Needing retirement/inheritance advice!

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Hello, I am 27 married with a kid and trying to get my finances in order. I'm making about $41k a year and should receive about a $6-7/hr raise here in a few months. My wife is currently at about $55k a year. I am contributing 10% to my employer 401k and my wife is at 20%. Match is 50 up to 6%.She also has a Roth IRA with about $57k in it, but the return is only at 9% from Nov 2014 and she hasn’t contributed to it at all. Her 401k has about $26k with a return of 24% from Nov 2014. I have 2 401ks, one with my previous employer that has about $15k and 20% return from Nov 2014 and my current 401k is at about $3k and returned 13% from August 2016. I don’t have any of the fees on these currently, I’ll have to do some research on it

.I am about to inherit roughly $400k liquid, with another 100-300k in real estate/minerals that we haven’t decided what to do with so I’m just concentrating on the liquid part. $100k of that is going to be in a traditional IRA. I have about $104k(3.5%) in mortgage debt(house worth about 180k) and $11k(2.99%) on a vehicle that I will be paying off. I’m planning on putting $20k in my checking account that earns 2%, $10k in my other checking account that earns 2.51%, $4500 in my sons savings account that earns 2%, and $10,500 in my sons 529. That should leave me with about $140k I have no real idea what to do with that I am needing opinions on.

My wife is also in school and will potentially have to quit her job here in 3-4 months, we will just have to see. After she gets out of school in a couple years she should be earning 80-100k. 

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your wife won't be working for a while. Keep the rest of the money liquid to live off of while she's in school (essentia... (more)

imbatman (Mar. 13, 2017 @ 4:17p) |

Your math is wrong

I see 9 downvotes and 3-4 female avatars.

jerosen (Mar. 13, 2017 @ 4:31p) |

Yea best case she be out of work starting at the beginning of next year for two years. Worst case it will be this summer... (more)

Thrill12 (Mar. 14, 2017 @ 1:03a) |

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Unless you really intend to make a part-time job/hobby out of managing your finances, consider that you are now of sufficient net worth that it makes sense to pay ***a qualified professional*** to take a look at your overall situation, at least to get you started.  Sounds like you have made a lot of the right decisions with respect to the IRAs and 401Ks up to this point, but you have a lot of loose ends.

I would not advise paying off the mortgage at all.  

Also, inherited IRAs are very complicated.  One misstep with how you handle it could cost you thousands of dollars.  For that reason alone, I'd get a pro to advise you on it.


Edited to remove the term, "financial advisor" above.  Even though a financial advisor is a generic term with no precise industry definition, I seemed to have touched off a firestorm by using it.  Tough crowd.

dcwilbur said:   Unless you really intend to make a part-time job/hobby out of managing your finances, consider that you are now of sufficient net worth that it makes sense to pay a financial advisor to take a look at your overall situation, at least to get you started.  Sounds like you have made a lot of the right decisions with respect to the IRAs and 401Ks up to this point, but you have a lot of loose ends.

I would not advise paying off the mortgage at all.  

Also, inherited IRAs are very complicated.  One misstep with how you handle it could cost you thousands of dollars.  For that reason alone, I'd get a pro to advise you on it.

 You can manage this amount of money yourself, with a minimal amount of research and time.  A "financial advisor" is not a tax or legal professional, and will not be helpful with your inherited IRA.  Financial advisors typically either have an agenda (to sell you their services or products) or espouse widely-known financial strategies such as index investing.  I'm sure this statement will get some flack in the FW community, but in general, if a financial advisor was great at his job, he wouldn't need it.  

In contrast to the first poster, I would recommend paying off some of your mortgage.  The question to ask is, "Would I take a loan at 4% [or whatever your rate is] in order to invest that money in the market?"  Because that is exactly what you're doing when you have both liquid investments and a mortgage at the same time.

Unlike dcwilbur, I don't think your net worth is high enough or complicated enough to pay a financial adviser. 

1. Because you can now afford it...I'd increase retirement savings.  For example, if you haven't already paid 2016 taxes, make a ROTH contribution for 2016 for both yourself and wife, and make your 2017 contribution.  Maybe increase your 401k contributions, too.  You can always decrease that later if (see #2)
2. Because there's a risk your wife might be without a job for the next 2 years, keep the rest of it in cash (Barclay savings, Purepoint, or other 1%+ accounts).  In a couple of years when dw starts earning $80k+ (and it looks like you expect to be earning at least 20% more by then) you can reevaluate and start further investing, for example, completely maxing retirement accounts or paying off a house.  
3. I agree with dcwilbur that you need to pay careful attention to the inherited IRA.  My husband inherited one a few years ago.  Somebody from the trustee always contacts him during the year to ask when he wants his RMD (required minimum distribution) and they calculate the amount.  I don't know if all investment firms do that - his is not at one of the online low-cost brokerages, but it's still a fee-free account.  The Bogleheads forum would be a great place to get specific advice on where to keep the inherited IRA and what to invest it in.  You don't need to pay an adviser for that. But you can get into penalties if you don't take the withdrawals.

Congrats on the inheritance, but I'm sorry for your loss.  Good luck.

phisher4 said:   
 

In contrast to the first poster, I would recommend paying off some of your mortgage.  The question to ask is, "Would I take a loan at 4% [or whatever your rate is] in order to invest that money in the market?"  Because that is exactly what you're doing when you have both liquid investments and a mortgage at the same time.

  The only reason I don't think he should pay off any mortgage is that his wife's job is possibly at risk.  He should keep an extra-large cash emergency fund until she finishes her degree.

phisher4 said:   A "financial advisor" is not a tax or legal professional, and will not be helpful in your inherited IRA.
Poor choice of words on my part.  I meant that a professional would help, especially with respect to the inherited IRA.  That professional may in fact be a tax or legal professional.  I wasn't talking about some shill who just wants to separate him from his money.

