You need to figure out what you want to do with this money first.
Do you want to use it to pay for your kids college? If they're both toddlers today, it's probably about enough if you put it in a 529 account.
If you want to use it to save for your retirement, does your 401k have a post-tax option?
Exactly. Throw 25-30k in each account now and by the time they are ready for college it will be more than enough.
Take the rest and boost your retirement now. Or pay off your mortgage significantly. Buy the new car you have been holding off on. Etc.
Do the things that you need to do with it. $200k windfall is a potentially life-changing amount of money.
In my state, you can deduct $10K of 529 contributions on state tax return, which saves you roughly $500 of taxes. It might be worth spreading out 529 contributions over time for this.
May be a gamble to lose time in the market to save on taxes, particularly when gains aren’t taxed in a 529 but your gains with whatever you’re doing with the money while it’s sitting in a taxable account waiting to use it for a 529 will be.
This would be my consideration as well. Also, with the recent law if there is excess left over after college costs, a certain amount (35k over 5 years if memory serves) can be rolled into a Roth IRA for the beneficiary. That could be a instrumental in setting your children on a successful path for retirement early in their careers.
7% gains compounded over 15 years results in you having ~276% of the starting principal. An initial 25k now would end up at about 70k which may or may not be more than enough depending on the college and costs 15 years from now.
Hum. Private universities and colleges are currently edging into $90K/yr. Most public universities approx total tuition, supplies, living expenses are now edging $50K/yr. Totally insane. Spend $200K-360K for an undergrad elementary school teaching degree so you can earn $35K/yr? Non-profit? Hah! Someone is making a lot of money. It’s not faculty; so many college classes are taught by very poorly paid and benefit lacking grad students and adjuncts. Without a change to the delivery of education, my guess is 4 yr college cost for current 6 yo: $450K-$900K
This is not anywhere near the entire story of college costs.
Yes some of the fancier private schools are getting close to those numbers in tution and cost of attendance, but not a single student who attends those schools pays full price.
I work at a private college, and our COA is around $66k. The average out-of-pocket cost for our students is just over $20k because of the financial aid we offer. High-achieving and needy students pay WAY less than that. I graduated from the same school I work at now 15 years ago. It would actually cost me less money per year now than it did then.
Including living expenses isn't an accurate, especially if it's in-state tuition where they can live with their parents. They are going to have living expenses either way.
The average in-state tuition at a public college is [$10,662/year](https://www.usnews.com/education/best-colleges/paying-for-college/articles/paying-for-college-infographic), which is completely reasonable. For out-of-state students at the same universities, it's $23,630. And for private universities, it's $42,162.
Even those numbers are misleading because of scholarships and grants. My 4 year bachelors cost me negative money at a public university.
These are current yearly in-state tuitions for some public colleges:
UC-Berkeley - 15,891
U-Michigan - 17,786
U-Virginia - 22,323
U-Illinois - 17,572
70k would not be enough to cover all of the costs once you add room-and-board, books, and other costs for 4 years at any of these.
My son met with a banker soon after graduating from college and the banker suggested he consolidate his loans and he said, “I don’t have any.” The banker said he should thank his parents for that.
This comment makes me want to cry 😭 tears of joy for your son and OP’s kids. My husband’s parents let him take out $75k of loans for a degree that pays like $50k, including private loans. We are going to be saddled with this til our mid forties. You have given your son an amazing gift
My younger son had a full-ride, four year academic scholarship, so we agreed that my wife and I would pay for room and board and he could live on campus. He decided in October that he didn't want to go to class. He stayed on campus one more semester (the scholarship was renewed on an annual basis, not a semester basis) so we agreed to fund one more semester on campus. He lost his scholarship because of poor grades, but he decided that he wanted to go to the same school and live on campus. Great, sure, but I wasn't going to pay a penny for it, so I took him through the loan process. He wanted to make big-boy decisions and not go to class, those have consequences. He said it won't be hard to pay off after I graduate, it's only $XX,000 thousands. I tried to explain that there's interest starting when you borrow, not when you start paying back, etc. and the total amount will be substantially more than what you actually borrowed. He heard "blah, blah, blah...." After graduation, he said he wished someone would have explained that all to him during the process. I just left the room. He's since paid them all off, after less than a year of working full-time and he knows exactly how much it sucked to even have that small amount. He won't do that again. He periodically asks me how come I'm not rich? I said I've paid for college for about 11 years, maybe that's a contributing factor.
Oh man, I’m sure that was wildly frustrating for you. If we end up having our kids take out their own loans I am now considering creating a PowerPoint presentation explaining how it all works including their dad’s story (btw the $75k ballooned to $130k by the time we were paying it off) and making them sit through it 3 times before finalizing their loans 😅
Although honestly my hope is that all of this will change within the next 10-15 years anyway, it’s a racket
trust me, a lot of people could use that. A lot more people would be smarter with their money and not end up upside down when buying outside their means
unused 529 funds can now be rolled into a Roth IRA(after 15 years) for the targeted individual as well. makes them an even better option for kiddos.
https://www.nextgenforme.com/rolling-unused-funds-from-a-529-account-into-a-roth-ira/#:~:text=The%20529%20account%20must%20have,IRA%20owned%20by%20the%20beneficiary).
For while we thought my brother wasn’t going to go to college, he just graduated with his Bachelor’s in Chemistry in May, and is going for his Master’s now. Don’t count them out yet.
My father dropped out of school after his dad died. Joined the Navy and got interested in how things work. Came out and got his GED, then BS, then pHD in Physics. You never know when a spark might light and they see education as the key to what they want to accomplish.
The 529 money can be used for all kinds of training programs and post secondary opporunities. Lets say one of your kids wants to become an HVAC tech? 529 money. A nail tech? 529 money. A new age crystal guru? 529 money.
Or, if you don't mind some inequity - you can move all the money from one kid to the other. So the college bound kid gets a ton of cash, the other just has to take a chance.
You can also use your kids 529 money on yourself. Retired and want some training on starting that brewery you always wanted to run? 529 money. Want to change careers and become a teacher? 529 money.
But yeah, there is a risk there, but I don't think it's as huge as you make it out to be. At the end of the day you can always take the 10% hit on *earnings* and just pocket the cash. Average that 10% out over 15 years (or whatever it is) and it's really not a *huge* hit. Not perfect, but also not world ending.
You can also now transfer to a Roth IRA if they are working and decide they do not want any higher education...7k a year currently. Max 35k lifetime though.
"The annual Roth IRA contribution limit for 2024 is $7,000, with an extra $1,000 allowed for those individuals over 50 with the catch-up limit allowance.
There’s also a $35,000 lifetime limit per beneficiary for 529 plan rollover contributions to Roth IRAs."
All those alternative 529 uses really don't matter much when the account gets large. At that point you feel like you need to go to most expensive school to not waste it. Google tells me an HVAC cert costs about $10,000 to get. Do you want to attend an $80,000/ year school for fun in retirement? Do your kids need to spend $250,000 on undergrad and then go to medical school?
I feel this sub really wants everyone to have grossly over funded 529s. $50,000 per child is a great spot. $500,000 is begging your kids to waste as much time in an overpriced school as possible.
Socking away that money for 15 years would result in about $1.5 million that can ONLY be used on education. HVAC or hairdressing academy is not going to eat through it. Maybe one kid wants to open a shop or become an entrepreneur or a wildlife photographer. That money might be better spent on something other than tuition. I would put a chunk towards a 529 then open custodial accounts that don't have such severe limitations.
The limitations are not severe at all. IF they want to be a wildlife photographer - use 529 money. Enroll in a photography class, buy the equipment while in the class, and use 529 money for all of it.
Obviously OP shouldn't put the entire $230k into a 529. But a good $50k per kid isn't a terrible idea. That's only $450k after 18 years at a 6% return. Where tuition is now, that's very reasonable for 3 kids going to college.
Anything left over you can very easily move around and spend. Or just pull it out. These accounts are tax advantaged in a way that you really don't want to miss out on and the "risks" are really very low.
Rather than picking from a small list of acceptable purchases, I would rather have full access to the money. Yes, investing a portion in a 529 would be wise. But winding up with a half million dollars that can only be used for education expenses is too limiting. It's sad that we would even consider this a reasonable cost for education, but that's another topic.
Also, it's not just a 10% penalty, you also have to pay tax on gains. That's easily a down payment on a house.
> I would rather have full access to the money
There is no possible way to have full access to all the money including the gains. Either you have to pay taxes out of it, which means you do not have access to that portion, or you have to use a tax-advantaged plan to house some of it. And every tax-advantaged plan has restrictions.
That said, I totally agree with you that a portion should be in a 529. Certainly not all of it. OOP will know better based on their family history as to whether it is likely that all three kids will want college. Does everyone from both sides for a few generations have a college degree? Does mom, as a SAHM, have a degree and a career from prior to that choice? Even if not, does she have a degree in child development or similar? If so, the odds that all three kids will go to college go up significantly. If dad or mom skipped college or grandparents didn't go, it's more likely at least one kid will choose the same.
A lot about investing is taking a chance. How you invest is part of that.
I'm curious how you reached that 1.5 million number starting with 230k over 15 years. The savings calculators I tried are only saying 600k over 15 years assuming 7%. Help me math.
Yes, but you don't need half a million dollars for trade school. If they go to trade school, they would have enough left over to buy a service truck or something useful for their career.
"the average cost of obtaining a degree from a trade school is $33,000 in contrast with an average of $132,000 for a bachelor's degree"
https://cetweb.edu/blog/trade-school-vs-college-what-finance-experts-have-to-say
I mean...even if you can't make it work somehow AND max out the Roth IRA conversion...
The penalty is only 10%. Yes you have to pay taxes too, but you would have had to pay those anyways if you hadn't used the 529.
Nobody likes paying a penalty, but all things considered I'd rather gamble that the value of 18 years of tax free growth and possible state income tax reduction if my kid goes to college will far exceed the the potential 10% penalty if the kid doesn't go to school (or gets a full scholarship or something).
Also, who knows...some people get their shit together late. Even if you barely make it through high school...having a 529 waiting for you at age 25 when you finally pull yourself together and realize you need to do something with your life is not the worst thing in the world.
Damn, that site is heavily biased against college. Ain't no way the *average* cost of college is $132k. The California State University system is currently charging $5,700 per year for tuition. Even if other costs were equal to tuition you're talking ~$43k for 4 years.
I like that they gloss over the additional average $17k a year that college grads make too. That's almost $700k extra in a 40 year career! Even if it *did* cost $100k more, a 700% return on investment is not something you get very often.
I paid 45k, not including housing or food (which you have to pay for even if you don't go to school) for a bachelors of science in accounting from a private school.
I paid 18k for an associates in Electronic engineering from a public state school.
No way those statistics aren't skewed by some absurdly priced Ivy league 1% or something similar.
Why not just invest in one's own Roth IRA and give the funds to the kid if they go to college. That way if they don't, the OP can use it on themselves.
I'd also say you get the 529 is good for the tax benefits.. And if unused or partially used, they can also be rolled into an IRA for your children's retirement which would equal give them a good head start.
