Looking for sound financial suggestions.

Wife (29) and I (34) are DINKs making ~$150K/year combined and recently received a series of windfalls through some unfortunate circumstances.  We are at a loss with how to properly appropriate the money (couple hundred thousand).

I received small amount in cash while my wife is a trust beneficiary for the remaining majority as part of the will.  We think we'd like to start our own trust for our kids some day but don't have any recommendations on an attorney to help us.  We're in Ft Worth, TX.

1) Should we hold onto the money and pay off our house ($180K left on the note) with $50K in equity.
2) Start a new trust for our future children
  2a) How does a 529 work in this scenario?
3) Open an investment account with an adviser
  3a) Open account with multiple advisers to diversify?
4) Something else?

We have a healthy rain-day fund and we're at 15% into our 401Ks and Roths.

What am I missing?

IM sent

"How does a 529 work in this scenario? "

Use caution, not all kids want to go to college or something these funds can be used for. Many things change in 18 years.

I think this is my concern.  I gather the 529 MUST be used for college?  Is there a penalty if used otherwise?

529s are a PAIN IN THE ASS. RUN AWAY!!!!!!!!!!!!!!!!!!!!!

If you're looking for a financial adviser, remember a lot of them are salesmen for the companies they represent.

Look at advisers with a fiduciary responsibility to you.  They're supposed to look out for your best interest. 

Knowing what I know now, I'd start a retirement account.  
Put as much as you can in a Roth - in a Roth, you can use post tax money and withdraw it tax free later.
You can make yearly contributions to a Roth too, so if you hit a limit this year, you can put more in more next year.

Paying off the house sounds good, but your mortgage is probably a lower interest rate and the interest is deductible - so you get a break.
Money is pretty hard to accumulate and pretty easy to spend.  If you have a pile, keep it.  

You can figure our college for the kids later.  I believe, if you have a 529, you are obligated to spend it on college.

We both have stable retirement accounts, 401K & Roths.  We're looking for investments or a trust outside of traditional IRAs.

My mortgage rate is 4.1%

I maxed out our retirement contributions, and asked our CPA about doing a 529 for our son.

He said he's not a fan of them, as their is no tax savings there for us, plus, it must be used for college.

I'd pay off the house, and invest the rest in a brokerage account.

Don't be like the typical idiot that's been given a gift, and blow it on brodozers.

529s do not have to be spent on college, but there are penalties and tax consequences if they are not. If it were me, I would probably average it into the market over the next couple of years.

This. They will also be used against you for reduced rates, grants, scholarships, and pretty much everything else college related.

How much of this have you done in the past?  If you are very focused I might pay off the house then continue to pay the mortgage to an investment account.  I am in McKinney so buying a rental after I pay off the house might be the way I go.  If it goes belly up you can pay the mortgage since you don't have one yourself.  I do the money so I could keep the wife at bay but most wouldn't be able to and would just increas their lifestyle.
Sounds like you won't piss it away so whatever you do will be better than most.  Oh and spend 5-10 percent you have done well.

For my wife I might take the play money and buy one of those 2 min dishwashers and a professional washer and dryer.   Can make money but not time.

     My understanding is a 529 won't do anything a Roth 401K will do?  Except if you maxed out your Roth 401K it will allow you to put away more money under your child's name and earmarked for education?

I'd pay off the house then invest the past house payment EVERY month.  You get rid of the interest.  I have been about to make more on investments even considering the house interest is deductible.  Shoot, even MUNI bonds can get to 3.5-4% tax free.  But that is just me

I don't know if you have a 15 or 30 year mortgage, but you're basically paying double the cost of the home on a 30.

Pay it off. Invest the rest.

Having been in the unfortunate place of having my world turned upside down financially. Reduce or pay off your home ! Nothing hits harder than recognizing you could have owned it out right. Knowing the place you live is actually yours and only response ability is taxes and upkeep has a feeling all its own.
Fuck that using your house as a bank shit. If you make enough to get ahead in a big way. Do it now. You will be happier later. Keep your house loan very small or nonexistent.
Trust me. Shit happens. I have two friends that have had very unexpected traumatic events in their family's that have all but wiped out their finances and because they still have house loans it is even worse.
Get your personal shit taken care of. Invest the left over and regularly from pay check over time.
That does 2 things. The place you sleep, ability to get to work is set and you will learn to invest over a period of time that teaches you investing in different ways without huge risk because you started small.

here's a good place to start:
https://www.bogleheads.org/wiki/Managing_a_windfall
After that read, move along to the associated forums and ask questions.

All good stuff!

Thanks guys!

I'd put it in vanguard under 4 to 5 mutual funds no need for advisors

I like my Vanguard funds.  My company's 401K is through them currently.

I'd balance putting some in retirement funds (Roth most likely, but due to limits, you may increase 401k contributions) and the rest in taxable individual accounts. I'm not a big fan of paying off primary mortgages with tax deductible interest with rates as low as they are. Interest at near inflation rates AND deductible, win win when that same money you'd use to pay it off can be appreciating at higher rates. Rather make the money work in investments, either in the markets or maybe looking in to additional property purchases. 529s or any state college plans (ie WA GET) are interesting, but I wouldn't put more than a years tuition max, kids need to learn to pay their own way imho. For the most part pay your taxes and keep what you can and not blow it all on crap.