It's funny how people will rush right out and hire an attorney but will take the exact opposite approach with their finances.  I'm a do it yourself kind of guy through and through, but there are some clues in the OP that indicate that he could benefit from some expert assistance.  He has a legacy 401k from a former employer, he hasn't made contributions to IRAs in recent years, he made no mention of tax consequences of the inherited IRA, he plans to pay off his mortgage without any contemplation of the trade-offs he is making, he's putting money in a 529 (which may or may not be a good idea), and he has no idea what to do with the remaining liquid balance - AND, he has that big chunk of real estate/mineral rights which is presumably something entirely new to him.

I stand by my advice to get professionals involved.

Thrill12 said:   I am about to inherit

This is YOUR money. You don't know what the future holds. Don't do anything that converts this to community property. The last thing you want is to end up divorced and your EXwife taking half your ticket to easy street with her.

I recommend that you do not pay off the car or the mortgage. You keep it completely separate.
  

Dcwilbur's advice is generally correct, but I'll give you some specific don'ts, as well as refer you to the Bogleheads wiki on this topic

The title of the account is critically important
- If the money originated from a 401k, ask if you can inherit it as a Roth IRA; there's a special exception that few know about that could save you money down the road (with a cost to your taxes now)
- Make sure you take your first required minimum distribution in time, or else you may be forced to distribute it all within 5 years.
- MAKE SURE THE TITLE IS DONE CORRECTLY. (=14px“John Smith IRA (deceased 11/27/09) F/B/O John Smith, Jr., Beneficiary” or “Brian Willow as beneficiary of Joan Maple.”)
- Don't ever try to combine the inherited ira into your own IRA, or combine IRAs with any other tile then the person who decadent
- Transferring the IRA must be done "trustee-to-trustee", If they ever distribute the money, it is out of the IRA, and can't put back in. Don't be the guy who takes the check across the street to his broker and gets a huge tax bill
- Bonds/CDs sometimes come with "survivor's option" or "death put", which allows the owner to redeem at par without selling.
- Structure the distributions to minimize taxes... Consider using the proceeds/distributions to max out your own Roth IRA and 401k accounts. (Ask HR for the "summary plan description" and look for "After-tax" subaccount option.)
- Remember that owning stocks in taxable accounts is taxed at capital gains rates (as low as 10%), but distributions from IRAs are taxed at your bracket.

Schwab has an excellent inherited RMD calculator, and guide on this topic.
Sorry for your loss

Chyvan said:   This is YOUR money. You don't know what the future holds. Don't do anything that converts this to community property. The last thing you want is to end up divorced and your EXwife taking half your ticket to easy street with her.

I recommend that you do not pay off the car or the mortgage. You keep it completely separate.
 

Only the poor have the luxury for marrying out of love.
Fun trivia: The "To have and to hold" vows is used in land deeds and is known as a habendum clause.
 the habendum deals with the relationship between the possessor and the land—how the land is to be had—while the tenendum deals with the relationship between the possessor and his immediately superior lord—how the land is to be held.

The past returns on your investments are completely irrelevant. The fact that you even brought it up and and that they don't even seem annualized suggests to me that you know very little about investing. So my advice is to make sure the investments in your retirement accounts closely match one of the Lazy Portfolios that you pick after studying that article. Doing this would also bring down the fees to near the lowest possible level.

You and your wife should definitely contribute the max to Roth IRA (you can contribute $5500 each for 2016 if you do it before the April tax filing deadline). And make a habit of doing so every year.

Keep contributing to 401k. The decision between keeping it at an affordable level vs maxing it out is up to you, but generally depends on your current tax situation vs expected tax situation in retirement.

Do NOT pay off your mortgage. Keep enough cash for a rainy day. Invest the rest in an after-tax investment account, real estate, or business.

Thrill12 said:   She also has a Roth IRA with about $57k in it, but the return is only at 9% from Nov 2014 and she hasn’t contributed to it at all. Her 401k has about $26k with a return of 24% from Nov 2014. I have 2 401ks, one with my previous employer that has about $15k and 20% return from Nov 2014 and my current 401k is at about $3k and returned 13% from August 2016.
 

  Returns/performance have no meaning unless we know what type of assets they are invested in. For reference, the S&P 500 (with dividend reinvested) returned about 19% from Nov 2014 to Feb 2017.

Are you sure you are calculating the performance of your different account correctly? In particular, are you accounting for investments properly.

The one account where nothing has been contributed since Nov 2014 has returns about half the other accounts where contributions were made during the period. It is likely that you are not accounting for investments made during that period. You cannt simply look at the difference in balance at the beginning and end of the period.

Scripta's advice is dead on. I would add that this is a nice windfall, but keep living as you have been. If you save it and invest it wisely with minimizing/sheltering taxes you will be in a good position. Don't make any large extravagant expenses or lifestyle changes until your regular income can afford you that lifestyle (and maybe not even then).

Just an FYI assuming that your inherited IRA is a conventional one with stocks and bonds it is NOT complicated. Do a little research to get an idea of your options. In your case your options are generally liquidating the IRA (almost always a bad idea) or taking distributions over the inheritors life expectancy, The institution acting as custodian of the IRA will assist you (they will do basically almost everything that needs to be done) in taking the proper steps to take the proper RMD each year.

+1 to what others have said about inherited IRA. Your biggest concern should be to minimize the tax affect of the inherited IRA. Since the IRA is tax deferred, you will owe taxes on it and it must be withdrawn over time (you cannot simply keep it in the IRA). http://www.bankrate.com/finance/retirement/ways-to-go-wrong-with... making sure you do this in the most tax efficient way is very important. So either make sure you research this yourself and are confident you are doing this correctly, or seek professional help.

dcwilbur said:   phisher4 said:   A "financial advisor" is not a tax or legal professional, and will not be helpful in your inherited IRA.Poor choice of words on my part.  I meant that a professional would help, especially with respect to the inherited IRA.Could you do the world a favor and edit your post to replace the words "financial advisor" with a regulated/accredited professional you had in mind? We don't want newbies to ever think it is acceptable to pay a "financial advisor".

scripta said:   
dcwilbur said:   
phisher4 said:   A "financial advisor" is not a tax or legal professional, and will not be helpful in your inherited IRA.
Poor choice of words on my part.  I meant that a professional would help, especially with respect to the inherited IRA.