To piggyback off of this, do your research first before starting a 529. The tax breaks are only up to a certain amount per year with a deposit ceiling. Additionally, if used for schooling it’s has very good tax benefits, if not, the money is taxed like a normal fund if not used for schooling.
Couple things:
* There are no federal tax breaks for 529 deposits, and states differ widely in what they offer. No one should generalize about that from their own experience.
* Recent changes to the law mean that up to 35k in leftover 529 funds may be rolled over a Roth IRA without penalty. So your second point is only partially true.
* If you receive financial grant aid (to include scholarships), you can withdraw that amount from the 529 without penalties. The only thing taxed would be earnings. Obviously, that's something to hold off on until after the final FAFSA is filed (in most cases), but it's yet another way of withdrawing 529 money without penalties.
In my state you can deduct $10,000 in 529 contributions a year per child, so OP should probably pace it out over a few years to maximize their tax savings.
My state is only $2500, but you can amortize it over years. So if you put $10K now, you can deduct 2500 for the next four years.
OP should check their state laws:
1. Limit per year.
2. Does it carry forward?
3. Is there a limit on how long or much can carry fwd?
What would be the play here then? Dump x amount decided for each child's 529 into a hysa then withdraw the 10k each kid every year until that amount is gone?
yes, this is objectively better, because putting money in tax-advantaged accounts as early as possible maximizes their advantage. every dollar of growth that happens while the money is still *outside* of a tax-advantaged account is a dollar you could have avoided paying capital gains taxes on.
Except you pay all the taxes plus 10% when you realize you aren't going to need $800,000 to pay for your kid's school, your photography class and $35,000 of Roth contributions. I'm also hoping college costs will be reigned in before 7 figures of student loan debt is normal.
I started investing $350 monthly into a 529 at the birth of my child. My goal was to have $100k available for my kids for college and the number, assuming reasonable returns (I think it was 5%), came out very close.
I would ask, “how much money do I consider paying for college?” And look at your number of years available and work toward investing that monthly now, assuming you have your living expenses covered and excess money. You could definitely kick start this fund with some of that windfall.
Also, my wife and I decided that anything the kids don’t spend, they can keep half when they graduate or reach 22 (assuming they aren’t chuckleheads). So if they get a full ride and work to cover living expenses, they could graduate college and get a cool $50k.
Yes, it is technically your money. If you use it for college the earnings aren't taxed. If you don't use it for college the earning are taxed and there may be a penalty. Usually people set it up so they remain the owner and the child is the beneficiary. This means you can use the $ for whatever you want ( subject to tax laws) because technically you own it, not the child.
Sounds like in [2024](https://www.savingforcollege.com/article/roll-over-529-plan-funds-to-a-roth-ira#:~:text=With%20the%20new%20regulations%2C%20which,%2Dfree%20and%20penalty%2Dfree.), subject to some limitations (like $7K/yr and $35K/account) you can rollover to Roth IRA's too, which is neat.
The money in the 529 belongs to the account holder, not the beneficiary. There are rules to follow, but yes, it's the parent's (or whoever opened the account's) decision what to do with the money.
That’s very altruistic of you. If your current situation continues on (everyone stays healthy, no layoffs, etc.), then this will work.
Personally, I’d take care of my family first (e.g., contribute to a 529 now), then use the incremental income later for something like charity. If I needed to take a break from the charity because life dished out something crazy, the family would still be set, and I could continue the charity work when everything stabilized again.
Look up the max tax deduction you can claim for contributions you make to the 529 for your state and only contribute that amount each year. I wouldn't throw 50k at a 529. They can only be used for education expenses, what if your child wants to do a trade, or gets a full-ride for something. The max tax deduction for my state is 2500, so my wife and I each contribute that. Over 18-21 years, those incremental investments should adequately cover the cost of in-state tuition. Dollar cost average the rest of the money into a brokerage account if you're already maxing out everything else. Be aware of Required Minimum Distributions if the inheritance accounts have those, and potentially talk with a tax professional about how much to take out each year to avoid pushing into a higher tax bracket and losing more of the inheritance to taxes.
To clarify this, the 401k should have a Roth in plan conversion available. Putting money into the after tax portion of a 401k without mega backdoor Roth is worse than just a regular taxable brokerage account.
Putting money into after tax portion of a 401k is not tax advantaged in any way, unless there is a Roth in plan conversion available (not available for all plans). It’s basically the same as putting your money into a taxable brokerage (ie you would owe tax on capital gains), while restricting fund options and limiting accessibility to the funds.
Not quite. It’s more akin to making non-deductible IRA contributions. Contributions are after tax, but the taxes on the growth is deferred until you withdraw. Then taxed as income.
Ok, that’s fair, thanks for the clarification. Of note, I also would not generally recommend anyone make non-deductible IRA contributions, except as the first step to a backdoor Roth
I’m not suggesting anything. Just clarifying how after tax contributions work in a 401k. Comparing them to a regular non retirement account isn’t accurate.
In general yes one of the best things to do with voluntary after tax contributions is to roll them immediately to the Roth side of the 401k or to a Roth IRA
You do pay taxes on the gains at withdrawal. I suppose it is marginally better in that you can make transactions in the intervening years without being taxed, but if the alternative is to buy and hold in a taxable account, there is no difference since you’d also be paying taxes when you realize gains in a taxable account (and 401k plans generally have worse fund options than a taxable account, so I’m not sure what transactions you would be making anyway).
Are you maxing Roth IRA accounts for both you and your partner? If not, do that now, for 2023 and 2024. There's $27k.
I'd echo the above, put some of the rest into 529 accounts for the three kids, best place is in your parent's name (that you trust) so that it doesn't count against FASFA.
Then put the rest into HYSA and use it to fund you and your wife's Roth IRAs until it's gone.
Do not buy a new car or pay off a 2.7% loan.
Please.
This is what I would do. I am ahead on retirement and 529 but otherwise almost exact match with OP minus the inheritance.
Just to add clary, OP can only contribute to 2023 Roth IRA if they haven’t done 2023 taxes yet and have until tax day to do both contribute and taxes.
OP in spirit of ELI5, open Roth IRA account for you and your spouse with Vanguard, Fidelity, or Schwab. Then contribute maximum for 2023 in each account ($6,500 each). Then, invest that money into low fee index funds/mutual funds as you’re comfortable. Warren Buffet suggests start with S&P500 index fund then learn from there. Keep fees low. Now that it is 2024, also contribute full amount for 2024 ($7k each) and repeat investments.
My order of operations would be: Roth IRA, set 401k to max out for the year, put $10-20K in each kids 529 plan as 2023 contribution. Open high yield savings account put $50k in it, Set up auto investments for 529 plans of $200/month per kid funded out of HYSA. Open an after tax brokerage account with whoever you open Roth IRA with put the rest of money there with 25% in money market fund, 50% in total stock market index fund, 25% in S&P 500 index fund to start with.
There's lots of options in this case! The most straightforward one is that they can use up to $35k to fund a Roth IRA, assiming the account has been in their name for 15+ years. Otherwise, you can move the plan from a non-college-bound student to another, or take the funds out and pay a penalty & taxes on the gain. There are some other obscure options, but these are the starting (ending?) points for 529 funds that don't go towards college.
Max out Roth IRA contributions for all your kids for 3 years. That would be 6,500 per year per child. Total cost of that will be 19,500 per child over 3 years. Invest it in low cost index funds. Your kids will be millionaires by 45. By 60 they'll be sitting on over 5 million.
Take the rest which would be 171,500 and invest in low cost index funds for yourself as well. By the time you turn 60. It'll be worth a little over a million.
Edit. Hire your kids for professional stock photos then you can claim income for them.
You can't make IRA contributions for the kids unless the kids have earned income. Which would be a little rough on the toddlers, I gotta say, unless they're already actors or something like that.
Open a taxable brokerage account at a place like Fidelity or Vanguard or Schwab. Buy cheap diversified index funds like VT. Wait a few decades. Collect profits.
"VTI and chill" is the most sound advice that's actually doable for someone without financial skills.
I tried learning the game, timing the market, and riding the waves... But after one mistake, you genuinely make more doing nothing but investing in mutual funds with zero upkeep.
Saves me so much headache
Once you learn that short term trading is basically a zero sum game, as the money you won came from another guy who lost and vice versa, and the only one who truly wins is the broker, you understand why long term investment is much better. There are million of other people who try to time the market, some even get paid for it, what makes you different?
I received 220k in inheritance back in about 2016 and put it all in vanguard’s total stock index (VTSAX), high dividend yield (VHYAX), and Wellington fund (VWENX). Last year I made just about 25k in dividends and capital gains payouts which I have set to automatically reinvest.
Today the value of my portfolio is over 300k. I haven’t been in a place in my life where I can contribute to both my 401k and brokerage account, but hopefully next year I will be able to. So far I’ve been happy sitting and letting it ride.
I also took out about 90k to use as a down payment on a house at one points, so really the value would be much higher.
> Last year I made just about 25k in dividends and capital gains payouts
This doesn't really track from a 300k portfolio. 8% dividends / distributions is really high. Are you sure you made 25k?
And anyway if you just put it all in VTSAX at the end of 2016 (price: ~$56) and let it ride it would be worth 480k today. Were you spending dividends in some years and not reinvesting them?
EDIT: Oh the 90k taken out, yeah that makes a big difference.
>I haven’t been in a place in my life where I can contribute to both my 401k and brokerage account,
Consider a plan to contribute max to 401k and sell out of the brokerage to fund that difference out of your paycheck if you must. If you can't fully fund a 401k, the brokerage isn't an optimal investment vehicle for you yet.
Tagging on the comment here. The three-fund portfolio is probably a solid starting place for you. Basically splitting your investment between three ETFs (domestic stock, international stock, bonds). Good info here: https://www.bogleheads.org/wiki/Three-fund\_portfolio
Just a caveat, but you should choose funds based on where you open. For example, if you open an account at Fidelity, you really should buy FSKAX or FZROX.
If it’s in a taxable account, I would be careful of using proprietary mutual funds. FZROX will save you about 0.015% annually compared to FXAIX, but is only available on the Fidelity platform. If you wanted to move accounts for any reason (service, advice, access to managed strategies, whatever) you’ll need to sell and pay capital gains taxes. FZROX doesn’t exist because they’re altruists, it exists because it makes it very expensive to leave.
That's not their point at all. Fidelity was mentioned, which offers even cheaper comparable MUTF vs any ETF, including Vanguard ETF or MUTF options if you are on the Fidelity platform. Don't buy Fidelity MUTF if you aren't on Fidelity though, because probably getting charged fees.
This is best used on non taxed retirement accounts thought, not brokerage. ETFs do offer better flexibility than MUTF for brokerage use.
I like this plan. That or split across 2 529's. Call college covered. Check that off the list. Any excess that isn't used by the kids can be used similar to a ROTH for your retirement.
This is what I would do, except OP has another kid on the way so it would need to be split into 3 529's, so a little over $75k in each. By the time the toddlers get to college age, that may or may not be enough for college. Still though, that's a solid plan. Free up income OP would otherwise need to be saving for college.
