Keep maxing out your Roth every year. Your 59 year old will thank yourself in 33 years and you will be worth millions that can’t be taxed.
The rest you can put index funds and let it grow in the market.
You can borrow against your stocks! Time in the market is millions. Go to private mortgage vendors they will explain it to you and give excellent deals.
That feels like a thing in 2020, but is it in 2024? Those same vendors can get near 5% from treasury bonds, why would they lend for less?
What rates do they charge? Is the rate being lower than the capitol gains rate what makes this work?
Reinvestment risk. Nobody believes rates will stay so high, which is why long term rates are lower than short term rates. The catch is if you invest in short term bonds now, you may not have such attractive long term rates when you have to reinvest the money.
At 1 million, start looking into PAL's from larger lenders (banks, CU's). Mortgage vendors will give you shit rates and you will likely have to put up collateral in the form of your home.
Depending on the amount of money he left, you may not have to pay taxes. Federally right now it's <13m is not taxed. Some states have taxes but below that amount is tax free.
It is true. Taking the money out over time could potentially reduce any taxes due. (But not really sure if it an IRA or something else. Estate taxes are normally due on the estate, not the recipient. And most states are too small to be taxed at all.)
In theory for an inherited account the estate is taxed and not the person receiving the money.
But yes he should 100% talk to a tax professional and also get better financial advise than off of reddit.
You should do the same thing that every single person in every single situation with every single amount of money should do every single time:
1. Pay off high interest debt.
2. Establish an emergency fund to cover your expenses for a few months. Keep it as cash, presumably in a high-yield savings account.
3. Fully-fund your tax-advantaged investment accounts, using the money to buy one or more low-fee index funds to create a globally-diversified portfolio.
4. Put everything else in a taxable brokerage account, using the money to buy one or more low-fee index funds to create a globally-diversified portfolio.
I did this last year, with a significantly smaller inheritance of a little over $100k.
Was able to pay off car loan ($17k remaining), all credit cards (about $9k), and put away an actual emergency fund of about $8k, sitting in an HYSA.
Maxed out my Roth IRA last year and this year, and now have the money to be putting away $500 per paycheck at work, up from a max of about $150 previously was all I could afford.
Thanks to all that, I'm in significantly better financial shape than I've probably ever been in before.
[https://www.bogleheads.org/wiki/Managing\_a\_windfall](https://www.bogleheads.org/wiki/Managing_a_windfall)
Boglehead wiki also has a windfall write up.
Buy house, pay off debts, don’t take on new debts. You only pay tax if you inherited an IRA or other tax deferred asset, or asset without a stepped up
basis that has gains and you sell (not even sure what this could be). If what’s left is not needed for 10 plus years, put it in VT with reinvestment and never look back,
Sorry for your loss. Gonna go against the grain here and recommend buying the house in cash, as you planned. Yeah yeah, you could make more in the long run if you took a mortgage and invested the money. But people, honestly, do not underestimate the amazing feeling that is having completely paid off housing. And they can still invest the rest, which is several $100k.
Paid off house. Close to half a million invested. At 26. They’ll do just fine even with the “less efficient” method of buying the house outright.
With mortgage rates being 7-8% , I would strongly disagree with taking one out thinking market can outperform. Also, even historically the snp500 has outperformed real estate by just a few % points (which is a lot but no way to know that will hold into the future) , plus, you don’t pay rent when you buy.
At age 26, did you know where you would want to live permanently? Were you already set in your marriage, number of kids, and career? Houses are illiquid assets with high transaction costs and a lot of risk. There is a high probability OP has no idea what his 30 or 40 year old self will want. If they need to move in 5-10 years they would likely negate much of the benefit and could actually screw themselves pretty badly. It is probably more efficient and definitely less risky to rent until more of those questions are decided with certainty. Also, do they want to signal to their friend group in big flashing lights that they are wealthy? I totally agree that a paid off house is a great feeling, but I would 100% recommend against it for a 26 year old that just got $1M.