I have no math to back it up but I am a strong believer in keeping inherited money separate from your salaries. If you are making $150k and you inherit $300k you live on your $150k. Depending on your circumstances I feel the $300k compounding will be worth near paying off your mortgage first, reducing and then repaying into your inheritance.

As long as you can pay the mortgage, the mortgage is getting smaller, your $300k remains intact. Buy $300k in munis at 3-4% and you're equal to the rate (close enough) on your mortgage without lifting a finger. Should something happen and you cannot pay the mortgage you have 300k to fall back on.

Here is what I would do in your situation (in order):

- put 3 months of living expenses in low risk accounts (CDs, money market, etc.)
- put 6 months of living expenses in a moderate risk account (balanced mutual fund or similar)
- take half of the remaining funds and put it towards paying down your mortgage
- put the remainder in IRA as limits allow -- possibly over time

Re: " looking for investments or a trust outside of traditional IRAs."

Doesn't make sense, but you can establish a trust that contains your assets (IRA's, Home, Roth, 401-k Rollovers, etc.).

really surprised nobody here said hookers and blow....

anyway I'm going to argue against paying the house early. if you're paying 4% interest but the market earns 8-10% average, by paying off the debt you're effectively missing out on 4-6% gains. you should invest a lot of it. I would say once your Roths and 401ks are maxed (not 15%, the 18,500 you can each do each year) the rest can go towards broad based ETFs. I would probably dump most in the market in one chunk, because even the best of us can't time the market, and you're as likely to miss the best week ever as you are the worst week ever. Big thread on this kind of stuff on MrMoneyMoustache forum.

if you want to pay off the house, you can later. if you pay off the house and the market goes up 11% before the first quarter of 2018 (already predicted), you'll feel like a dick.

the housing market here in north texas is already appreciating like 10%/year in my neighborhood, so just let your value go up on your existing mortgage.

I don't know your whole financial outlook, but here's what I would do and have read to be the best strategies:

Pay off anything over inflation + 10% interest (CCs, Cars, etc)
401k to get match
Roth to max
Pay off anything over inflation + 5% interest (note, your house is not here)
Max 401k
6 months cash reserve
taxable investment account
pay off anything under 5% interest.
hookers and blow


yes I get that having a free and clear house is liberating, but so is having a shit ton in the bank that will grow and pay the house off for you with compounding.

also 529s are more beneficial in a state that you pay income tax. I'm a doctor and college professor, my parents are both educators, wife is going for masters or more, and I'm guessing college is in my kid's future. I set it up as a place to get to like 2 years worth of his undergrad. I started the account when my kid was 2 weeks old (ordered him a rifle at a week old, so yeah my priorities are straight). It's growing tax free now, I can transfer it to a family member if needed, if he gets scholarships I get the money back without penalty, and it's a place for other family to chip in and give gifts that aren't more toys on my GD living room.

and I can always throttle back if college doesn't seem to be happening, or transfer it back to me and study abroad in my retirement.

No brainer, pay off your home.

There is a sense of relief and security that goes along with living a debt free lifestyle.

This ^^^

529 regulations are VERY state dependent. In my state there are no "tax advantages" to doing a 529 (in regards to growth or deducting the money you put into it), but the state gives a 20% tax CREDIT on your income tax return up to $5k contribution. So I put $5k into a 529, and the states gives me $1k back on my tax return. The investment options aren't as free as going to Vanguard or the like, and I'm suspect of the expense ratio (they don't exactly advertise that), but it's still a no-brainer decision when factoring the instant 25% gain from the state. As far as the child no going to school, there are many ways you can "work it". I can pay a 10% penalty and withdraw it for use for anything I want (still money ahead), or I can transfer it to other relatives that will use it.

As for the downside: I'm already not going to be eligible for federal financial aid so the fact that the money in a 529 is counted against me is irrelevant. There are no tax advantages to the other means of saving for college so the fact that the 529 doesn't offer much in the way of advantages is also irrelevant. When all said and done, the totality of the negatives does not outweigh the positives in Indiana; it may be different in your state.

I put the 529 in my name, I would pay for my child's college out of the 529. This makes it easier for the 529 to be used for my nieces/nephews if my kids decide not to go to college. I just transfer it to my brother and he uses the 529 that is now in his name to pay for his kid's college. If all of those options fall through, I can transfer the 529 to my kid's and they can use them to pay for their kid's college is another 20+ years.

So if all the money goes into a home which may appreciate in value perhaps 3% annually is stupid.  If inflation is accounted for over 30 years, the loss of value on the home means the total value invested will be nearly halved in less than 20 years.

Better option is to invest into the market.

Only way to try to beat inflation.

I have to agree here. The S&P has averaged just over 10% for years.  Worst 20 year period is about 7%.  With a 3% mortgage and inflation of ~2%, your almost certainly better off putting the extra into a low overhead index fund.

If you park big money in safe play Vanguard with low expenses, for 30 years.