Could you do the world a favor and edit your post to replace the words "financial advisor" with a regulated/accredited professional you had in mind? We don't want newbies to ever think it is acceptable to pay a "financial advisor".

  *snort*
Yes, it's true that most "financial advisors" are salespeople who earn commissions based on what products they steer you into.
I suspect OP would be one of those who would benefit from a "fee only" planner who charged an hourly rate for unbiased advise.
The difference is a fiduciary is obligated to choose the best product for your needs, while a "registered representative" (salesperson) has to meet a much lower "suitability" standard.

 

Most has already been said but it is totally up to the OP. I know people with a lot more money that do it themselves (read the Boglehead wiki and you are set), but you could easily call Vanguard or Fidelity or Schwab or whomever and tell them your story. Any one would give you a free to low-cost meeting (in-person, webcast or phone) to help. If you do get advise, the key word is "fiduciary" so they are in YOUR interest. There is nothing wrong with getting assistance either. I know people that get help with less $$. It's all up to you. 

I'd say keep the mortgage. Statistically you'll beat 3.5% over the long run with a good stock/bond mix. No reason to lock the cash up in a house. For the car loan, that's up to you
 

Absolutely do not pay off your mortgage.  Assuming you qualify for itemized tax deductions, you can write off the interest.  That brings your effective interest rate down to less than 3%.  Cheapest money you can get.  Put your liquid money to work in an IRA of some sort.  Over 32 years my 401k has averaged over 9% annual return. 

So that $100k to pay off the mortgage, could be something like $400k when you hit retirement age.

Thanks for the replies, and sorry I'm late responding, I posted this right before I had to go to work.
dcwilbur said:   Unless you really intend to make a part-time job/hobby out of managing your finances, consider that you are now of sufficient net worth that it makes sense to pay a financial advisor to take a look at your overall situation, at least to get you started.  Sounds like you have made a lot of the right decisions with respect to the IRAs and 401Ks up to this point, but you have a lot of loose ends.

I would not advise paying off the mortgage at all.  

Also, inherited IRAs are very complicated.  One misstep with how you handle it could cost you thousands of dollars.  For that reason alone, I'd get a pro to advise you on it.

I plan on meeting with a couple of advisers I just haven't yet as most is still in probate. My wifes Roth IRA is at an Edward Jones and the traditional IRAs(there are two I didn't mention that, one for $25k and $75k) are with another Edward Jones. I also have a CPA in the family as a resource and my FIL that has a net worth of 5-10mil. 
phisher4 said:   
dcwilbur said:   Unless you really intend to make a part-time job/hobby out of managing your finances, consider that you are now of sufficient net worth that it makes sense to pay a financial advisor to take a look at your overall situation, at least to get you started.  Sounds like you have made a lot of the right decisions with respect to the IRAs and 401Ks up to this point, but you have a lot of loose ends.

I would not advise paying off the mortgage at all.  

Also, inherited IRAs are very complicated.  One misstep with how you handle it could cost you thousands of dollars.  For that reason alone, I'd get a pro to advise you on it.

 You can manage this amount of money yourself, with a minimal amount of research and time.  A "financial advisor" is not a tax or legal professional, and will not be helpful with your inherited IRA.  Financial advisors typically either have an agenda (to sell you their services or products) or espouse widely-known financial strategies such as index investing.  I'm sure this statement will get some flack in the FW community, but in general, if a financial advisor was great at his job, he wouldn't need it.  

In contrast to the first poster, I would recommend paying off some of your mortgage.  The question to ask is, "Would I take a loan at 4% [or whatever your rate is] in order to invest that money in the market?"  Because that is exactly what you're doing when you have both liquid investments and a mortgage at the same time.

  My main reason for wanting to pay of the mortgage, and debts in general, is that it is the safest bet. I'm not in a volatile housing market here and if my wife does have to quit her job for 2 year I will be able to support the household alone. 
AAlison said:   Unlike dcwilbur, I don't think your net worth is high enough or complicated enough to pay a financial adviser. 

1. Because you can now afford it...I'd increase retirement savings.  For example, if you haven't already paid 2016 taxes, make a ROTH contribution for 2016 for both yourself and wife, and make your 2017 contribution.  Maybe increase your 401k contributions, too.  You can always decrease that later if (see #2)
2. Because there's a risk your wife might be without a job for the next 2 years, keep the rest of it in cash (Barclay savings, Purepoint, or other 1%+ accounts).  In a couple of years when dw starts earning $80k+ (and it looks like you expect to be earning at least 20% more by then) you can reevaluate and start further investing, for example, completely maxing retirement accounts or paying off a house.  
3. I agree with dcwilbur that you need to pay careful attention to the inherited IRA.  My husband inherited one a few years ago.  Somebody from the trustee always contacts him during the year to ask when he wants his RMD (required minimum distribution) and they calculate the amount.  I don't know if all investment firms do that - his is not at one of the online low-cost brokerages, but it's still a fee-free account.  The Bogleheads forum would be a great place to get specific advice on where to keep the inherited IRA and what to invest it in.  You don't need to pay an adviser for that. But you can get into penalties if you don't take the withdrawals.

Congrats on the inheritance, but I'm sorry for your loss.  Good luck.