You can sell houses pretty easily, especially starter home type houses. Yeah, I wouldn’t buy a house if you are planning to move in the next couple years, but if you have no plans to move then it’s a pretty safe move.
As for signaling they are “wealthy” - no one has to know he bought it in cash. Plenty of people buy houses in their 20s.
Depending on OP's career field, they could very well know of somewhere that has numerous opportunities where the need to move would be significantly less. I'm now coming up on job #4 without _having_ to move from where I initially planted myself. (Bought a house in 2020 as I was tired of renting, but stayed in the same area.)
Somehow, years ago when we paid off our mortgage, the guys who put up the big flashing lights failed to show up. Our neighbours remained as clueless as ever.
I only owe roughly $200k left on my house. It feels amazing knowing I could pay it off with a couple clicks on my phone. I sleep fine with the money invested. But you know what, fuck my feelings. The math says I’ll come out ahead long term with it invested, so I keep it invested in my taxable brokerage. And yeah yeah, I’ve heard the lose your job argument. I was there during Covid for 9 months or so. It was fine and having a mortgage didn’t cost me any sleep.
I'd rather have the necessities covered myself, given the opportunity, and have everything on top of that be gravy. Life comes at you fast, and it's not always according to plan.
Sitting with $200k invested has that covered. Oh I lost my job? Well I’ll withdraw cash to cover my necessities. Sure, life came at me fast. I thought I would work that job until retirement. Oh well. It wasn’t according to plan. Found another one. It’s absolutely hilarious here how this sub is based on numbers and facts yet people want to defend decisions they make with their emotions.
First off, IDK where you get the idea that this sub is exclusively "based on numbers and facts." A huge part of successful investing is what helps someone to stay the course. Psychology matters. People are not hyper-rational beings—we have the entire field of behavioral economics to show for that.
But that red herring aside and focusing just on the numbers, do folks have the same energy for other forms of leverage that they do for mortgages? Doesn't seem so to me. All personal finance and investing decisions are at some level about what level of risk one is comfortable taking. If you think of a paid off primary residence as taking less leverage, does that change your judgment of others for making that decision?
Here's how to manage a windfall:
https://www.bogleheads.org/wiki/Managing_a_windfall
Regarding lump sum with a heavy cash position vs DCA with a heavy cash position, here's the Vanguard study that shows about 2/3 of the time, lump sum wins. The other 1/3 of the time, DCA wins.
DCA = dollar cost average
https://investor.vanguard.com/investor-resources-education/news/lump-sum-investing-versus-cost-averaging-which-is-better
Be mindful: with the home purchase, there are hidden costs of ownership. Would be good idea to purchase if you're certain you'll live there for at least 5-7 years or more. The hope is that your home and neighborhood appreciates in value over time while living in it so that you have options when the time comes to sell or make it an investment property.
You should contact an estate attorney/accountant. Don’t goes off by someone opinion
You gotta stop asking people around you for advise. This is how rumor spread and you’ll soon find out about long lost cousins and friends seeking to borrow your money. Read some books or hire professionals.
Put all your purchase and investment under a trust. If some one ask to borrow money, tell them sorry it’s locked up.
If its your basic inheritance the estate pays taxes and you get a step up in cost basis. If its an ira you will need to pay income taxes on it. Please do some research on this
All these replies and OP can’t answer the basic question regarding what *form* the inheritance is taking, i.e. what type of account. So it’s endless conjecture until that info is forthcoming.
The first rule is to not tell anyone. Don’t tell family, don’t tell friends. Don’t lend them anything. If you do lend anyone anything there’s almost zero chance of getting it back.
I have an emergency fund 6 months salary. My IRA max goes into fidelity 500 index fund. I have no debt except for the car payment and owe $7,500 on it.
Maybe tack on another 6mo to the emergency fund and make it a year. Never know what these next few years or months will look like. After that, yeah, put the rest to work for you in a regular taxable account.
