% returns. This is if you have risk aversion.
Are you currently maxing your 401k/Roth matches at you and your partners works? If not, I would match them, and use this money to help pay the bills that money would’ve gone to had you not invest in the match.
Next, if you are saving for retirement, increasing contributions to either is highly beneficial, and receive the best tax treatment. Remember the only math that matters for which to prioritize is if you think your current tax rate, or tax rate in retirement will be higher.
If you believe in incoming “hyper inflation”, buy a cash producing asset like a rental home. This will increase at a similar rate as inflation while also paying for itself over time. Also, still having an outstanding loan on your home, the hyperinflation would de-value the real dollars needed to be paid to pay off said note.
Final alternative. With increased safety, many gain an increased tolerance for risk. With a paid off house, car, pre paid utilities insurance, and savings for expenses a year out, many people can make riskier and more lucrative investments, they may have been otherwise too afraid to make. If paying off your house, while mathematically bad, would help you alleviate a lot of stress or increase your risk tolerance, it might be beneficial to do that next.
I would:
Pay off all debts except the mortgage.
Pay down the mortgage a little – either recast for a lower monthly payment or just a straight principal payment to shorten the loan term, whatever you’d prefer.
Boost emergency fund $5-10k.
Put some in a HYSA for future major purchase (home reno, next car, etc.)
Invest the rest in whatever you value most – retirement accounts, college, investment rental property, etc.
I see similar posts to this regularly and I always comment the same thing.
FIND A FINANCIAL ADVISOR. DO NOT LISTEN TO STRANGERS ON REDDIT.
Pay off bad debt and put the remaining 90k+ in a compound interest account. That 90k will be 1 mil+ in close to ten years
If im you: pay off car, credit card, personal loan. Maybe a high yield bond fund. Give yourself extra spending money.
Pay off card, car, and personal loans. Keep paying mortgage on monthly basis. If you don’t need cash, put 40% into a CD at around 5.5%, and put 60% in a ETF that tracks the S&P. For the former, I like Goldman Sachs’ Marcus CD. For the latter, if you’re not into active investing, just open a Vanguard account and buy the ticker VOO. The important thing about this is to buy your shares and leave it tf alone.
Pay off everything but mortgage and invest the rest in college savings, maybe keeping a small amount on hand for emergencies.
Pay off everything but the house and throw rest into divend stock for your emergency fund like mplx
Car credit card and personal loan would be paid off. Throw some into college savings and the rest into HYSA and retirement account.
Pay off everything but the house, max out your ROTH IRA for the year, put 3 months savings into a HYSA account, then Dollar Cost Average the rest into index funds in a brokerage account over the next year.
Inheritances usually come in a tough time. I would stash it in a HYSA for a couple months if you need time to process things. Then when you are ready pay off the car, credit card, and personal loan.
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If you need some of it to take a break or a vacation do it, then focus on increasing retirement contributions while keeping 3-6 months expenses in a HYSA.
Pay off any debts with an interest rate above the average S&P 500. If you have money left after that then pour into index funds.
Pay of credit card and personal loan. Put the rest in the sp 500 in a taxable brokerage account if you’ve already maxed your 401k and Roth for the year. If you haven’t maxed out the Roth and 401k, then max those. You should also have at least 3 months emergency fund, which is probably more than $5k
With that amount of savings you should have any non-mortgage loans. Loan interest is just flushing money down the toilet. Pay those off immediately.
Max your IRA and 401k first. That’s $30,000 put away for your future. If both of you work, that’s up to $60k, which if invested 30 years ago in the S&P500, would be worth ~$1.2M today. With similar performance over the 30-ish years before you’re of “retirement age”, that would help make for a comfortable nest egg.
Next, give yourself a bit more cash cushion, maybe 3-6 months expenses.
Next, pay off your non-mortgage debt. Then, if you can get more in risk-free interest than you’re paying for debts, put the money in a HYSA, CD, or MYGA, and work that arbitrage. If you ever earn less on the money than you’re paying in interest on debts, pay off or down the associated debts – even your mortgage.
if you don’t already have a 6 month emergency fund i’d figure out what that is and put that in a high yield savings account. $15-$25k sounds about right. then pay off all debt minus house. then i’d max out both your IRAs for the year and probably throw $25-40k in the market. i personally would set aside like 10-15k and either take a nice vacation or split it with your partner and buy something you’ve been wanting and get some stuff for the kids. gotta live a little you know
Honestly, I’d pay that all into the mortgage. The decline in monthly out lay will be the most impactful on your life.
Probably not the optimal use of the money, but most people that try to do the *most optimal* use, especially with unearned money like inheritance, just generally lose the money.
-Pay off car, loan, cc
-Max out your 401ks and IRA (so increase your 401k contributions at work and use the inheritance money to make up for the decreased income which should be sitting in a HYSA)
-Now you are at about 50k you didn’t mention how many kids and how old but check your state to see if there are tax benefits for putting money into the 529 if so do the max. I put in 10k because NY takes 10k off taxable income.
-You need an emergency fund 6 months of expenses.
-The rest open a brokerage and invest in something safe.
-3% interest rate don’t touch that mortgage.
hah! a millennial 1%er.
Pay off non mortgage debts. Open a brokerage account and put the rest in VTI or a low cost broad market etf.
Pay down loans, starting with credit card and then higher interest of auto and personal. Then put the rest in a 6 mos-1 year CD so you aren’t tempted to blow it while you figure out your strategy long-term.
If your mortgage is 3% I wouldn’t pay it off. Pay off the other debt and personally I would the rest in a HYSA.
I’m going to go against grain here. I’d open a taxable brokerage account if you don’t have one already (Fidelity) and put the whole 100 grand in MAIN. They’re a BDC that pays a monthly qualified dividend. Less taxes than interest on a HYSA and you can always sell shares as needed if you need the cash. Currently the share price is around 44 and change so you’re looking at 2250 shares that pays around .25 cents per share per month about 560 a month of qualified dividends.
Take $1000 to buy something nice. Go out to a nice dinner. Use the other $99850 to pay off your debt.
Don’t listen to these maniacs calling for a high yield savings. Either put it all in spy or half in spy and half in something like JEPI
Buy a boat.
IANAFA, but how you are receiving this inhertance is an important factor. There are tax advantages depending on the source. If it’s from an IRA (i.e. you were a named beneficiary) it can go into an inherited or beneficiary IRA. You’ll have to take it out within 10 years, but there are worse places to park the money. If you just got a wad of cash (insurance, cash accounts, etc), you have lots of options.
Consult a financial advisor.
[Inherited IRA: Definition and Tax Rules for Spouses and Non-Spouses (Investopedia)](https://www.investopedia.com/terms/i/inherited_ira.asp).
Fiduciary financial advisor.
Pay off debt (except mortgage)>set up 529 accounts for college and pad them with % of remaining inheritance>set aside enough to max roth for a year or two>put the rest into safe stocks or just Sofi or other hysa
I’m sorry for your loss.
I would pay off the car, credit card, and personal loans. Then, set up an emergency fund with six months of expenses. With whatever is left, put it in a HYSA and max out Roth IRAs and 401(k)s from that account until the money is gone. You could also put more towards college savings, but I’d focus on getting ahead with retirement first. A financially secure retirement is as much a gift to your children as it is to you.
Spending a small amount on a vacation or something is reasonable as well!