Personal Investments • Decisions on Windfall of $160k

My wife and I will be receiving $160k in a windfall from the sale of an inherited house. We close next week. We are trying to decide what to do with the proceeds. I enjoy my job and do not plan to retire before age 65. I make around $150k per year and my wife is a stay-at-home mom. We are 49M and 40F with four children ages 19, 17, 9, and 7. We already maxed out Roth IRA for 2024 for self and spouse ($15k). I am on target to max out my 457b with catch-up contributions ($30.5k). My proposal is to use the bulk of the money to boost our retirement savings and help fund education for our children. We also want to set aside some money for a travel fund.

We could pay off the mortgage, invest, or just spend. It does not have to be all or nothing. We could sprinkle around the money. I wanted to get some feedback. Here are some options:

Pay off mortgage:
Our only debt is our mortgage with $91k in principal with a 2.1% rate and 9 years left. One option is to pay off our mortgage and be debt free, but the rate is really low. This would give us peace of mind and free up cash flow of $900 per month for principal and interest. We like our home and do not plan to move.

CD ladder ($90k):
We could put $90k in a CD ladder that would be the functional equivalent of no mortgage. We can get around 4-5% in CDs and our mortgage is 2.1%.

I-bonds ($40k):
We could put $40k in I-bonds with $20k for 2024 for self/spouse and $20k via gift box for spouses. I like the current 1.3% fixed rate for long-term bond allocation. We also qualify for the interest exclusion for tuition for our children. If we contribute $40k to I-bonds, this would give us a total of $90k in I-bonds which is the functional equivalent of no mortgage.

HYSA for travel fund ($20k):
We want to set aside $20k or more for a travel fund and put this in HYSA (currently at 4.3%). My wife talked about maybe taking a trip to Paris with her sister.

529 accounts ($10k):
We could put $10k in 529 accounts for 2024 for our 2 younger children to max out $450 in a state income tax credit. Our two older children live at home attending the state university located 2 miles from our home. They both received academic scholarships and we qualify for the American Opportunity Tax Credit (AOTC). After scholarships and the AOTC, tuition is mostly covered. Our oldest son should graduate in 2 years with no debt.

Taxable brokerage account:
We could invest in our taxable brokerage account in VTI. If I max out my 457b and SEP IRA, we are MFJ with 12% federal marginal tax rate and 4.85% Utah state income tax rate.

Current family balance sheet without the new money of $160k:

Assets:
HYSA (e-fund): $10k
I-bonds (e-fund): $50k
taxable brokerage: $30k
529: $33k
Roth IRA: $120k
tax deferred IRAs (403b, 457b, SEP IRA): $380k
Principal home: $600k
Total assets: $1.2M

Debts:
Mortgage (2.1%): $90k

Net worth (including home equity): $1.1M
Net worth (excluding home equity): $620k

Retirement planning:
I really enjoy my job, but we would like to travel, especially while we are in good health. I am a full-time online professor teaching business law for a university and have my own part-time solo law practice doing estate planning. I could work remotely while traveling. I also get an employer contribution to my 403b. With $530k currently invested in retirement funds (brokerage, Roth IRA, tax deferred), if we contribute $4k per month for 16 years with a 4% real return, we could have around $2 million at age 65, which could give us around $80k/year in current dollars with a 4% withdrawal rate. I also have a small pension age 65 from a previous employer of $3k/year. My estimated Social Security at age 67 is $41k per year or $33k with 20% reduction. Household spending is around $70k per year, or $60k with no mortgage.

Statistics: Posted by legalwriter1 — Fri Jan 12, 2024 5:14 am — Replies 0 — Views 47

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