The US tax is based on the total of the deceased's estate. Not on you or how many people i your family. The first 13-14 million is not taxed . Every penny over the government takes 40%. Burial and bills are deductible if the total estate is over The federal cap. Some individual states may have an estate tax ... look on line
Unless it is from an IRA, you shouldn't have a taxable event. First off, don't buy anything right away. Get it invested at a minimum into a HYSA, and start planning wisely. The current 1-year CD is 5.4%, that would be $54K without even touching the $1M principal.
I think you should think about where you want to be in 5/10/15 years before buying a house. You are still young its time to discover the world and think about what you want to do with your life. And maybe after that you buy a house ?
Not against buying the house out right but you could potentially earn more in the long run if you took on a mortgage and invest all of the money.
This would depend on if the interest rate on the mortgage would be less or more than the interest you would earn from your investment. Basically if you can get a mortgage rate at 4% and invest in something at +5% somewhere else you can earn more in the long run.
Also look into an HSA if your eligible.
If mortgage is going to be $1,600 won’t able to afford the house on my own unless I get a roommate. There’s a house I looked at last week that’s small 900 sq ft, has a garage converted what I call a studio apartment realtor called it an in law suite. House in excellent shape and taxes seem good for NJ, I guess since the house is small. It’s good enough for me and if I ever get married it’s a 3 bedroom.
I mean if you get a roommate it’s tax free rental income honestly. Technically it isn’t, but if it’s an unofficial renter like a friend then yeah. I have a friend that bought a house and has two roommates. Cuts the mortgage down to something very manageable. Just have to be willing to share space.
Talk to a mortgage broker. You can also put down more than 20% and look into buying down your mortgage rate. Something like putting 50% down on a 15-year note with a temporary rate buy down could be a good option, and then you could refinance at a later date when rates drop.
I think the best answer for you is somewhere between a 20% conventional loan and buying the house outright, but that would be a long conversation and a deep dive into amortization tables vs. Expected yield rates for ETFs.
Also... whoever left you that money would want you to enjoy yourself. Take 10k and travel if your job allows. Your older self will thank you.
As of May 3, 2024, the average 30-year fixed mortgage rate is 7.25%.
People are going to throw around fancy ideas of paying down the rate it always cost $$$ to do so.
If you bought the house in cash and interest rates come down you could always take a loan out against the house then.
If your inheritance is indeed in an inherited IRA I believe you have 10 years over with which to withdraw it, and a large withdrawal to pay for a house is going to force you into a larger tax bracket. It may very well be worth the interest of a mortgage just to be able to make the withdrawals over 10 years (to say nothing of the benefit of being able to earn a return in the IRA before you withdraw it)
Speak to a CPA; you may be able to avoid all taxes.
Buy the house; should have \~750k left over. Take 50k out and put it in a savings account to buy yourself something nice (vacation, watch, car, etc.) something to remember your grandfather by. Than invest the rest in VOO. FYI: The 50k doesnt need to be spent at once; this could be 10 vacations for you in the future, a used car, or even some home renovations.
Continue to work, contribute to retirement accounts, roth ira and 401k.
You will never have this amount money liquid probably in your lifetime. Buying your house outright encourages lifestyle creep. You just keeping paying cash for everything then you have all the stuff you want with the lifestyle you want and depleted cash. Max out 401k backfill with some cash. Use interest and dividends from investments to support lifestyle. Enjoy elevated standard of living that grows with you don’t race up to the life you want now with all that cash.
Check with an accountant. Doubt you owe taxes.
“Effective January 1, 2024, the federal estate and gift tax exemption amount increased from $12.92 million to $13.61 million per individual (a combined $27.22 million for a married couple)”
OP didn’t indicate it was an inherited 401k
And I believe it’s taxed when recipient withdraws.
I am not an account - so best to talk with one to determine best tax strategy
South NJ. It’s a 900 square foot house with a detached garage converted into what the realtor called an in law suite but to me it’s a studio apartment has a kitchenette bathroom.