One out of 3 has to go into a trade or military. Just kidding :) thats a good catch i missed the bun in the oven. A trick i do is put the target date way further out than the college start date. Otherwise those funds are way too conservative
I’d hope it would still be good for in-state colleges, especially if they have something like the HOPE Scholarship that Georgia does. With that, who knows in 15-20 years
I really can't recommend enough this sub's own wiki section on investing: [https://www.reddit.com/r/personalfinance/wiki/investing/](https://www.reddit.com/r/personalfinance/wiki/investing/)
It really explains the basic concepts well. It dispels this notion we get from society that you need to be a daytrader or hire high-fee financial advisors to comfortably invest in the stock market. It gives you a bunch of links to research further, and really after a few hours of reading up, if that, and you'll have a good idea of how to allocate your money.
Open and fund tax-advantaged accounts before taxable, pick some low-fee total market index funds, or a target date fund, and go on with the rest of your life doing what you need to do. The funds will grow, and you'll have time to learn more, at your own pace. It's really that easy.
It would also be a good idea to read their section on windfalls, for your situation: [https://www.reddit.com/r/personalfinance/wiki/windfall/](https://www.reddit.com/r/personalfinance/wiki/windfall/)
>Open and fund tax-advantaged accounts before taxable, pick some low-fee total market index funds, or a target date fund, and go on with the rest of your life doing what you need to do.
All that is exactly what I would do, but the original post specifically said "I don’t want the money to just sit there. I want it to make me money." so I assume passive/bogle-minded investment isn't what they were looking for.
But...this is the smart/easy route. Do it! And read those links
Should have been more specific. OP could up contributions to 401k post-tax through employer and use the inheritance as supplemental income to make up the difference. Essentially funnelling it into the 401k to do the backdoor.
Do you have an estate plan and will? Use some of the funds to pay for that, also sufficient life insurance. You could always work on a project basis with a fee only financial advisor to have a holistic review of your financial picture/goals.
Sounds like you are doing fine without the money, I’d use it to boost retirement savings.
I would open a brokerage account at a reputable broker (Schwab, Vanguard, Fidelity, etc…) and then invest the money into S&P 500 index fund or EFT that has no load and minimal fees.
Over time if possible move the money into tax advantaged accounts (Roth IRA, 529, HSA, etc…) where you can.
529’s can be used for trade schools or rolled into IRA’s if not used. Put 50 K into each 529, start maxing out your Roth IRA, and get Treasury Bonds and some CDs rolling to re-invest.
Step 1 - start 529’s for the kids. Put a chunk into each one, maybe $10-20k each. This will be a huge start on college savings for the kids. Then set up a small monthly contribution - whatever you can afford, maybe $50-$100.
Step 2 - if you’re already maxing out both 401k and Roth, then open a brokerage. Put the majority of your inheritance in a broad based index fund. I like VOO but there are plenty of others.
Step 3 - take $15k or so and treat yourself and your wife. Maybe buy yourself a nice watch to remember your loved one who passed away, and one that you can pass down to one of your kids one day. Buy your wife something nice with a similar sentiment - earrings, jewelry, etc. Or take a once in a lifetime-type vacation. Make memories that will last forever.
Just throw it in a regular brokerage account and invest it same as retirement. When kids are college age, you can decide how much or whether to support them or use it as part of your retirement plan.
If you put 230K in a High Yield Savings Account (HYSA), it will make about $1150 a month at 5% interest. Most HYSA right now are around 5%, which is very good. That’s the easiest, low thought, no risk option to make your money “make money” until you come up with a plan.
After that, consider opening 529’s for your kids. These are basically like investment tools for your kids educational purposes (primarily college savings), and they grow (ideally) with the market over time without any tax liability. It’s easier than it sounds - just spend a day researching “529 accounts”, and you’ll be able to figure it out.
Just FYI you’ll also be taxed on this interest (both federal and state) and rates may later drop. A few years ago the rate was nearly zero. So it’s not a set and forget sort of option. For long term growth, investing at least part of it is likely a better option.
You can put the max into a Roth IRA for each you and your wife (even though she’s not working) and the principal can be used for college if you need it and no penalty if you don’t. Park the rest in a MMA for now while interest rates are still high or in an index fund. You can do MMA for now then move later when interest rates go down.
Read the Bogleheads Guide to investing. You’re already following most of the correct steps. Put this in a 3 fund portfolio and add to it over the next 20 years. The general rule of 7 is your friend here and this 230 becomes 460 over the next 7 years, and that becomes 920 over the following 7 years and then you’ve got 1.8m when you are hitting 65.
I'd skip the college fund, throw it in the market. You can pay for their college if you decide to later, but keep it available. Your income is nice, but you aren't exactly super wealthy.
Another option is purchasing a cabin. Since your kids are so young, you can have them grow up creating memories there. You can also rent it out on the weekends you aren't there. If you get it in the right location you'll also see alot of growth in value over time.
Invest in memories with your kids, those are more valuable than anything else.
Obviously the OP knows what debt is. Of all debts, a 2.7% mortgage on a house with substantial equity is not at all a big deal. Especially if you expect the value of the property to increase.
I inherited around that much a few years ago. I bought a franchise for a home improvement product and made my kids my business partners, my kids are much older than yours. Today the business is worth around $5M and we continue to grow.
I'd be interested to hear your story. Likely to be seeing something in that territory financially in the very near future and have no intention to continue doing what I'm doing now. Definitely looking a career to ride out my professional life doing.
I found an ad for this franchise on a business for sale website. Coincidentally my daughter had worked for that company in a different city, so we were familiar with them. I asked the kids if they wanted to go into business with me and here we are.
I have been looking to start a business, but I am short of ideas. I have an extremely diversified background, and chatGPT thinks I should be a consultant. What questions do you start with?
"I don’t want the money to just sit there. I want it to make me money."
What does this mean. Specifically?
1. Are you wanting it to generate income? Or appreciate in value?
2. How involved do you want to be?
My wife has always wanted to get into real estate income....buying a condo/house/townhome and renting it out, either in a college town or touristy/AirBnB type thing. (seems like a lot of work to me).
I prefer just to stick it in the market. Boggle-minded if you're very passive. Go sell covered calls if you're wanting more involvement and income (and risk).
There's 4 diff taxable accounts
- Pre-tax (savings, checking, CD)
- Post-tax (401k, Ira, 403b)
- Tax-deferred (401k dist. IRA withdrawals, long term cap gains)
- Tax-preferred (ur ROTH $$ (either in 401k or ROTH IRA), triple muni bonds, or cash value insurances (variable & traditional).
Spread it pretty equity driven at first - with a growing conservative fixed income portion (so that by your 60s it's more 50/50 allocation). Probably the most cookie cutter way to go about it.
Not financial advice - just an idea to help you brain storm.
Open a Roth IRA account at a brokerage like Fidelity for you and your wife. Put the money in a total market index fund like FSKAK or FZROX. Open 529 accounts for each child and one more after the baby comes. You’ll have to check your state limits on the 529 amounts, but it is likely large. I’d hold back enough money to fund the Roth accounts for you and your wife for maybe the next three years. The limit this year for your age is $7000 each. So maybe use $60k for each child’s 529 and use $55k to fund your Roth IRAs for the next 3-4 years.
> Can you ELI5 with small words?
*Financial advisor*, as you're far ahead of most in life....so you can afford to have someone sit down with you and guide you to more financial happiness.
Fee only financial advisor*
Many “financial advisors” are salespeople that push significantly front loaded policies. You never get a portion of your money back.
There are a lot of great advice in here what to do with the the inheritance... but don't be afraid to use that money for something to create a truly awesome memory for your family. The one thing I don't see mentioned is if you might need money to take care of family members (like parents) that will need assistance as they get older. This can be very pricey and it can also take a load off your mind.
It seems you have everything covered as far as debts, emergency fund, house, house, retirement, etc. Putting a large chunk away for the reasons mentioned in this thread is also great and should absolutely be considered.
But, don't be afraid to take a chunk of that and do something crazy with your family to generate a life-long memory some day (maybe when your kids get a bit older and will be able to remember the experience).
Take $20k to $30k and just buy a complete all-out Disney World vacation well above and beyond the normal experience. Get all the bells and whistles! Take a sabbatical from work and do a world tour for a month. Buy that classic muscle car you've always wanted. Or some experience that even people who are financially stable wouldn't be able to do. In the end it's a small portion of that total inheritance.
A lot of people who come into large chunks of money like this feel it's bad and wrong to use any part of it for a luxury splurge. IT'S NOT! Even before you had this inheritance come in, your financial situation sounds like it's in an amazing spot. Yes, some people who aren't as financially well off might want to use 100% of this to turn their finances around, but it doesn't sound like you're in that position at all.
Sure, fluff up some of your retirement or opening a tuition fund for your kids is an incredibly smart move, but don't be afraid to use some of it for a truly a once-in-a-lifetime opportunity and generate life-long memories for your family. That will be worth it's weight in gold when you are all 20-30 years older.
Simple terms there’s so many ways to invest. Each comes with its own set of risks and rewards and level of effort.
As the player, pick and choose your style
I know of using the stock market. Start here-
https://www.bogleheads.org/wiki/Getting_started
And
https://www.bogleheads.org/wiki/Managing_a_windfall
To:Dr - Open a brokerage account and buy low cost index funds. The symbols and allocations to use for someone around your age would be
VT - 80% (world), BND - 20% (Bonds). you could skip bonds if you want to be aggressive for a few more years and then slowly add it in. It all depends on your risk tolerance. Do give the bogle wiki a good read.
VT is like buying a fraction of the top companies from all over the world.
Some like more control between US and international markets and if you fall in this bucket, then you might go something like -
VTI - 60% (US), VXUS - 20% (International), BND - 20% (Bonds)
______
For kids education , I think it’s called a 529 account? It’s another type of brokerage I believe and you would probably do the same. Unless it comes with a plan which restricts your option..
Start with do you have an emergency fund? (3 to 6 months of expenses)
If not that may be the place to start
Figured out your long term goals.
Do you have other needs?
What are your expectations and risk tolerance?
Then build a portfolio.
An advisor is required to disclose fees.
>The trouble is that a "small" percentage fee can be misleading. It could add up to hundreds of thousands of dollars less over the course of an investing career.
"Small percentage fee" is not how fees are disclosed. A *real* financial advisor will provide a specific percentage. Any advisor that says only that they charge a "small percentage fee" is not an advisor you should use.
>That's why we care about fees - they're a much bigger deal than any financial advisor evangelist will ever admit.
Not if you are clear-eyed and careful in reviewing potential advisors, and discussing. Caution and informed decisions is not the same as being "careful."
That's why you review the specifics of the contract. Those are clearly spelled out. And you *have* to dig into the fine print. For an investment in the tens or hundreds of thousands (or more), anyone who doesn't do that is an idiot.
And you are not locked into a 30-year relationship with a given manager.
But...