  2016 taxes have not been completed yet. And I'm not positive I will even have my hands on any money until after the tax cutoff and right now I have about $6-7k cash in my accounts. Thank you for those account suggestions, I will have to look in to those. I am planning on meeting with my CPA and an adviser about the Trad IRAs for sure because I don't really have any knowledge on them.
dcwilbur said:   
phisher4 said:   A "financial advisor" is not a tax or legal professional, and will not be helpful in your inherited IRA.
Poor choice of words on my part.  I meant that a professional would help, especially with respect to the inherited IRA.  That professional may in fact be a tax or legal professional.  I wasn't talking about some shill who just wants to separate him from his money.

It's funny how people will rush right out and hire an attorney but will take the exact opposite approach with their finances.  I'm a do it yourself kind of guy through and through, but there are some clues in the OP that indicate that he could benefit from some expert assistance.  He has a legacy 401k from a former employer, he hasn't made contributions to IRAs in recent years, he made no mention of tax consequences of the inherited IRA, he plans to pay off his mortgage without any contemplation of the trade-offs he is making, he's putting money in a 529 (which may or may not be a good idea), and he has no idea what to do with the remaining liquid balance - AND, he has that big chunk of real estate/mineral rights which is presumably something entirely new to him.

I stand by my advice to get professionals involved.

  I could benefit greatly from professional experience and plan to get it. This all happened pretty suddenly before I was even at a point in my life to think about all of this or do the research. 
Chyvan said:   
Thrill12 said:   I am about to inherit

This is YOUR money. You don't know what the future holds. Don't do anything that converts this to community property. The last thing you want is to end up divorced and your EXwife taking half your ticket to easy street with her.

I recommend that you do not pay off the car or the mortgage. You keep it completely separate.
  

  I am fully aware that this is my money. But this is hardly her ticket to easy street. She will be inheriting about 5-10mil. But I do get where you are coming from.

I'll try to respond to the rest when I wake up tomorrow. I'm wore out from work lol.

I had a similar situation a few years back and I decided to pay off my mortgage with the some of the money I inherited. Could I out perform the market over the long-haul by investing yes, but I looked at my mortgage as my "risk-free" rate. Unless you have a $250k+ house or a ton of write-offs you will not take much tax advantage for carrying a mortgage above and beyond your standard deductions. In my case I was saving around $500 a year in taxes to carry my mortgage. So it did not make sense to keep it. It is great to have the stress of any debt hanging over the families head to be gone, and has opened up opportunities for my wife to consider a career change.
Others have correctly pointed out the fact that any time you co-mingle funds they can not be separated later if something turns south. So that is something you will want to consider. Finally I would consider your overall wealth goals and strategies. You seem to be doing pretty good overall, but if you pay off your house you might be a bit heavy into real estate for a short time before you bring better balance to your other investments. If you use the savings from not having a mortgage to pay towards your 401k at work it will re-balance very quickly though.
All in all as long as you don't blow it on a sport car, or other depreciable assets you should be good.

jrbrann said:    if you pay off your house you might be a bit heavy into real estate for a short time before you bring better balance to your other investments. If you use the savings from not having a mortgage to pay towards your 401k at work it will re-balance very quickly though.
 

  
It's not really that he'd be heavy into real estate, but he'd be light into everything else. With or without a mortgage, he's still getting all the appreciation or depreciation that his home accrues.

It's definitely not what I'd do - I feel that "no monthly payment" is less secure than "monthly payment and over 200 months of payments in cash". But if you would see doing it as a big imbalance in asset allocation that should be a priority to correct asap, I think that may be a red flag that you don't think paying off a mortgage is such a great strategy either.

OP: Sent you a PM.

I think the paying off the mortgage bit is something you should do if you think it will make you sleep better at night. It's a highly personal choice, the financial benefits are a little skewed towards keeping the note -- but not so much that I think it's material.

If it hasn't been mentioned I highly recommend checking out Bogleheads forum as well, they have some great threads about managing a windfall. I think that you can (and probably should) manage it yourself, just the process of learning how to manage will be highly beneficial to you. For the first few years stick to low-cost broad index mutual funds like Fidelity or Vanguard. One strategy I would use is to slowly convert the money into retirement accounts if it isn't already in one. This can be done by contributing the max to your 401k, and then paying yourself the 'salary' you are dropping into the 401k from your windfall proceeds.

Get the investment options and expense ratios to us for review.  You can camp the money and max out your 401k and Roths to get it invested with the least tax exposure.  If you pay off your home consider it like a security/bond when you look at your asset allocations.  Keep that 100K as an inherited IRA and take the RMD as needed, tune the investments to be a Target retirement if you want to keep it simple and run it, Vanguard concierge should be able to help do it right.  A CFP that is fee only and fiduciary is the only person you want to work with if you do, come prepared with what you want accomplished to save time and cost.  

ThomasPaine said:   Dcwilbur's advice is generally correct, but I'll give you some specific don'ts, as well as refer you to the Bogleheads wiki on this topic 

The title of the account is critically important
- If the money originated from a 401k, ask if you can inherit it as a Roth IRA; there's a special exception that few know about that could save you money down the road (with a cost to your taxes now)
- Make sure you take your first required minimum distribution in time, or else you may be forced to distribute it all within 5 years.
MAKE SURE THE TITLE IS DONE CORRECTLY. (=14px“John Smith IRA (deceased 11/27/09) F/B/O John Smith, Jr., Beneficiary” or “Brian Willow as beneficiary of Joan Maple.”)
- Don't ever try to combine the inherited ira into your own IRA, or combine IRAs with any other tile then the person who decadent
- Transferring the IRA must be done "trustee-to-trustee", If they ever distribute the money, it is out of the IRA, and can't put back in. Don't be the guy who takes the check across the street to his broker and gets a huge tax bill
- Bonds/CDs sometimes come with "survivor's option" or "death put", which allows the owner to redeem at par without selling.
- Structure the distributions to minimize taxes... Consider using the proceeds/distributions to max out your own Roth IRA and 401k accounts. (Ask HR for the "summary plan description" and look for "After-tax" subaccount option.)
- Remember that owning stocks in taxable accounts is taxed at capital gains rates (as low as 10%), but distributions from IRAs are taxed at your bracket.