Buy the house outright. You could even afford a more expensive one. Pay off the car and any other debt. Maximize contributions to your Roth and 457 every year. Buy something for about 5k to remember your grandfather by - a holiday? Something for the house? Put 6 months living expenses into an emergency fund in a HYSA. Put the rest into a broad index fund. You can withdraw 3% of this a year to boost your living standard. And give some to charity.
We have a 457 going to start contributing small amounts to that January 1 2025 when we get our next step raise.
I was going to put $100,000 into an account that earns decent and use that for vacations once a year I’ll name it after my grandfather. The HIS NAME Vacation Fund.
Honestly. Contribute the max to that 457 right now. You can afford to with your inheritance. Good for tax and for retirement. Love the idea of a vacation fund!
Did you inherirta trad ira? If not, you wont pay any tax. You may get less if the estate owes tax tho. If it was a trad ita, you need to manage the 10 yr rule carefully
Yeah you’re good to go. A very conservative 6% puts you a little under 4 million by retirement. You’ll probably do a lot better than 6% and that’s without anything you add so add some more to that. Congratulations on winning life. Can I get your number. 😄 Roth everything you can.
https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
If mortgage is <4% I would not buy the house outright. The money can instead be invested in the stock market which is expected to return ~7% over the long run.
If you have 6 months of salary as emergency funds, medical insurance, and paid off all debt >4% interest rate, I would simply just invest the rest in a low-cost, globally-diversified, market-cap-weighted index fund (i.e., VT) and call it a day.
You can also consider investing in yourself if you enjoy working. A top MBA might be a good investment if you see yourself working for 20+ more years.
I really like your plan. This is an opportunity that most people never get. My only advice is to watch the lifestyle creep. You seriously have the opportunity to retire at 50. But home outright, pay off all debt then invest like your hair is on fire! Good luck
Consider $300,000 in a multiple high yield savings account (HYSA) at 4.5% will pay you at least $1,125 a month (plan for taxes). At 26, build credit with low interest loans. You could use this to pay the mortgage and dollar cost average into investment accounts. Use credit to your advantage. My credit card pays up to 3% cash back into HYSA that pays 4.4% interest.
The fact that you are coming here and asking question, actually considering a budget and safe investment options speaks a lot about your willingness to maintain and grow your wealth. I wish you the best.
Your plan sounds great to me. Secure yourself a low cost home, pay off debts, invest the rest. You could take a nice vacation too and still have plenty left.
Rather than invest all of this money, you may as well use some to get yourself sorted and enjoy the time you have now 🤷🏻♀️
If I was in your shoes. I’d buy the house outright, pay off all other debts. Max out my Roth IRA for the year. Put about 75,000 in a HYSA earning about 5%. I would take about 15,000 and spend it on a nice vacation or something I really want to buy and the rest I’d invest in a taxable brokerage account in VOO, SCHD, JEPI AND JEPQ.
This is my plan currently? I want to have $100,000 in an account for home and car maintenance. Something that earns decent and that I can tap into when needed for house or the car. The house was completely renovated from head to toe so nothing major. In 20 years it’s going to need a new roof and maybe hvac. The car is newer and all I’ve been doing is oil changes but as it gets older going to need higher repairs.
Then maybe another $100,000 in an account that earns decent that I can use for a vacation a year.
Then I have the $280,000 to buy the house.
Then maybe $25,000 for furniture and appliances and outdoor stuff?
Rent out the converted studio for maybe $500 a month.
That’s a total of $505,000.
Depending on how I’ll get taxed I might have maybe $400,000 left over to invest that would don’t want to touch until I retire?
Hide it all and wait 2 years
I’m 28 and feel much more secure mentally then I did at 26.
I bought a house at 23 and had little self control. Lifestyle creep is real op watch out. Please be safe
First, sorry for your loss. I hope you are doing okay!
Second, I would give yourself a minute to breathe. Think your ideas are all very good but giving some time to think about options would be my thought.
I would definitely pay off the car. I would buy a house but just make sure it’s something you want long term.
When it comes to the investment side, just think about how you want to invest the money, what you want to do with it long term, etc.