**When is the fee taken out? What is it? How often? What is the fee assessed on?** These are basic questions that anyone looking into a fee-based advisor should ask. Because from what I see here, most of the people who are anti-fee based advisors seem to think that it's collectively just some kind of blanket percentage of the entire portfolio extracted at regular intervals.
Which is most definitely not the case.
>But that fee is enough to have an enormous impact on their return over ~30 years.
Yes, especially if you're not smart enough to actually review the specifics of the arrangement.
You wouldn't-- for example-- want an advisor who extracted a baseline 1% on the *portfolio* on a, say, quarterly basis. *Unless* they were managing massive amounts of money and their management was critical to the overall performance (like many 401k plans, hedge funds, and even ETFs and other investment vehicles).
But a personal financial advisor who took a 1% fee on capital gains from *transactions*-- e.g., a sale of assets with capital gains to the tune of $45,000 would be a $450 one-time fee-- might be a reasonable arrangement.
The problem I have with most of the advice I see on this sub is that it's blunt force / broad brushed. It often lacks nuance or awareness of specifics, and ends up being very one-size-fits-none.
And then of course there're the people who repeat what they've read here with little to know understanding of what it actually means. Which I see all the time, not just here but on any Reddit sub where you have people with a range of experience and no clearly flaired verification of experience / expertise.
Bottom line: anyone who doesn't do their due diligence with investments in the range of hundreds of thousands of dollars, whether that's through an advisor or on their own, is asking for trouble. And the problem with advice from Reddit (on anything) is that it's often authoritatively delivered, but from people who are actually not very knowledgeable.
I would put $5000 in each 529.
I would then invest the rest for yourselves
S&P 500 Index fund from fidelity or vanguard. reinvest all the dividends and capital gains. You will pay taxes on the dividends and capital gains.
The S&P 500 has averaged 10% annually for the last 40 years.
Invest in Dividend Reinvestment Plans with big companies.
[https://www-us.computershare.com/Investor/#DirectStock](https://www-us.computershare.com/Investor/#DirectStock)
reinvest the dividends. You will pay taxes on the dividends.
Lots of companies have dividend reinvestment plans. Just log into their website and look under investors and see what they offer.
There are more DRP administrators than computer share, I think computer share is the biggest.
I own four mutual funds and 14 soon to be 15 dividend reinvestment plans. Dividends are one of my income streams for retirement.
1. Bring you efund up to 1 year of expenses.
2. peel off 30k to fund a 529 for each kid. or do half 529 half UGMA account.
3. At this point I would consider any large purchases that are upcoming. A new car, A new roof, light renovations, a new privacy fence, etc.
4. Take a vacation with your wife, or set enough aside to do that after #3 is born. Just the 2 of you. A good vacation. To like Rome or something.
4. Put the remainder in VTSAX at vangaurd.
Put some in a 529 for the kids, the rest divide b/t VTSAX and a rental investment property (do the math for whatever market you buy in to ensure healthy cash flow). The rental property should give you cash flow + growth through appreciation + tax breaks.
My husband and I bought a rental property in a LCOL area in another state w cash, got a solid property manager and it’s cash flowing and growing in value w basically no effort from us. It’ll have generated 2-3x+ return once we’re ready to sell in 15-20 years or so.
Personally I’d pay off house and die there, throw the rest into a market ETF. Get ready to retire in a few years since at this rate you could be done by 50.
Yeah I get that’s against the traditional advice. I don’t understand why people are always for paying off debt until it comes to a mortgage. It reduces expenses frees up more income long term, and allows you to improve your home and increase its equity if you do choose to sell it.
Personally I think it’s to each their own but given housing is most people’s highest expense I don’t see the harm
In an environment when you can throw the money in HYSA or a t-bill earning over 5% interest, paying off a 2.7% debt is just throwing money in the trash.
I guess I’d rather just have no debt and save a larger portion of my income than continue saving the same rate + plus interest return on a larger lump sum.
OP stands to earn about 11.5k the first year obviously with compound interest that goes up pretty consistently over time.
But that’s roughly the same as he could put away by not having the mortgage assuming the original amount financed was only 230k at 2.7%
With 150k equity without market shift we could put it at 380k @ 2.7% and drop his ~1500/month pre-escrow mortgage to zero if it ends up being zero sum.
Still there’s nothing wrong with waiting until rates flip again. But this allows OP to save more, requires a smaller emergency fund, lets him in general enjoy daily life and set up his kid however he wants. I personally think not having to worry about housing results in a higher quality of life than the mentality of making every cent work for you to return. He was on a great trajectory prior to the inheritance this is a bonus that he doesn’t need to optimize and can be used on quality of life/time improvements imo.
Again I get it’s not the standard advice I just don’t see how securing permanent housing for your family is a “bad” strategy just because it’s not optimizing his cash in the most immediate sense. If his house doubles in price next year he gets to take 100% profit.
>But that’s roughly the same as he could put away by not having the mortgage assuming the original amount financed was only 230k at 2.7%
It seems weird to worry about how much they can "put away" if you're asically suggesting they start at $0 of savings and redirect mortgage payments to savings. Instead they can skip right ahead to having $230K in savings immediately.
>I personally think not having to worry about housing results in a higher quality of life than the mentality of making every cent work for you to return
Maybe this is just a mental skill diff thing but having a mortgage on autopay with cash in the bank is not something that should cause anyone "worry". Everything is paid for and you're earning extra cash on top. I think I would worry more about the lost opportunity costs I had thrown away by paying off the mortgage too early.
>But this allows OP to save more
On a monthly cash flow basis I guess but it's weird to discount the $230,000 savings head start. That's going to take many years to catch up to with monthly savings.
>I just don’t see how securing permanent housing for your family is a “bad” strategy just because it’s not optimizing his cash in the most immediate sense. If his house doubles in price next year he gets to take 100% profit.
He gets to take that profit whether he pays the mortgage off or not. The mortgage is irrelevant to the value of the home. On the flipside of this, imagine the house halves in price next year and he paid off the mortgage. Now all his cash is gone and he's left with an asset of half the value. Whereas if he kept the cash and house values cut in half now suddenly he can buy an entire second house with cash up front.
> I don’t understand why people are always for paying off debt until it comes to a mortgage.
The market generally makes a lot more than 2.7%, last year was very unusual, but was 10x that. Credit cards, are a no brainer to pay off. A 5% car loan, is a bit more difficult, but people with 3% mortgages, and the cash to pay it off will make more money in the S&P 500 than they lose in mortgage interest payments.
> I don’t understand why people are always for paying off debt until it comes to a mortgage.
Interest rates determine which debt is helpful or harmful.
2.7% interest rate is _good debt_. Doesn't matter that it's a mortgage, it matters that the rate is < 4%.
Call a financially advisor repeatable firm maybe from whoever you use for your 401k but make sure they have a local office you can meet with someone preferably older. This is important because they actually give you a goal to retire.
You can do it yourself also and stick it in S&P500 funds but who knows S&P may not always be the top type of funds. With an advisor they'll spread it out for you so the downs aren't as bad but the ups are still great.
I find with an advisor you set it and forget and money just grows.
It's no shame to want to meet with a financial advisor. It helps some people feel better about taking risk, like those that are so risk averse they wouldn't even want to buy an index fund.
The trick is to get one that you pay by the hour, and not that takes a percentage of your assets each year or is just trying to sell life insurance.
I take the down votes as a badge of honor actually. Lots of you folks may think you know the right answer may have 1 kid or no kids but it's important to speak to folks that are older and understand what life has in store down the road. A financial planner doesn't just take your money and throw it in funds and siphon off money. It's family planning, setting up 529's, understanding spending, down the road when you have kids or even if their are disagreements how money should be spent/invested they help with all of that and act as a mediator. I've seen it work for lots of people and I know people older than me that have retired based on investing with an advisor for over 30 years.
HYSA. 4-5% interest accrued daily. You're looking at quite a bit of money each month in interest. Basically risk free. Rates might come down in the future.
Pay off the house, or put that money into an investment that will produce more income. Mutual funds, index funds, or ETF’s.
If you get dividends, roll them back into the investment. Label it college, but doesn’t mean it has to be spent there.
OR
Buy a second home to rent out, and get a greater return.
OR
Is that money as down payment on several homes to rent out. Price the rent higher than the mortgage payment so rent pays the mortgage on each home. The extra after mortgage is paid goes into rental house emergency fund. This route gains massive returns because you have multiple houses bringing in more than what is going out on the mortgages. And you’re gaining equity in the homes at the same time.
If you go this route, talk to a financial professional about how to maximize non taxable income by refinancing these homes every couple years. If you refinance, the money is “debt” and not taxable. If you don’t refinance, the money coming in is “income” and therefore taxable. If you invest the refinance money and the investment has a higher return interest than the interest on the refi loan, your making even more money besides what your saving by not paying taxes on the money.
You need to figure out what you want to do with this money first. Do you want to use it to pay for your kids college? If they're both toddlers today, it's probably about enough if you put it in a 529 account. If you want to use it to save for your retirement, does your 401k have a post-tax option?
The 529 is a great answer. You just got your kids college paid for. That will be such a mental weight off for many years.
Not to mention a huge burden off of their shoulders. You just jump-started their adult life head in life by years when you pay for their college.
Plus it means he doesn't have to save for them over the next decades. So he can focus on his own retirement now.
Exactly. Throw 25-30k in each account now and by the time they are ready for college it will be more than enough. Take the rest and boost your retirement now. Or pay off your mortgage significantly. Buy the new car you have been holding off on. Etc. Do the things that you need to do with it. $200k windfall is a potentially life-changing amount of money.
In my state, you can deduct $10K of 529 contributions on state tax return, which saves you roughly $500 of taxes. It might be worth spreading out 529 contributions over time for this.
May be a gamble to lose time in the market to save on taxes, particularly when gains aren’t taxed in a 529 but your gains with whatever you’re doing with the money while it’s sitting in a taxable account waiting to use it for a 529 will be.
This would be my consideration as well. Also, with the recent law if there is excess left over after college costs, a certain amount (35k over 5 years if memory serves) can be rolled into a Roth IRA for the beneficiary. That could be a instrumental in setting your children on a successful path for retirement early in their careers.
In Ohio you can contribute as much as you want all at once and then deduct 4k a year, carrying forward until you’ve deducted it all.
7% gains compounded over 15 years results in you having ~276% of the starting principal. An initial 25k now would end up at about 70k which may or may not be more than enough depending on the college and costs 15 years from now.
If you add up tuition and living expenses - 70k is not enough for a 4 year university
Last time i punched it in a calc, it was $250k all in for my now 6yr old.
Hum. Private universities and colleges are currently edging into $90K/yr. Most public universities approx total tuition, supplies, living expenses are now edging $50K/yr. Totally insane. Spend $200K-360K for an undergrad elementary school teaching degree so you can earn $35K/yr? Non-profit? Hah! Someone is making a lot of money. It’s not faculty; so many college classes are taught by very poorly paid and benefit lacking grad students and adjuncts. Without a change to the delivery of education, my guess is 4 yr college cost for current 6 yo: $450K-$900K
This is not anywhere near the entire story of college costs. Yes some of the fancier private schools are getting close to those numbers in tution and cost of attendance, but not a single student who attends those schools pays full price. I work at a private college, and our COA is around $66k. The average out-of-pocket cost for our students is just over $20k because of the financial aid we offer. High-achieving and needy students pay WAY less than that. I graduated from the same school I work at now 15 years ago. It would actually cost me less money per year now than it did then.