I know what I would do with windfall money!!!!


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This isn't money you should use to learn from.  The safest way to manage it would be to pay off your house.  Take a trip with some of the left over and live your life.  You can increase your investments or do a lot of things with the house payment you get to keep each month.  If you do other things with it the returns could be bad or good, who knows with your confidence and experience level with it.

  You asked, so I will answer.  At your age, I would be concentrating on getting as much as possible into retirement accounts, not 15%, which I consider a minimum.    I would first get rid of debt.  What a blessing to never again have monthly payments at your age!  And with a healthy rainy day fund!  What peace of mind.  

I assume a relative died.  I can't imagine they would think there was anything better for you than to use the money to live completely debt free, owing nothing to anybody.  "Owe nothing to anyone except to love one another" Romans 13:8.

Then attack those retirement accounts with a vengeance.  Since there will be some money left to live on even after you pay your mortgage off, I would direct human resources to put 100% of my paycheck and your wife's paycheck into the 401(k) until it is maxed out each year.  Live off of the extra inheritance and savings until that is accomplished.  At your income, that would happen pretty quickly and would save you a bunch in taxes (since you are at an income level where income taxes start to climb).  The 401(k) max between you and your wife is $36,000 annually ($18k each).

You said you already max out your IRA, that's another $11,000 between the two of you.

For more tax advantages savings, look into an HSA - Google "HSA Super Roth" and start reading - this is a good way to raise your retirement savings even further.

Raise that 15% savings rate higher - as high as you can stand it.  50%?  Higher?  Once tax advantaged accounts are maxed out for the year, pour extra savings into regular index mutual funds at Vanguard.  You will be financially independent before middle age.  Then you can do what you want.  Work if you want.  When those kids finally come along, you will have lots of money and low expenses.  If your wife wants to stay home with them, she can.  If you are financially independent, you can stay home, too, and teach your boys to fish and hike and hunt and handle finances like a man, if you want.  Or work part time if you want and spend more time with your kids.  At that point, it is up to you what you want to do.   Most people have no choice but to keep working 50-60 hours a week like a hamster on a wheel and commute time because they spend all of their money and keep borrowing against future income.

You have an opportunity to change things in a way that less than 1% of persons will ever do.

It's up to you to do it.

Maybe take a few bucks and buy a membership.

Turn to read the Bogleheads post.

If misfortune hits they'll still have the dough to pay off by liquidating investments.

investing with couple hundred thousand principal vs % of paycheck is too huge a difference for some psychological notion of security.

Great advice if you're 75

You don't need much experience with vanguard index funds

A good question to answer would be if you paid off your house what are the chances you would be unhappy with it and take out a new loan on it.  If zero pay off the house if very likely then do something else with it.  I have never heard someone complain about having a paid for house but I have heard the opposite.

If you went non-retirement route with the money, a non-retirement brokerage account is what you would want. Very easy to open in Vanguard or Fidelity.

If you purchased the funds outside of your retirement accounts, as it is difficult to get large chunks of money in retirement, you'll be looking for "low turnover" mutual funds. That way, taxes are not constantly incurred on the funds being bought and sold. Also, ease of access is important.

You'll also be looking for low expenses in the range of 0.06-0.16% of the mutual funds.

Our favorites are all in the 0.06-.16%ish range of expenses:
VIGAX
VTCLX
VTMSX

Inside retirement (Roth, Traditional, 401k) we are scooping up weekly:
VDIGX
VHDYX
VIGAX
VWUAX
VMVAX
VSIAX


For disclosure, we had a large loan (over 100k) which we stacked up the money to be repaid to a family member. They were generous enough to tell us to stash it for my wifes retirement.

We put in a Vanguard account brokerage account. We knew we would be paying off the house as using our incomes on a 15 year fixed meanwhile we'll get a quicker/larger return on the parked money. Low expenses, high quality returns, split it up between:
VIGAX
VTCLX
VTMSX


Looks like people didn't exactly answer your questions:


1) Should we hold onto the money and pay off our house ($180K left on the note) with $50K in equity.
Use enough of the money to pay down your note so it's exactly the same as it is today, so you either refi to a 15 year fixed or pay enough on the principle outright that you have 15 years left, which would be the same thing if you have a good interest rate
2) Start a new trust for our future children
Not yet
2a) How does a 529 work in this scenario?
Park $2k-$3k in each kids name in the 529 as seed money. Use your incomes on a spending plan(budget) to stash $100 a month or other amount into the 529's over the next few years.
3) Open an investment account with an adviser
Maybe, depends on your comfort level doing research and thinking. OR google dave ramey smart vestor or use Vanguard
3a) Open account with multiple advisers to diversify?
Not recommended as yearly expenses and fees will eat into your returns quickly. Ideally to consolidate everything in one place like Fidelity, Edward Jones, Vanguard, Schwab or other
4) Something else?
In conjunction with answers, see above .

YMMV and just more details.

Your original post was 5/22/17. @Jacon

Just curious what you have learned along the way and what direction you'll be heading (and why?)? Reason I am asking is more data for success for myself and others to learn from.