Schwab has an excellent inherited RMD calculator, and guide on this topic.
Sorry for your loss

  Thank you for the links and all the information, it should help a lot. Both of the traditional IRA accounts were originally 401ks. One was transfer to the trad IRA at the end of 2015($75k) and I don't know when the other was transferred yet.  
scripta said:   The past returns on your investments are completely irrelevant. The fact that you even brought it up and and that they don't even seem annualized suggests to me that you know very little about investing. So my advice is to make sure the investments in your retirement accounts closely match one of the Lazy Portfolios that you pick after studying that article. Doing this would also bring down the fees to near the lowest possible level.

You and your wife should definitely contribute the max to Roth IRA (you can contribute $5500 each for 2016 if you do it before the April tax filing deadline). And make a habit of doing so every year.

Keep contributing to 401k. The decision between keeping it at an affordable level vs maxing it out is up to you, but generally depends on your current tax situation vs expected tax situation in retirement.

Do NOT pay off your mortgage. Keep enough cash for a rainy day. Invest the rest in an after-tax investment account, real estate, or business.

  You're right I know very little about investing. My experience is basically contributing to my 401k. If we get the funds in time we will contribute to Roth IRAs.

How much do you suggest to keep for rainy day? It could get real rainy if my wife has to quit her job. My overall expenses are about $2700/mo(including the car and house payments) and my take home is about $2000/mo. It should increase some with the raise I am anticipating, but that's not a sure thing. And my take home would decrease because I would need to pick up my wife on my insurance(~$140/mo).  
Corndogg said:   Scripta's advice is dead on. I would add that this is a nice windfall, but keep living as you have been. If you save it and invest it wisely with minimizing/sheltering taxes you will be in a good position. Don't make any large extravagant expenses or lifestyle changes until your regular income can afford you that lifestyle (and maybe not even then).
  Yea we aren't really planning on making any crazy purchases or upgrades. There is a chance I will need a new(new to me) vehicle if my truck dies on me. I've had it for about 9 years and it's at about 160k. Even then though I'm not needing anything fancy or expensive.  
JD94 said:   Just an FYI assuming that your inherited IRA is a conventional one with stocks and bonds it is NOT complicated. Do a little research to get an idea of your options. In your case your options are generally liquidating the IRA (almost always a bad idea) or taking distributions over the inheritors life expectancy, The institution acting as custodian of the IRA will assist you (they will do basically almost everything that needs to be done) in taking the proper steps to take the proper RMD each year.
  From what I've seen it looks like mutual funds and stocks.  
jsssm said:   +1 to what others have said about inherited IRA. Your biggest concern should be to minimize the tax affect of the inherited IRA. Since the IRA is tax deferred, you will owe taxes on it and it must be withdrawn over time (you cannot simply keep it in the IRA). http://www.bankrate.com/finance/retirement/ways-to-go-wrong-with... making sure you do this in the most tax efficient way is very important. So either make sure you research this yourself and are confident you are doing this correctly, or seek professional help.
  Yea I am hoping the adviser can help me out with the RMD, and I'll consult the CPA about it as well.  
CKooistra said:   Absolutely do not pay off your mortgage.  Assuming you qualify for itemized tax deductions, you can write off the interest.  That brings your effective interest rate down to less than 3%.  Cheapest money you can get.  Put your liquid money to work in an IRA of some sort.  Over 32 years my 401k has averaged over 9% annual return. 

So that $100k to pay off the mortgage, could be something like $400k when you hit retirement age.

  The last few years we have taken the standard deduction. 

jrbrann said:   I had a similar situation a few years back and I decided to pay off my mortgage with the some of the money I inherited. Could I out perform the market over the long-haul by investing yes, but I looked at my mortgage as my "risk-free" rate. Unless you have a $250k+ house or a ton of write-offs you will not take much tax advantage for carrying a mortgage above and beyond your standard deductions. In my case I was saving around $500 a year in taxes to carry my mortgage. So it did not make sense to keep it. It is great to have the stress of any debt hanging over the families head to be gone, and has opened up opportunities for my wife to consider a career change.
Others have correctly pointed out the fact that any time you co-mingle funds they can not be separated later if something turns south. So that is something you will want to consider. Finally I would consider your overall wealth goals and strategies. You seem to be doing pretty good overall, but if you pay off your house you might be a bit heavy into real estate for a short time before you bring better balance to your other investments. If you use the savings from not having a mortgage to pay towards your 401k at work it will re-balance very quickly though.
All in all as long as you don't blow it on a sport car, or other depreciable assets you should be good.

  Yea we bought the house for $167k and it's worth about $180k now. We have about 10 years left on the mortgage. The main reason I am wanting to pay it off is because the mrs might have to quit her job and if that happens I really don't want the stress of that payment over my head.
ryoung81 said:   OP: Sent you a PM.

I think the paying off the mortgage bit is something you should do if you think it will make you sleep better at night. It's a highly personal choice, the financial benefits are a little skewed towards keeping the note -- but not so much that I think it's material.

If it hasn't been mentioned I highly recommend checking out Bogleheads forum as well, they have some great threads about managing a windfall. I think that you can (and probably should) manage it yourself, just the process of learning how to manage will be highly beneficial to you. For the first few years stick to low-cost broad index mutual funds like Fidelity or Vanguard. One strategy I would use is to slowly convert the money into retirement accounts if it isn't already in one. This can be done by contributing the max to your 401k, and then paying yourself the 'salary' you are dropping into the 401k from your windfall proceeds.