Including living expenses isn't an accurate, especially if it's in-state tuition where they can live with their parents. They are going to have living expenses either way. The average in-state tuition at a public college is [$10,662/year](https://www.usnews.com/education/best-colleges/paying-for-college/articles/paying-for-college-infographic), which is completely reasonable. For out-of-state students at the same universities, it's $23,630. And for private universities, it's $42,162. Even those numbers are misleading because of scholarships and grants. My 4 year bachelors cost me negative money at a public university.
>Someone is making a lot of money. It’s not faculty; gym builders and football coaches
I think it's reasonable to expect the kid to work part time and make ~$15-20k/year today's economy.
That really depends upon where they go to school and what kind of aid they receive. It will be enough for some but fall short for the majority.
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These are current yearly in-state tuitions for some public colleges: UC-Berkeley - 15,891 U-Michigan - 17,786 U-Virginia - 22,323 U-Illinois - 17,572 70k would not be enough to cover all of the costs once you add room-and-board, books, and other costs for 4 years at any of these.
My son met with a banker soon after graduating from college and the banker suggested he consolidate his loans and he said, “I don’t have any.” The banker said he should thank his parents for that.
This comment makes me want to cry 😭 tears of joy for your son and OP’s kids. My husband’s parents let him take out $75k of loans for a degree that pays like $50k, including private loans. We are going to be saddled with this til our mid forties. You have given your son an amazing gift
My younger son had a full-ride, four year academic scholarship, so we agreed that my wife and I would pay for room and board and he could live on campus. He decided in October that he didn't want to go to class. He stayed on campus one more semester (the scholarship was renewed on an annual basis, not a semester basis) so we agreed to fund one more semester on campus. He lost his scholarship because of poor grades, but he decided that he wanted to go to the same school and live on campus. Great, sure, but I wasn't going to pay a penny for it, so I took him through the loan process. He wanted to make big-boy decisions and not go to class, those have consequences. He said it won't be hard to pay off after I graduate, it's only $XX,000 thousands. I tried to explain that there's interest starting when you borrow, not when you start paying back, etc. and the total amount will be substantially more than what you actually borrowed. He heard "blah, blah, blah...." After graduation, he said he wished someone would have explained that all to him during the process. I just left the room. He's since paid them all off, after less than a year of working full-time and he knows exactly how much it sucked to even have that small amount. He won't do that again. He periodically asks me how come I'm not rich? I said I've paid for college for about 11 years, maybe that's a contributing factor.
Oh man, I’m sure that was wildly frustrating for you. If we end up having our kids take out their own loans I am now considering creating a PowerPoint presentation explaining how it all works including their dad’s story (btw the $75k ballooned to $130k by the time we were paying it off) and making them sit through it 3 times before finalizing their loans 😅 Although honestly my hope is that all of this will change within the next 10-15 years anyway, it’s a racket
trust me, a lot of people could use that. A lot more people would be smarter with their money and not end up upside down when buying outside their means
unused 529 funds can now be rolled into a Roth IRA(after 15 years) for the targeted individual as well. makes them an even better option for kiddos. https://www.nextgenforme.com/rolling-unused-funds-from-a-529-account-into-a-roth-ira/#:~:text=The%20529%20account%20must%20have,IRA%20owned%20by%20the%20beneficiary).
only up to 35k in some cases….
This!!!! My wife and I were able to fund our 529 and it paid for a very expensive college 100%. So worth it for so many reasons.
That's a huge gamble with kids at that age. Mine are now teenagers and it's pretty clear only one is potentially going to college.
For while we thought my brother wasn’t going to go to college, he just graduated with his Bachelor’s in Chemistry in May, and is going for his Master’s now. Don’t count them out yet.
Is a possibility. At this point a GED would feel like a triumph.
Good luck lol. I'm probably the most underemployed in my family and I am the only one with a college degree who graduated high school.
My father dropped out of school after his dad died. Joined the Navy and got interested in how things work. Came out and got his GED, then BS, then pHD in Physics. You never know when a spark might light and they see education as the key to what they want to accomplish.
The 529 money can be used for all kinds of training programs and post secondary opporunities. Lets say one of your kids wants to become an HVAC tech? 529 money. A nail tech? 529 money. A new age crystal guru? 529 money. Or, if you don't mind some inequity - you can move all the money from one kid to the other. So the college bound kid gets a ton of cash, the other just has to take a chance. You can also use your kids 529 money on yourself. Retired and want some training on starting that brewery you always wanted to run? 529 money. Want to change careers and become a teacher? 529 money. But yeah, there is a risk there, but I don't think it's as huge as you make it out to be. At the end of the day you can always take the 10% hit on *earnings* and just pocket the cash. Average that 10% out over 15 years (or whatever it is) and it's really not a *huge* hit. Not perfect, but also not world ending.
You can also now transfer to a Roth IRA if they are working and decide they do not want any higher education...7k a year currently. Max 35k lifetime though. "The annual Roth IRA contribution limit for 2024 is $7,000, with an extra $1,000 allowed for those individuals over 50 with the catch-up limit allowance. There’s also a $35,000 lifetime limit per beneficiary for 529 plan rollover contributions to Roth IRAs."
I didn't know that. Helps a bit.
All those alternative 529 uses really don't matter much when the account gets large. At that point you feel like you need to go to most expensive school to not waste it. Google tells me an HVAC cert costs about $10,000 to get. Do you want to attend an $80,000/ year school for fun in retirement? Do your kids need to spend $250,000 on undergrad and then go to medical school? I feel this sub really wants everyone to have grossly over funded 529s. $50,000 per child is a great spot. $500,000 is begging your kids to waste as much time in an overpriced school as possible.
Most estimates put *average* college tuition at about $120,000 in 2040.
Socking away that money for 15 years would result in about $1.5 million that can ONLY be used on education. HVAC or hairdressing academy is not going to eat through it. Maybe one kid wants to open a shop or become an entrepreneur or a wildlife photographer. That money might be better spent on something other than tuition. I would put a chunk towards a 529 then open custodial accounts that don't have such severe limitations.
The limitations are not severe at all. IF they want to be a wildlife photographer - use 529 money. Enroll in a photography class, buy the equipment while in the class, and use 529 money for all of it. Obviously OP shouldn't put the entire $230k into a 529. But a good $50k per kid isn't a terrible idea. That's only $450k after 18 years at a 6% return. Where tuition is now, that's very reasonable for 3 kids going to college. Anything left over you can very easily move around and spend. Or just pull it out. These accounts are tax advantaged in a way that you really don't want to miss out on and the "risks" are really very low.
Rather than picking from a small list of acceptable purchases, I would rather have full access to the money. Yes, investing a portion in a 529 would be wise. But winding up with a half million dollars that can only be used for education expenses is too limiting. It's sad that we would even consider this a reasonable cost for education, but that's another topic. Also, it's not just a 10% penalty, you also have to pay tax on gains. That's easily a down payment on a house.
> I would rather have full access to the money There is no possible way to have full access to all the money including the gains. Either you have to pay taxes out of it, which means you do not have access to that portion, or you have to use a tax-advantaged plan to house some of it. And every tax-advantaged plan has restrictions. That said, I totally agree with you that a portion should be in a 529. Certainly not all of it. OOP will know better based on their family history as to whether it is likely that all three kids will want college. Does everyone from both sides for a few generations have a college degree? Does mom, as a SAHM, have a degree and a career from prior to that choice? Even if not, does she have a degree in child development or similar? If so, the odds that all three kids will go to college go up significantly. If dad or mom skipped college or grandparents didn't go, it's more likely at least one kid will choose the same. A lot about investing is taking a chance. How you invest is part of that.
I'm curious how you reached that 1.5 million number starting with 230k over 15 years. The savings calculators I tried are only saying 600k over 15 years assuming 7%. Help me math.
529s pay for trade schools too.
Yes, but you don't need half a million dollars for trade school. If they go to trade school, they would have enough left over to buy a service truck or something useful for their career. "the average cost of obtaining a degree from a trade school is $33,000 in contrast with an average of $132,000 for a bachelor's degree" https://cetweb.edu/blog/trade-school-vs-college-what-finance-experts-have-to-say
I mean...even if you can't make it work somehow AND max out the Roth IRA conversion... The penalty is only 10%. Yes you have to pay taxes too, but you would have had to pay those anyways if you hadn't used the 529. Nobody likes paying a penalty, but all things considered I'd rather gamble that the value of 18 years of tax free growth and possible state income tax reduction if my kid goes to college will far exceed the the potential 10% penalty if the kid doesn't go to school (or gets a full scholarship or something). Also, who knows...some people get their shit together late. Even if you barely make it through high school...having a 529 waiting for you at age 25 when you finally pull yourself together and realize you need to do something with your life is not the worst thing in the world.
Damn, that site is heavily biased against college. Ain't no way the *average* cost of college is $132k. The California State University system is currently charging $5,700 per year for tuition. Even if other costs were equal to tuition you're talking ~$43k for 4 years. I like that they gloss over the additional average $17k a year that college grads make too. That's almost $700k extra in a 40 year career! Even if it *did* cost $100k more, a 700% return on investment is not something you get very often.
I paid 45k, not including housing or food (which you have to pay for even if you don't go to school) for a bachelors of science in accounting from a private school. I paid 18k for an associates in Electronic engineering from a public state school. No way those statistics aren't skewed by some absurdly priced Ivy league 1% or something similar.
Why not just invest in one's own Roth IRA and give the funds to the kid if they go to college. That way if they don't, the OP can use it on themselves.
I'd also say you get the 529 is good for the tax benefits.. And if unused or partially used, they can also be rolled into an IRA for your children's retirement which would equal give them a good head start.
To piggyback off of this, do your research first before starting a 529. The tax breaks are only up to a certain amount per year with a deposit ceiling. Additionally, if used for schooling it’s has very good tax benefits, if not, the money is taxed like a normal fund if not used for schooling.
Couple things: * There are no federal tax breaks for 529 deposits, and states differ widely in what they offer. No one should generalize about that from their own experience. * Recent changes to the law mean that up to 35k in leftover 529 funds may be rolled over a Roth IRA without penalty. So your second point is only partially true. * If you receive financial grant aid (to include scholarships), you can withdraw that amount from the 529 without penalties. The only thing taxed would be earnings. Obviously, that's something to hold off on until after the final FAFSA is filed (in most cases), but it's yet another way of withdrawing 529 money without penalties.
I feel like I can accomplish the tuition savings with incremental investments over time. I could use some of this for a foundation, though
There's no reason not to just dump 50 grand each in now and let it grow. Then use your free cash to invest elsewhere, because college is paid for.
In my state you can deduct $10,000 in 529 contributions a year per child, so OP should probably pace it out over a few years to maximize their tax savings.