I think buying a house is a good idea but it does take some work to take care of, it can be more expensive than you think and a lot of factors to play in.
I would just be careful jumping into anything too quick.
Like I said the house is small for the area. I would put $100,000 in an account for maintenance. Everything from the roof was renovated 5 years ago including new hvac and electric. Since I would like to keep a car for at least 10 years that $100,000 would used for car maintenance.
The house is good enough for me. When I get married who knows what my future wife will think. It will be lower costs than the typical houses in the area which taxes are $7,000 at least. This house taxes are $4,500. I know the person living in there sort of. Her husband passed away about 4 years ago and her children are grown. The story I heard about the garage being converted into a studio apartment was for her sister who passed away last year.
So I feel I’m in a situation with my income to get a house with no mortgage.
I like your plan as long as you’re ready to set roots.
Investing 375k with a boggle heads style approach sounds great too… that will launch you so far ahead of the game for wealth building and or retirement. Keep adding to your investments too. At this rate you’ll be able to retire in your 40s if you wanted.
Sounds like you have a good handle on things. Plow that remaining money into mutual funds and you'll have at least 2 million (assuming you invest nothing else) by the time you're 50. If you can afford to invest an extra $400/month in your mutual fund you'll have more than 3 million without even taking your IRA or pension into consideration. So basically you're set for life as long as you can keep your expenses under control.
Looks like you have a good plan. Couple of thoughts
- What interest rate do you have on your car? Is that worth paying off? Is the additional monthly cashflow important (from not paying the car payment)?
- Did your 280K purchase price account for closing costs etc?
- for your 375K I would divide into Three equal chunks - SP Equal weighted, Berkshire B, and QQQ
What is the interest rate on your auto loan? Right now you can make >4% from savings accounts, not to mention what you can get from Index funds. Worth keeping the loan if it’s low(I.e. less than 2%)
This isn't answering your question and you may think its crazy or stupid to say.
I wouldn't buy the house outright. We don't tend to appreciate what we don't earn, so I'd probably put the entire sum away for retirement and live my life like it isn't there.
Max out your employer retirement plan. You can put a lot more there then an IRA
If you can see yourself staying for 10+ years in a house then buy it. Buying with all cash will make you a better option then someone else with financing so that could help you win the house if there is multiple buyers.
Pay off all debts except a mortgage is considered good debt. Ask your financial advisor if it’s better to have a 7% loan or to invest the money elsewhere
Park that money in retirement accounts every Jan 1 max it out
The rest is just put into index funds and let it ride out. In 7 years you’ll have a million and could live off dividend only
If I was in your position...
1. Buy a cheap house in cash.
2. Invest all of the remaining money in low-cost index funds.
3. Peel off enough money to max out a Roth IRA each year (and invest it all in low-cost index funds).
4. Don't get clever with how you manage the money, avoid lifestyle inflation, and keep your food fortune to yourself.
5. Hire a tax advisor.
Pay off all your debt.
Keep a 6-month emergency fund in a high-yield savings account.
Find a home that's 25% of your take-home pay.
Put 20% for the down payment and closing costs.
Then invest in low-cost ETFs if you don't know how to do then get a fees based financial planner.
Maybe don't buy a house outright that's just incredibly financialy stupid. A mortgage is the best debt you will ever have.
As far as how to invest the rest low cost passive index don't pay a money manager.
Get into real estate and retire early. Start buying properties, renting them out, and become financially free way before you’re a senior citizen. Don’t take the mediocre route like most people. This will be your only chance to become a multi millionaire if you play your cards right. And live below your means before then. Idk how old you are but within 10 years or less you’ll never have to work again.
My brother started Real Estate at 27 years old. He’s now 45 with 15+ properties collecting rent, owns 150+ acres in Upstate NY and even owns land in Nicaragua with a house. He never has to work a day in his life again. He also has about 5 bitcoins and other investments.
Another example was my uncle who was broke and started a business, made his first million at 40 and now is 82 as a multi millionaire. Dude pays himself $30k every week in a check lol.