  I will check out that forum too. Ideally I'd like to manage it myself if I can learn enough before I get it. $100k of it is in retirement accounts and the remaining is not. 
DamnoIT said:   Get the investment options and expense ratios to us for review.  You can camp the money and max out your 401k and Roths to get it invested with the least tax exposure.  If you pay off your home consider it like a security/bond when you look at your asset allocations.  Keep that 100K as an inherited IRA and take the RMD as needed, tune the investments to be a Target retirement if you want to keep it simple and run it, Vanguard concierge should be able to help do it right.  A CFP that is fee only and fiduciary is the only person you want to work with if you do, come prepared with what you want accomplished to save time and cost.  
  I will try to work on getting those today if work isn't crazy like last night. 

Get the money out of Edward Jones and into Vanguard or Fidelity. Study and implement a Lazy Portfolio I linked earlier.

I don't know how much you should keep for a rainy day, you need to figure that our for yourself.
Thrill12 said:   The main reason I am wanting to pay it off is because the mrs might have to quit her job and if that happens I really don't want the stress of that payment over my head.This is completely illogical. You should be stressed if you have no money in the bank. Having enough in the bank to pay the mortgage is less stressful than having $0 in the bank and no mortgage. Here's an extreme example to illustrate it. Imagine you are both out of work for some reason for an extended period. In one case you have a mortgage AND $100K in savings -- you could keep your lifestyle for about 3 years without either of you working. In the other case you used your $100K savings to pay off the mortgage and now have $0 in savings -- how long can you survive without income on $0? You won't be able to get another mortgage (or cash-out refinance) without any income. You will be forced to either draw down your retirement savings or sell the house. I would wait until you have substantially more saved up before paying off the 3.5% mortgage.

Also $2700 sounds like a lot to spend in a month for a family of 3 with such a small mortgage. If you weren't already banking on the huge inheritances I would suggest revisiting your budget and reducing your expenses.

scripta said:   Get the money out of Edward Jones and into Vanguard or Fidelity. Study and implement a Lazy Portfolio I linked earlier.

I don't know how much you should keep for a rainy day, you need to figure that our for yourself.
Thrill12 said:   The main reason I am wanting to pay it off is because the mrs might have to quit her job and if that happens I really don't want the stress of that payment over my head.
This is completely illogical. You should be stressed if you have no money in the bank. Having enough in the bank to pay the mortgage is less stressful than having $0 in the bank and no mortgage. Here's an extreme example to illustrate it. Imagine you are both out of work for some reason for an extended period. In one case you have a mortgage AND $100K in savings -- you could keep your lifestyle for about 3 years without either of you working. In the other case you used your $100K savings to pay off the mortgage and now have $0 in savings -- how long can you survive without income on $0? You won't be able to get another mortgage (or cash-out refinance) without any income. You will be forced to either draw down your retirement savings or sell the house. I would wait until you have substantially more saved up before paying off the 3.5% mortgage.

Also $2700 sounds like a lot to spend in a month for a family of 3 with such a small mortgage. If you weren't already banking on the huge inheritances I would suggest revisiting your budget and reducing your expenses.

This is my budget breakdown. 
​$1000 - Mortage
$150 - House insurance
$150 - House tax
$400 - Car payment
$140 - Car insurance(full coverage on one)
$95 - Electric
$40 - Gas
$54 - Water/Trash(12 mo avg on utilities)
$60 - Internet
$30 - TV( will probably be $10 soon)
$100 - Gas for vehicles/Maintenance
$120 - Cell phone
$60 - Gym
$400 - Grocery/Household/Baby formula and items

Looks like it's actually closer to $2800. I can reduce that some, cut the TV, maybe lower internet(but my wife can work from home some so it is needed), cheaper cell phone, cut groceries, but even then it still looks like $25-2600/mo. 

How much would you suggest saving up before paying off the mortgage?  

Your indication that you do not have enough cash on hand to make your Roth IRA contributions for 2016 before April 15 tells me that you need to keep a significant amount of this inheritance in liquid savings. I second the advice of the people telling you not to pay off your mortgage.

You need to try to shop your car insurance around. Unless you are driving a very high end car, or have a few DUI's that is an high amount for car insurance. We pay around $90/month for two cars with 500/500k limits.

Also I agree about not using 100k to pay off your house. Find an investment to put it in that you can tap into if you need it in the future. There are a couple reasons for this

1) If you put it strait into an investment, then its like you never had the money. What is likely to happen if you pay off your mortgage is you, or your wife, will feel like you have an extra $1300/month in your budget and most people tend to find some new "necessity" that they spend that money on.

2) If something does happen, having 100k in cash will buy you much more flexibility than having an extra $1300/month. What happens if you both lose your jobs, then the extra $1300 you save will mean nothing since you have nothing coming in. You would be much better off having that 100k sitting in an investment account you could liquidate to cover any emergency's that might arise.

daw4888 said:   You need to try to shop your car insurance around. Unless you are driving a very high end car, or have a few DUI's that is an high amount for car insurance. We pay around $90/month for two cars with 500/500k limits.
...

 

It is always a good idea to shop around for insurance. But unless you live in the same area as the OP, and have similar vehicles, age of policies, and a lot of other factors in common, it is very hard for you to compare your car insurance rates to his. His age is a big factor.

Location makes a huge difference. I live in a large city. If I moved 2 or 3 miles north, I'd be outside of my city and into a county and my car insurance rates would be 2/3 of what they are. If I moved 20 miles south I'd be in a different county and my rates would be half.

Thrill12 said:   $150 - House insurance
$140 - Car insurance(full coverage on one)
$95 - Electric
$120 - Cell phone
$60 - Gym
These are the items that jump out. Definitely shop around for home and auto insurance. I live in a more expensive area and pay about half of that for home and full coverage on two cars. Your electric bill could probably benefit from some energy efficiency improvements. $120 is a lot for 2 cell phones, especially if you don't really need all the bells and whistles. And I hope you use that gym membership. Is it $60 for both of you or just for one?
Thrill12 said:   $400 - Grocery/Household/Baby formula and itemsThis actually sounds way too low. Do you not buy clothes or go on vacation? Is it a ballpark estimate or an actual statistic you've collected over time?
Thrill12 said:   How much would you suggest saving up before paying off the mortgage?Personally I would just pay the minimum for as long as possible. Maybe if you had at least 3 years of mortgage-free living expenses (=1800*36) left after paying it off, then in my opinion it would be pretty safe (but I wouldn't do it). 3.5% is cheap money, barely above inflation. Assuming this is a fixed rate, of course.