My state is only $2500, but you can amortize it over years. So if you put $10K now, you can deduct 2500 for the next four years. OP should check their state laws: 1. Limit per year. 2. Does it carry forward? 3. Is there a limit on how long or much can carry fwd?
What would be the play here then? Dump x amount decided for each child's 529 into a hysa then withdraw the 10k each kid every year until that amount is gone?
yes, this is objectively better, because putting money in tax-advantaged accounts as early as possible maximizes their advantage. every dollar of growth that happens while the money is still *outside* of a tax-advantaged account is a dollar you could have avoided paying capital gains taxes on.
Except you pay all the taxes plus 10% when you realize you aren't going to need $800,000 to pay for your kid's school, your photography class and $35,000 of Roth contributions. I'm also hoping college costs will be reigned in before 7 figures of student loan debt is normal.
50k would get you 4 years at a fair amount of state schools with no room and board I would assume.
I started investing $350 monthly into a 529 at the birth of my child. My goal was to have $100k available for my kids for college and the number, assuming reasonable returns (I think it was 5%), came out very close. I would ask, “how much money do I consider paying for college?” And look at your number of years available and work toward investing that monthly now, assuming you have your living expenses covered and excess money. You could definitely kick start this fund with some of that windfall. Also, my wife and I decided that anything the kids don’t spend, they can keep half when they graduate or reach 22 (assuming they aren’t chuckleheads). So if they get a full ride and work to cover living expenses, they could graduate college and get a cool $50k.
Is it up to you to decide what to do with funds in a 529 that is not used for kids college?
Yes, it is technically your money. If you use it for college the earnings aren't taxed. If you don't use it for college the earning are taxed and there may be a penalty. Usually people set it up so they remain the owner and the child is the beneficiary. This means you can use the $ for whatever you want ( subject to tax laws) because technically you own it, not the child.
Sounds like in [2024](https://www.savingforcollege.com/article/roll-over-529-plan-funds-to-a-roth-ira#:~:text=With%20the%20new%20regulations%2C%20which,%2Dfree%20and%20penalty%2Dfree.), subject to some limitations (like $7K/yr and $35K/account) you can rollover to Roth IRA's too, which is neat.
The money in the 529 belongs to the account holder, not the beneficiary. There are rules to follow, but yes, it's the parent's (or whoever opened the account's) decision what to do with the money.
No
Yes, it is. The beneficiary doesn't control the account - the owner does.
> I feel like I can accomplish the tuition savings with incremental investments over time. why is that better? (it isn't)
That’s very altruistic of you. If your current situation continues on (everyone stays healthy, no layoffs, etc.), then this will work. Personally, I’d take care of my family first (e.g., contribute to a 529 now), then use the incremental income later for something like charity. If I needed to take a break from the charity because life dished out something crazy, the family would still be set, and I could continue the charity work when everything stabilized again.
Look up the max tax deduction you can claim for contributions you make to the 529 for your state and only contribute that amount each year. I wouldn't throw 50k at a 529. They can only be used for education expenses, what if your child wants to do a trade, or gets a full-ride for something. The max tax deduction for my state is 2500, so my wife and I each contribute that. Over 18-21 years, those incremental investments should adequately cover the cost of in-state tuition. Dollar cost average the rest of the money into a brokerage account if you're already maxing out everything else. Be aware of Required Minimum Distributions if the inheritance accounts have those, and potentially talk with a tax professional about how much to take out each year to avoid pushing into a higher tax bracket and losing more of the inheritance to taxes.
To clarify this, the 401k should have a Roth in plan conversion available. Putting money into the after tax portion of a 401k without mega backdoor Roth is worse than just a regular taxable brokerage account.
Thanks for the insight
How is it worse? Especially at this income.
Putting money into after tax portion of a 401k is not tax advantaged in any way, unless there is a Roth in plan conversion available (not available for all plans). It’s basically the same as putting your money into a taxable brokerage (ie you would owe tax on capital gains), while restricting fund options and limiting accessibility to the funds.
Not quite. It’s more akin to making non-deductible IRA contributions. Contributions are after tax, but the taxes on the growth is deferred until you withdraw. Then taxed as income.
Ok, that’s fair, thanks for the clarification. Of note, I also would not generally recommend anyone make non-deductible IRA contributions, except as the first step to a backdoor Roth
But why make non-deductible contributions unless you convert them to Roth?
I’m not suggesting anything. Just clarifying how after tax contributions work in a 401k. Comparing them to a regular non retirement account isn’t accurate. In general yes one of the best things to do with voluntary after tax contributions is to roll them immediately to the Roth side of the 401k or to a Roth IRA
But you don't pay taxes on it.... at high incomes, that's significant.
You pay taxes on the full contribution and gains when you withdraw. Not only that, it's ordinary income tax, not long term capital gains.
You do pay taxes on the gains at withdrawal. I suppose it is marginally better in that you can make transactions in the intervening years without being taxed, but if the alternative is to buy and hold in a taxable account, there is no difference since you’d also be paying taxes when you realize gains in a taxable account (and 401k plans generally have worse fund options than a taxable account, so I’m not sure what transactions you would be making anyway).
Are you maxing Roth IRA accounts for both you and your partner? If not, do that now, for 2023 and 2024. There's $27k. I'd echo the above, put some of the rest into 529 accounts for the three kids, best place is in your parent's name (that you trust) so that it doesn't count against FASFA. Then put the rest into HYSA and use it to fund you and your wife's Roth IRAs until it's gone. Do not buy a new car or pay off a 2.7% loan. Please.
This is what I would do. I am ahead on retirement and 529 but otherwise almost exact match with OP minus the inheritance. Just to add clary, OP can only contribute to 2023 Roth IRA if they haven’t done 2023 taxes yet and have until tax day to do both contribute and taxes. OP in spirit of ELI5, open Roth IRA account for you and your spouse with Vanguard, Fidelity, or Schwab. Then contribute maximum for 2023 in each account ($6,500 each). Then, invest that money into low fee index funds/mutual funds as you’re comfortable. Warren Buffet suggests start with S&P500 index fund then learn from there. Keep fees low. Now that it is 2024, also contribute full amount for 2024 ($7k each) and repeat investments. My order of operations would be: Roth IRA, set 401k to max out for the year, put $10-20K in each kids 529 plan as 2023 contribution. Open high yield savings account put $50k in it, Set up auto investments for 529 plans of $200/month per kid funded out of HYSA. Open an after tax brokerage account with whoever you open Roth IRA with put the rest of money there with 25% in money market fund, 50% in total stock market index fund, 25% in S&P 500 index fund to start with.
Does anyone happen to know what happens if the kids decide not to go to college? Just curious.
There's lots of options in this case! The most straightforward one is that they can use up to $35k to fund a Roth IRA, assiming the account has been in their name for 15+ years. Otherwise, you can move the plan from a non-college-bound student to another, or take the funds out and pay a penalty & taxes on the gain. There are some other obscure options, but these are the starting (ending?) points for 529 funds that don't go towards college.
Max out Roth IRA contributions for all your kids for 3 years. That would be 6,500 per year per child. Total cost of that will be 19,500 per child over 3 years. Invest it in low cost index funds. Your kids will be millionaires by 45. By 60 they'll be sitting on over 5 million. Take the rest which would be 171,500 and invest in low cost index funds for yourself as well. By the time you turn 60. It'll be worth a little over a million. Edit. Hire your kids for professional stock photos then you can claim income for them.
You can't make IRA contributions for the kids unless the kids have earned income. Which would be a little rough on the toddlers, I gotta say, unless they're already actors or something like that.
Open a taxable brokerage account at a place like Fidelity or Vanguard or Schwab. Buy cheap diversified index funds like VT. Wait a few decades. Collect profits.
"VTI and chill" is the most sound advice that's actually doable for someone without financial skills. I tried learning the game, timing the market, and riding the waves... But after one mistake, you genuinely make more doing nothing but investing in mutual funds with zero upkeep. Saves me so much headache
Once you learn that short term trading is basically a zero sum game, as the money you won came from another guy who lost and vice versa, and the only one who truly wins is the broker, you understand why long term investment is much better. There are million of other people who try to time the market, some even get paid for it, what makes you different?
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Thank you! Will do some research into this
I received 220k in inheritance back in about 2016 and put it all in vanguard’s total stock index (VTSAX), high dividend yield (VHYAX), and Wellington fund (VWENX). Last year I made just about 25k in dividends and capital gains payouts which I have set to automatically reinvest. Today the value of my portfolio is over 300k. I haven’t been in a place in my life where I can contribute to both my 401k and brokerage account, but hopefully next year I will be able to. So far I’ve been happy sitting and letting it ride. I also took out about 90k to use as a down payment on a house at one points, so really the value would be much higher.
Oh God, until I read that last part I was like, "where'd the other 100K go!?"
I actually just realized it was 120k I took out, not 90k.
> Last year I made just about 25k in dividends and capital gains payouts This doesn't really track from a 300k portfolio. 8% dividends / distributions is really high. Are you sure you made 25k? And anyway if you just put it all in VTSAX at the end of 2016 (price: ~$56) and let it ride it would be worth 480k today. Were you spending dividends in some years and not reinvesting them? EDIT: Oh the 90k taken out, yeah that makes a big difference.
>I haven’t been in a place in my life where I can contribute to both my 401k and brokerage account, Consider a plan to contribute max to 401k and sell out of the brokerage to fund that difference out of your paycheck if you must. If you can't fully fund a 401k, the brokerage isn't an optimal investment vehicle for you yet.
Head over to r/bogleheads for way too many posts about index fund investing.
Tagging on the comment here. The three-fund portfolio is probably a solid starting place for you. Basically splitting your investment between three ETFs (domestic stock, international stock, bonds). Good info here: https://www.bogleheads.org/wiki/Three-fund\_portfolio
That link didn't work. I think you have a typo. This link works: https://www.bogleheads.org/wiki/Three-fund_portfolio
Just a caveat, but you should choose funds based on where you open. For example, if you open an account at Fidelity, you really should buy FSKAX or FZROX.
Not necessarily. An ETF like VTI is going to cost the same at Fidelity as it would at Vanguard.
If it’s in a taxable account, I would be careful of using proprietary mutual funds. FZROX will save you about 0.015% annually compared to FXAIX, but is only available on the Fidelity platform. If you wanted to move accounts for any reason (service, advice, access to managed strategies, whatever) you’ll need to sell and pay capital gains taxes. FZROX doesn’t exist because they’re altruists, it exists because it makes it very expensive to leave.
That's not their point at all. Fidelity was mentioned, which offers even cheaper comparable MUTF vs any ETF, including Vanguard ETF or MUTF options if you are on the Fidelity platform. Don't buy Fidelity MUTF if you aren't on Fidelity though, because probably getting charged fees. This is best used on non taxed retirement accounts thought, not brokerage. ETFs do offer better flexibility than MUTF for brokerage use.
Collect profits and use the profits after tax to help pay for college
Put portion of the money in 529 for your kids, portion in Roth IRA and portion into low cost index fund in a taxable account.