I have enough savings to contribute to 1 Roth IRA, but not both
daw4888 said:   You need to try to shop your car insurance around. Unless you are driving a very high end car, or have a few DUI's that is an high amount for car insurance. We pay around $90/month for two cars with 500/500k limits.

Also I agree about not using 100k to pay off your house. Find an investment to put it in that you can tap into if you need it in the future. There are a couple reasons for this

1) If you put it strait into an investment, then its like you never had the money. What is likely to happen if you pay off your mortgage is you, or your wife, will feel like you have an extra $1300/month in your budget and most people tend to find some new "necessity" that they spend that money on.

2) If something does happen, having 100k in cash will buy you much more flexibility than having an extra $1300/month. What happens if you both lose your jobs, then the extra $1300 you save will mean nothing since you have nothing coming in. You would be much better off having that 100k sitting in an investment account you could liquidate to cover any emergency's that might arise.
 

  I have shopped around. I'm currently with USAA and it's actually about $110/mo. A lot of it has to do with our age. No DUIs or traffic violations since our teens. No wrecks or insurance claims from me, she had a wreck at 16 with a different insurance and that's all.
Those are both good points, though I don't see us both losing our jobs for extended times(then again, everyone who does probably says that) but it could happen.

I second the lazy portfolio and not paying off the mortgage. Investing's really not that hard to learn about. Weirdly studies show investors tend to do better if they keep things simple and don't do much. I'd read Bogleheads wiki and maybe check the Boglehead's Guide to Investing out of the library.

If you feel you must hire an advisor, find a fee-for-service financial advisor. This is someone who charges you for their time to advise you and doesn't get any commission or kickback when you purchase or sell anything. Edward Jones is notorious for having hard to understand fees that overcharge their customers. They also have an interest in making investing seem as complicated as possible to keep you coming back. Find a fee-only advisor here: https://www.napfa.org/

heads up ... u comingle the inheirtence she will be able to get it if a divorce comes. Which i expect would be 18 months after getting outta school.
 keep it seperate till at least then. 

You say that paying off your mortgage will make you feel better in case one (or both) of you loses your job.
I was in a situation where the sale of my previous home kicked off a lot of cash and I had the option of putting it into my new home or not.

What tipped the decision for me were a few things:
1) Once that money was tied up in the house, it would cost me interest & closing costs to get any of it back out
2) Because of #1, I felt like I would rather have the money liquid and invested (in my case I invested it according the asset allocation of my lazy portfolio, but you could certainly invest it more conservatively).
3) When I did the math on how many mortgage payments I could make with the cash, it made me realize that the worst case scenario of both of us losing our jobs would be fine since we could continue payments for *years* with that money.

Adding up all of the above, I ended up putting a smaller down payment on my new place and investing the money. I felt like it gave me more choices and mitigated the worst case scenario enough so that I didn't need to worry at all.

Since we're talking about the merits of paying off a mortgage, here is the obligatory link to the Do you pay extra? thread.

scripta said:   
Thrill12 said:   $150 - House insurance
$140 - Car insurance(full coverage on one)
$95 - Electric
$120 - Cell phone
$60 - Gym

These are the items that jump out. Definitely shop around for home and auto insurance. I live in a more expensive area and pay about half of that for home and full coverage on two cars. Your electric bill could probably benefit from some energy efficiency improvements. $120 is a lot for 2 cell phones, especially if you don't really need all the bells and whistles. And I hope you use that gym membership. Is it $60 for both of you or just for one?
Thrill12 said:   $400 - Grocery/Household/Baby formula and items
This actually sounds way too low. Do you not buy clothes or go on vacation? Is it a ballpark estimate or an actual statistic you've collected over time?
Thrill12 said:   How much would you suggest saving up before paying off the mortgage?
Personally I would just pay the minimum for as long as possible. Maybe if you had at least 3 years of mortgage-free living expenses (=1800*36) left after paying it off, then in my opinion it would be pretty safe (but I wouldn't do it). 3.5% is cheap money, barely above inflation. Assuming this is a fixed rate, of course.

  I replied to this but apparently it didn't go through. I have shopped around for insurance and this is the cheapest almost. I can switch my house to the same as my vehicle and save about $100 a year. I plan on doing that soon. I assume you don't live in an area that has multiple tornadoes, wildfires and ice storms a year? We can switch cell phone carriers and get it a little cheaper, but our phones wouldn't transfer over(both still in great shape). Yea the gym membership is for both of us and used. 

I don't hardly buy clothes. Wife does occasionally. We haven't been on vacation in about 2 years. It's a rough estimate I've tracked over the past 2 months. There is about $100/mo on dog food/vet that I forgot to include. The baby formula is new to have to include so it will vary some, I'll just have to see. 

It's a fixed rate. 
psychoslowmatic said:   I second the lazy portfolio and not paying off the mortgage. Investing's really not that hard to learn about. Weirdly studies show investors tend to do better if they keep things simple and don't do much. I'd read Bogleheads wiki and maybe check the Boglehead's Guide to Investing out of the library.

If you feel you must hire an advisor, find a fee-for-service financial advisor. This is someone who charges you for their time to advise you and doesn't get any commission or kickback when you purchase or sell anything. Edward Jones is notorious for having hard to understand fees that overcharge their customers. They also have an interest in making investing seem as complicated as possible to keep you coming back. Find a fee-only advisor here: https://www.napfa.org/

  Thank you. I didn't know that about Edward Jones. There is also an adviser at a bank I used to work at that I could talk to and should give me some unbiased advice. All the advisers through that link are over two hours away, but would still probably be worth it to make a trip. 
BostonOne said:   You say that paying off your mortgage will make you feel better in case one (or both) of you loses your job.
I was in a situation where the sale of my previous home kicked off a lot of cash and I had the option of putting it into my new home or not.