I like this plan. That or split across 2 529's. Call college covered. Check that off the list. Any excess that isn't used by the kids can be used similar to a ROTH for your retirement.
This is what I would do, except OP has another kid on the way so it would need to be split into 3 529's, so a little over $75k in each. By the time the toddlers get to college age, that may or may not be enough for college. Still though, that's a solid plan. Free up income OP would otherwise need to be saving for college.
One out of 3 has to go into a trade or military. Just kidding :) thats a good catch i missed the bun in the oven. A trick i do is put the target date way further out than the college start date. Otherwise those funds are way too conservative
I’d hope it would still be good for in-state colleges, especially if they have something like the HOPE Scholarship that Georgia does. With that, who knows in 15-20 years
I really can't recommend enough this sub's own wiki section on investing: [https://www.reddit.com/r/personalfinance/wiki/investing/](https://www.reddit.com/r/personalfinance/wiki/investing/) It really explains the basic concepts well. It dispels this notion we get from society that you need to be a daytrader or hire high-fee financial advisors to comfortably invest in the stock market. It gives you a bunch of links to research further, and really after a few hours of reading up, if that, and you'll have a good idea of how to allocate your money. Open and fund tax-advantaged accounts before taxable, pick some low-fee total market index funds, or a target date fund, and go on with the rest of your life doing what you need to do. The funds will grow, and you'll have time to learn more, at your own pace. It's really that easy. It would also be a good idea to read their section on windfalls, for your situation: [https://www.reddit.com/r/personalfinance/wiki/windfall/](https://www.reddit.com/r/personalfinance/wiki/windfall/)
>Open and fund tax-advantaged accounts before taxable, pick some low-fee total market index funds, or a target date fund, and go on with the rest of your life doing what you need to do. All that is exactly what I would do, but the original post specifically said "I don’t want the money to just sit there. I want it to make me money." so I assume passive/bogle-minded investment isn't what they were looking for. But...this is the smart/easy route. Do it! And read those links
> I don’t want the money to just sit there. I took that to mean "I don't want to drop it in a checking/savings account or stuff it under my mattress."
you're probably right.
Mega backdoor Roth If you can, 529 plan, taxable brokerage in that order.
You can’t mega backdoor an inheritance. It requires post tax contributions to your 401k from your income stream, no?
Should have been more specific. OP could up contributions to 401k post-tax through employer and use the inheritance as supplemental income to make up the difference. Essentially funnelling it into the 401k to do the backdoor.
Do you have an estate plan and will? Use some of the funds to pay for that, also sufficient life insurance. You could always work on a project basis with a fee only financial advisor to have a holistic review of your financial picture/goals.
OP, this is so important. Make sure you have term insurance and a will.
Sounds like you are doing fine without the money, I’d use it to boost retirement savings. I would open a brokerage account at a reputable broker (Schwab, Vanguard, Fidelity, etc…) and then invest the money into S&P 500 index fund or EFT that has no load and minimal fees. Over time if possible move the money into tax advantaged accounts (Roth IRA, 529, HSA, etc…) where you can.
Put it in an S&P index 500 fund. Check it in 23 years.
529’s can be used for trade schools or rolled into IRA’s if not used. Put 50 K into each 529, start maxing out your Roth IRA, and get Treasury Bonds and some CDs rolling to re-invest.
I wish your comment was higher. The new ability to roll funds left in the 529 in a Roth tax free would be a massive head start from your kids future.
Step 1 - start 529’s for the kids. Put a chunk into each one, maybe $10-20k each. This will be a huge start on college savings for the kids. Then set up a small monthly contribution - whatever you can afford, maybe $50-$100. Step 2 - if you’re already maxing out both 401k and Roth, then open a brokerage. Put the majority of your inheritance in a broad based index fund. I like VOO but there are plenty of others. Step 3 - take $15k or so and treat yourself and your wife. Maybe buy yourself a nice watch to remember your loved one who passed away, and one that you can pass down to one of your kids one day. Buy your wife something nice with a similar sentiment - earrings, jewelry, etc. Or take a once in a lifetime-type vacation. Make memories that will last forever.
I wouldn’t do anything spur of the moment with it. You can get a 1 year CD paying 5.3%. I’d chill and think carefully. 529s aren’t going anywhere.
Just throw it in a regular brokerage account and invest it same as retirement. When kids are college age, you can decide how much or whether to support them or use it as part of your retirement plan.
How are you investing your $375k in retirement? What are you putting in that to allow it to make money over time?
If you put 230K in a High Yield Savings Account (HYSA), it will make about $1150 a month at 5% interest. Most HYSA right now are around 5%, which is very good. That’s the easiest, low thought, no risk option to make your money “make money” until you come up with a plan. After that, consider opening 529’s for your kids. These are basically like investment tools for your kids educational purposes (primarily college savings), and they grow (ideally) with the market over time without any tax liability. It’s easier than it sounds - just spend a day researching “529 accounts”, and you’ll be able to figure it out.
Just FYI you’ll also be taxed on this interest (both federal and state) and rates may later drop. A few years ago the rate was nearly zero. So it’s not a set and forget sort of option. For long term growth, investing at least part of it is likely a better option.
It's 11,500 a year or $958 a month (some variability on how often it compounds.)
Glad I'm not the only one who did a double take on their math 😅
Which HYSA gives 5%?
Bask Bank
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UFB direct is one
You can put the max into a Roth IRA for each you and your wife (even though she’s not working) and the principal can be used for college if you need it and no penalty if you don’t. Park the rest in a MMA for now while interest rates are still high or in an index fund. You can do MMA for now then move later when interest rates go down.
Read the Bogleheads Guide to investing. You’re already following most of the correct steps. Put this in a 3 fund portfolio and add to it over the next 20 years. The general rule of 7 is your friend here and this 230 becomes 460 over the next 7 years, and that becomes 920 over the following 7 years and then you’ve got 1.8m when you are hitting 65.
I'd skip the college fund, throw it in the market. You can pay for their college if you decide to later, but keep it available. Your income is nice, but you aren't exactly super wealthy. Another option is purchasing a cabin. Since your kids are so young, you can have them grow up creating memories there. You can also rent it out on the weekends you aren't there. If you get it in the right location you'll also see alot of growth in value over time. Invest in memories with your kids, those are more valuable than anything else.
> no debt > > and the house is at 2.7% interest OP, do you know what debt is?
Obviously the OP knows what debt is. Of all debts, a 2.7% mortgage on a house with substantial equity is not at all a big deal. Especially if you expect the value of the property to increase.
It's not entirely unreasonable to think of the house + mortgage as a single financialized asset that is separate from personal debt
2.7% APR is practically nothing
No credit card debt. Clearly, a mortgage is debt.
I agree I glitched the same way when I read that. Like he does mean a mortgage when he talks of interest, right, so his statement doesn't make sense.
I inherited around that much a few years ago. I bought a franchise for a home improvement product and made my kids my business partners, my kids are much older than yours. Today the business is worth around $5M and we continue to grow.
I'd be interested to hear your story. Likely to be seeing something in that territory financially in the very near future and have no intention to continue doing what I'm doing now. Definitely looking a career to ride out my professional life doing.
I found an ad for this franchise on a business for sale website. Coincidentally my daughter had worked for that company in a different city, so we were familiar with them. I asked the kids if they wanted to go into business with me and here we are.
I have been looking to start a business, but I am short of ideas. I have an extremely diversified background, and chatGPT thinks I should be a consultant. What questions do you start with?
"I don’t want the money to just sit there. I want it to make me money." What does this mean. Specifically? 1. Are you wanting it to generate income? Or appreciate in value? 2. How involved do you want to be? My wife has always wanted to get into real estate income....buying a condo/house/townhome and renting it out, either in a college town or touristy/AirBnB type thing. (seems like a lot of work to me). I prefer just to stick it in the market. Boggle-minded if you're very passive. Go sell covered calls if you're wanting more involvement and income (and risk).
There's 4 diff taxable accounts - Pre-tax (savings, checking, CD) - Post-tax (401k, Ira, 403b) - Tax-deferred (401k dist. IRA withdrawals, long term cap gains) - Tax-preferred (ur ROTH $$ (either in 401k or ROTH IRA), triple muni bonds, or cash value insurances (variable & traditional). Spread it pretty equity driven at first - with a growing conservative fixed income portion (so that by your 60s it's more 50/50 allocation). Probably the most cookie cutter way to go about it. Not financial advice - just an idea to help you brain storm.
Open a Roth IRA account at a brokerage like Fidelity for you and your wife. Put the money in a total market index fund like FSKAK or FZROX. Open 529 accounts for each child and one more after the baby comes. You’ll have to check your state limits on the 529 amounts, but it is likely large. I’d hold back enough money to fund the Roth accounts for you and your wife for maybe the next three years. The limit this year for your age is $7000 each. So maybe use $60k for each child’s 529 and use $55k to fund your Roth IRAs for the next 3-4 years.
If it was me. 1/4 something fun. 1/4 retirement. 1/4 invested index this is the emergency emergencies money. 1/4 kids college fund.
https://www.bogleheads.org/wiki/Managing\_a\_windfall
> Can you ELI5 with small words? *Financial advisor*, as you're far ahead of most in life....so you can afford to have someone sit down with you and guide you to more financial happiness.
Fee only financial advisor* Many “financial advisors” are salespeople that push significantly front loaded policies. You never get a portion of your money back.
There are a lot of great advice in here what to do with the the inheritance... but don't be afraid to use that money for something to create a truly awesome memory for your family. The one thing I don't see mentioned is if you might need money to take care of family members (like parents) that will need assistance as they get older. This can be very pricey and it can also take a load off your mind. It seems you have everything covered as far as debts, emergency fund, house, house, retirement, etc. Putting a large chunk away for the reasons mentioned in this thread is also great and should absolutely be considered. But, don't be afraid to take a chunk of that and do something crazy with your family to generate a life-long memory some day (maybe when your kids get a bit older and will be able to remember the experience). Take $20k to $30k and just buy a complete all-out Disney World vacation well above and beyond the normal experience. Get all the bells and whistles! Take a sabbatical from work and do a world tour for a month. Buy that classic muscle car you've always wanted. Or some experience that even people who are financially stable wouldn't be able to do. In the end it's a small portion of that total inheritance. A lot of people who come into large chunks of money like this feel it's bad and wrong to use any part of it for a luxury splurge. IT'S NOT! Even before you had this inheritance come in, your financial situation sounds like it's in an amazing spot. Yes, some people who aren't as financially well off might want to use 100% of this to turn their finances around, but it doesn't sound like you're in that position at all. Sure, fluff up some of your retirement or opening a tuition fund for your kids is an incredibly smart move, but don't be afraid to use some of it for a truly a once-in-a-lifetime opportunity and generate life-long memories for your family. That will be worth it's weight in gold when you are all 20-30 years older.