What tipped the decision for me were a few things:
1) Once that money was tied up in the house, it would cost me interest & closing costs to get any of it back out
2) Because of #1, I felt like I would rather have the money liquid and invested (in my case I invested it according the asset allocation of my lazy portfolio, but you could certainly invest it more conservatively).
3) When I did the math on how many mortgage payments I could make with the cash, it made me realize that the worst case scenario of both of us losing our jobs would be fine since we could continue payments for *years* with that money.

Adding up all of the above, I ended up putting a smaller down payment on my new place and investing the money. I felt like it gave me more choices and mitigated the worst case scenario enough so that I didn't need to worry at all.

  Solid argument. Thank you for your input. 

IMO you should take good notes when you see any advisor, then post them here (perhaps in a new thread) to make sure the advice is good.

Remember that unlike a CPA or a CFP, any Dick or Jane can call themselves a "financial advisor", because it's not a regulated profession or title. The ones that work at bank branches most likely just sell expensive investment products created by their bank on commission and don't really know anything else. As already mentioned multiple times, any advisor must be a fiduciary to legally have your best interest in mind.

Thrill12 said:   I don't hardly buy clothes. Wife does occasionally. We haven't been on vacation in about 2 years. It's a rough estimate I've tracked over the past 2 months. There is about $100/mo on dog food/vet that I forgot to include. The baby formula is new to have to include so it will vary some, I'll just have to see.Like I said, you are seriously underestimating this number. 2 months is not enough time to truly figure out how much you spend on stuff that doesn't have a regular monthly bill.

Thrill12 said:   
scripta said:   
Thrill12 said:   $150 - House insurance
$140 - Car insurance(full coverage on one)
$95 - Electric
$120 - Cell phone
$60 - Gym

These are the items that jump out. Definitely shop around for home and auto insurance. I live in a more expensive area and pay about half of that for home and full coverage on two cars. Your electric bill could probably benefit from some energy efficiency improvements. $120 is a lot for 2 cell phones, especially if you don't really need all the bells and whistles. And I hope you use that gym membership. Is it $60 for both of you or just for one?
Thrill12 said:   $400 - Grocery/Household/Baby formula and items
This actually sounds way too low. Do you not buy clothes or go on vacation? Is it a ballpark estimate or an actual statistic you've collected over time?
Thrill12 said:   How much would you suggest saving up before paying off the mortgage?
Personally I would just pay the minimum for as long as possible. Maybe if you had at least 3 years of mortgage-free living expenses (=1800*36) left after paying it off, then in my opinion it would be pretty safe (but I wouldn't do it). 3.5% is cheap money, barely above inflation. Assuming this is a fixed rate, of course.

  I replied to this but apparently it didn't go through. I have shopped around for insurance and this is the cheapest almost. I can switch my house to the same as my vehicle and save about $100 a year. I plan on doing that soon. I assume you don't live in an area that has multiple tornadoes, wildfires and ice storms a year? We can switch cell phone carriers and get it a little cheaper, but our phones wouldn't transfer over(both still in great shape). Yea the gym membership is for both of us and used. 

I don't hardly buy clothes. Wife does occasionally. We haven't been on vacation in about 2 years. It's a rough estimate I've tracked over the past 2 months. There is about $100/mo on dog food/vet that I forgot to include. The baby formula is new to have to include so it will vary some, I'll just have to see. 

It's a fixed rate. 
psychoslowmatic said:   I second the lazy portfolio and not paying off the mortgage. Investing's really not that hard to learn about. Weirdly studies show investors tend to do better if they keep things simple and don't do much. I'd read Bogleheads wiki and maybe check the Boglehead's Guide to Investing out of the library.

If you feel you must hire an advisor, find a fee-for-service financial advisor. This is someone who charges you for their time to advise you and doesn't get any commission or kickback when you purchase or sell anything. Edward Jones is notorious for having hard to understand fees that overcharge their customers. They also have an interest in making investing seem as complicated as possible to keep you coming back. Find a fee-only advisor here: https://www.napfa.org/

  Thank you. I didn't know that about Edward Jones. There is also an adviser at a bank I used to work at that I could talk to and should give me some unbiased advice. All the advisers through that link are over two hours away, but would still probably be worth it to make a trip. 
BostonOne said:   You say that paying off your mortgage will make you feel better in case one (or both) of you loses your job.
I was in a situation where the sale of my previous home kicked off a lot of cash and I had the option of putting it into my new home or not.

What tipped the decision for me were a few things:
1) Once that money was tied up in the house, it would cost me interest & closing costs to get any of it back out
2) Because of #1, I felt like I would rather have the money liquid and invested (in my case I invested it according the asset allocation of my lazy portfolio, but you could certainly invest it more conservatively).
3) When I did the math on how many mortgage payments I could make with the cash, it made me realize that the worst case scenario of both of us losing our jobs would be fine since we could continue payments for *years* with that money.

Adding up all of the above, I ended up putting a smaller down payment on my new place and investing the money. I felt like it gave me more choices and mitigated the worst case scenario enough so that I didn't need to worry at all.

  Solid argument. Thank you for your input. 

  I would find one through the link who would work with you over Skype and email.  Someone hired by the bank is going to sell bank products and probably get commissions on anything you buy.  Ask any adviser if they have a fiduciary duty to you and run away if the answer is anything but yes, because if it's not yes they're not working for you, they're salespeople.

Skipping 8 Messages...
imbatman said:   your wife won't be working for a while. Keep the rest of the money liquid to live off of while she's in school (essentially replacing her income for a few years)
  Yea best case she be out of work starting at the beginning of next year for two years. Worst case it will be this summer for two and a half years..   



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