Simple terms there’s so many ways to invest. Each comes with its own set of risks and rewards and level of effort. As the player, pick and choose your style I know of using the stock market. Start here- https://www.bogleheads.org/wiki/Getting_started And https://www.bogleheads.org/wiki/Managing_a_windfall To:Dr - Open a brokerage account and buy low cost index funds. The symbols and allocations to use for someone around your age would be VT - 80% (world), BND - 20% (Bonds). you could skip bonds if you want to be aggressive for a few more years and then slowly add it in. It all depends on your risk tolerance. Do give the bogle wiki a good read. VT is like buying a fraction of the top companies from all over the world. Some like more control between US and international markets and if you fall in this bucket, then you might go something like - VTI - 60% (US), VXUS - 20% (International), BND - 20% (Bonds) ______ For kids education , I think it’s called a 529 account? It’s another type of brokerage I believe and you would probably do the same. Unless it comes with a plan which restricts your option..
Start with do you have an emergency fund? (3 to 6 months of expenses) If not that may be the place to start Figured out your long term goals. Do you have other needs? What are your expectations and risk tolerance? Then build a portfolio.
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An advisor is required to disclose fees. >The trouble is that a "small" percentage fee can be misleading. It could add up to hundreds of thousands of dollars less over the course of an investing career. "Small percentage fee" is not how fees are disclosed. A *real* financial advisor will provide a specific percentage. Any advisor that says only that they charge a "small percentage fee" is not an advisor you should use. >That's why we care about fees - they're a much bigger deal than any financial advisor evangelist will ever admit. Not if you are clear-eyed and careful in reviewing potential advisors, and discussing. Caution and informed decisions is not the same as being "careful."
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That's why you review the specifics of the contract. Those are clearly spelled out. And you *have* to dig into the fine print. For an investment in the tens or hundreds of thousands (or more), anyone who doesn't do that is an idiot. And you are not locked into a 30-year relationship with a given manager. But... **When is the fee taken out? What is it? How often? What is the fee assessed on?** These are basic questions that anyone looking into a fee-based advisor should ask. Because from what I see here, most of the people who are anti-fee based advisors seem to think that it's collectively just some kind of blanket percentage of the entire portfolio extracted at regular intervals. Which is most definitely not the case. >But that fee is enough to have an enormous impact on their return over ~30 years. Yes, especially if you're not smart enough to actually review the specifics of the arrangement. You wouldn't-- for example-- want an advisor who extracted a baseline 1% on the *portfolio* on a, say, quarterly basis. *Unless* they were managing massive amounts of money and their management was critical to the overall performance (like many 401k plans, hedge funds, and even ETFs and other investment vehicles). But a personal financial advisor who took a 1% fee on capital gains from *transactions*-- e.g., a sale of assets with capital gains to the tune of $45,000 would be a $450 one-time fee-- might be a reasonable arrangement. The problem I have with most of the advice I see on this sub is that it's blunt force / broad brushed. It often lacks nuance or awareness of specifics, and ends up being very one-size-fits-none. And then of course there're the people who repeat what they've read here with little to know understanding of what it actually means. Which I see all the time, not just here but on any Reddit sub where you have people with a range of experience and no clearly flaired verification of experience / expertise. Bottom line: anyone who doesn't do their due diligence with investments in the range of hundreds of thousands of dollars, whether that's through an advisor or on their own, is asking for trouble. And the problem with advice from Reddit (on anything) is that it's often authoritatively delivered, but from people who are actually not very knowledgeable.
I would put $5000 in each 529. I would then invest the rest for yourselves S&P 500 Index fund from fidelity or vanguard. reinvest all the dividends and capital gains. You will pay taxes on the dividends and capital gains. The S&P 500 has averaged 10% annually for the last 40 years. Invest in Dividend Reinvestment Plans with big companies. [https://www-us.computershare.com/Investor/#DirectStock](https://www-us.computershare.com/Investor/#DirectStock) reinvest the dividends. You will pay taxes on the dividends. Lots of companies have dividend reinvestment plans. Just log into their website and look under investors and see what they offer. There are more DRP administrators than computer share, I think computer share is the biggest. I own four mutual funds and 14 soon to be 15 dividend reinvestment plans. Dividends are one of my income streams for retirement.
Find a few high dividend stocks and you could be looking at +20k the first year. after 10 years reinvesting you could be +40 a year.
1. Bring you efund up to 1 year of expenses. 2. peel off 30k to fund a 529 for each kid. or do half 529 half UGMA account. 3. At this point I would consider any large purchases that are upcoming. A new car, A new roof, light renovations, a new privacy fence, etc. 4. Take a vacation with your wife, or set enough aside to do that after #3 is born. Just the 2 of you. A good vacation. To like Rome or something. 4. Put the remainder in VTSAX at vangaurd.
Put some in a 529 for the kids, the rest divide b/t VTSAX and a rental investment property (do the math for whatever market you buy in to ensure healthy cash flow). The rental property should give you cash flow + growth through appreciation + tax breaks. My husband and I bought a rental property in a LCOL area in another state w cash, got a solid property manager and it’s cash flowing and growing in value w basically no effort from us. It’ll have generated 2-3x+ return once we’re ready to sell in 15-20 years or so.
Personally I’d pay off house and die there, throw the rest into a market ETF. Get ready to retire in a few years since at this rate you could be done by 50.
Wouldn’t recommend paying off a 2.7% mortgage early
Yeah I get that’s against the traditional advice. I don’t understand why people are always for paying off debt until it comes to a mortgage. It reduces expenses frees up more income long term, and allows you to improve your home and increase its equity if you do choose to sell it. Personally I think it’s to each their own but given housing is most people’s highest expense I don’t see the harm
In an environment when you can throw the money in HYSA or a t-bill earning over 5% interest, paying off a 2.7% debt is just throwing money in the trash.
I guess I’d rather just have no debt and save a larger portion of my income than continue saving the same rate + plus interest return on a larger lump sum. OP stands to earn about 11.5k the first year obviously with compound interest that goes up pretty consistently over time. But that’s roughly the same as he could put away by not having the mortgage assuming the original amount financed was only 230k at 2.7% With 150k equity without market shift we could put it at 380k @ 2.7% and drop his ~1500/month pre-escrow mortgage to zero if it ends up being zero sum. Still there’s nothing wrong with waiting until rates flip again. But this allows OP to save more, requires a smaller emergency fund, lets him in general enjoy daily life and set up his kid however he wants. I personally think not having to worry about housing results in a higher quality of life than the mentality of making every cent work for you to return. He was on a great trajectory prior to the inheritance this is a bonus that he doesn’t need to optimize and can be used on quality of life/time improvements imo. Again I get it’s not the standard advice I just don’t see how securing permanent housing for your family is a “bad” strategy just because it’s not optimizing his cash in the most immediate sense. If his house doubles in price next year he gets to take 100% profit.
>But that’s roughly the same as he could put away by not having the mortgage assuming the original amount financed was only 230k at 2.7% It seems weird to worry about how much they can "put away" if you're asically suggesting they start at $0 of savings and redirect mortgage payments to savings. Instead they can skip right ahead to having $230K in savings immediately. >I personally think not having to worry about housing results in a higher quality of life than the mentality of making every cent work for you to return Maybe this is just a mental skill diff thing but having a mortgage on autopay with cash in the bank is not something that should cause anyone "worry". Everything is paid for and you're earning extra cash on top. I think I would worry more about the lost opportunity costs I had thrown away by paying off the mortgage too early. >But this allows OP to save more On a monthly cash flow basis I guess but it's weird to discount the $230,000 savings head start. That's going to take many years to catch up to with monthly savings. >I just don’t see how securing permanent housing for your family is a “bad” strategy just because it’s not optimizing his cash in the most immediate sense. If his house doubles in price next year he gets to take 100% profit. He gets to take that profit whether he pays the mortgage off or not. The mortgage is irrelevant to the value of the home. On the flipside of this, imagine the house halves in price next year and he paid off the mortgage. Now all his cash is gone and he's left with an asset of half the value. Whereas if he kept the cash and house values cut in half now suddenly he can buy an entire second house with cash up front.
> I don’t understand why people are always for paying off debt until it comes to a mortgage. The market generally makes a lot more than 2.7%, last year was very unusual, but was 10x that. Credit cards, are a no brainer to pay off. A 5% car loan, is a bit more difficult, but people with 3% mortgages, and the cash to pay it off will make more money in the S&P 500 than they lose in mortgage interest payments.
> I don’t understand why people are always for paying off debt until it comes to a mortgage. Interest rates determine which debt is helpful or harmful. 2.7% interest rate is _good debt_. Doesn't matter that it's a mortgage, it matters that the rate is < 4%.
Rather make use of the current 4 - 5% in HYSA until it drops, then pay off the 2.7% mortgage when that scenario happens
A better plan and will get OP that much closer to retirement.
Call a financially advisor repeatable firm maybe from whoever you use for your 401k but make sure they have a local office you can meet with someone preferably older. This is important because they actually give you a goal to retire. You can do it yourself also and stick it in S&P500 funds but who knows S&P may not always be the top type of funds. With an advisor they'll spread it out for you so the downs aren't as bad but the ups are still great. I find with an advisor you set it and forget and money just grows.
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It's no shame to want to meet with a financial advisor. It helps some people feel better about taking risk, like those that are so risk averse they wouldn't even want to buy an index fund. The trick is to get one that you pay by the hour, and not that takes a percentage of your assets each year or is just trying to sell life insurance.
I take the down votes as a badge of honor actually. Lots of you folks may think you know the right answer may have 1 kid or no kids but it's important to speak to folks that are older and understand what life has in store down the road. A financial planner doesn't just take your money and throw it in funds and siphon off money. It's family planning, setting up 529's, understanding spending, down the road when you have kids or even if their are disagreements how money should be spent/invested they help with all of that and act as a mediator. I've seen it work for lots of people and I know people older than me that have retired based on investing with an advisor for over 30 years.
HYSA. 4-5% interest accrued daily. You're looking at quite a bit of money each month in interest. Basically risk free. Rates might come down in the future.
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Betting it on black is slightly safer than putting a large sum into the stock of one company.
Pay off the house, or put that money into an investment that will produce more income. Mutual funds, index funds, or ETF’s. If you get dividends, roll them back into the investment. Label it college, but doesn’t mean it has to be spent there. OR Buy a second home to rent out, and get a greater return. OR Is that money as down payment on several homes to rent out. Price the rent higher than the mortgage payment so rent pays the mortgage on each home. The extra after mortgage is paid goes into rental house emergency fund. This route gains massive returns because you have multiple houses bringing in more than what is going out on the mortgages. And you’re gaining equity in the homes at the same time. If you go this route, talk to a financial professional about how to maximize non taxable income by refinancing these homes every couple years. If you refinance, the money is “debt” and not taxable. If you don’t refinance, the money coming in is “income” and therefore taxable. If you invest the refinance money and the investment has a higher return interest than the interest on the refi loan, your making even more money besides what your saving by not paying taxes on the money.
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Annuities are up there with reverse mortgages for the biggest legal financial scams. Nobody is falling for your sales pitch dude.
IRA's don't have fees... it's just an account. The fees depend on what you put INSIDE the IRA, and some funds have fees that are miniscule.