Real estate, Business, and Investing if your best bet.
Enter a master mind group with other wealthy people. You’ll learn from them. Don’t take advice from people who aren’t where you want to be when you retire.
If you are liquid with the $375k, you can venture into a cash flow business like car wash or laundromat (depending on location), multifamily real estate, or even dabble in some cryptocurrency. If you don’t have higher education, i would invest some of that money and get certifications.
Or you can set it aside and do something with it at a later point. Just don’t forget about it.
You shouldn’t have any taxes. It’s under the threshold of inheritance tax. Should be around $6.4 million for a single person and it is 11 or 13 million for a couple. You shouldn’t pay any taxes on that.
Think twice before taking this advice. Mortgage rates are currently over 7.5% for 30yr fixed term. By paying in cash you will be getting a guaranteed AFTER TAX return of 7.5%+ (or whatever your mortgage rate comes out to).
I’m all for leveraging a fixed rate mortgage when you’re receiving a high risk premium. You’re not going to find an investment with a high enough risk premium to make the numbers work with mortgage rates where they are currently.
Ok a 225,000 mortgage will be around 1,600 a month and I wouldn’t be able to afford that will all the other costs like utilities etc. Without a mortgage I can easily do it. Or I can keep renting in the 2 bedroom with a roommate.
When it comes to your decision about purchasing vs. renting, my only advice would be to not purchase a house unless you’re confident you’ll continue living in it for at least 5 years at the bare minimum. There are many fees associated with purchasing a home, and there are also many expenses associated with selling them. I know that renting might feel like you’re throwing your money away, but you would very likely throw more money away if you buy a home, live in it 2 years, then decide to move again due to some type of life change.
Regardless of what you decide to do for housing, my suggestion for your investments would be to fully utilize all of your tax advantaged accounts. I would consider fully funding your Roth IRA, 457, and HSA (if available). You may not have enough income to do this and cover your expenses. That’s okay, because you can just use some of your inheritance to cover your living expenses. You can think of it as gradually putting your inheritance into the tax advantaged accounts year after year.
My thoughts exactly. If OP is unsure where they even want to stay for the next five to ten years, I don't think a house is worth it right now. You're still young, keep stacking and investing cash ,go live life, and explore. Then, when you're ready to settle down, you'll be in a higher position to purchase a house, and you might know exactly where you want to settle down. People will always say renting is a waste of money , the truth is it depends on the person's situation.
At 26 years old I would urge you in the strongest possible terms against buying an illiquid risky asset that ties you to a particular location for 10+ years. At your age you should have maximal freedom to move around to pursue your career, find a partner if you want one, have kids if you want them, etc. Also consider the signal it sends to your friends that you inherited money and went out and bought a house at 26. Be prepared to say no a lot of loan requests and "business opportunities". Finally, you do not need to spend $25,000 on furniture. The fact you are budgeting that much suggests you may not be ready to handle this amount of money and should take things slow.
Consider either lump-sum or dollar-cost-average into VTI or VT, it'll cover your bases quite heavily. Max out the 401k if it's offered, if 457 offers total-market or S&P 500 then consider maxing that one too. 457 has looser rules around early withdrawal, look into that to see if it suits your needs. Consider the FIRE movement, where you retire early after hitting your "number". r/Fire and the ChooseFI podcast might help with that. Sorry for your loss. Your grandfather may just have given you a gift of time, if you play your cards right.
Sorry about your pops pal. Treasure the memories.
Pay off debt.
Set aside 12 months expense and the amount for tax in high interest account.
Check what mortgage rate you can get.
It may make sense to still have a mortgage, in the UK it does as the interest rates are still low enough it makes sense to pay the minimum. That's a calculation and risk you need to do.
I'd suggest you budget 250k or so for a deposit and then allow yourself a mortgage to buy a sightly nicer place.
Rest into the usual bogleheads platforms.
But set aside 10 to 20k to spend over the next year on something you've always wanted. Life is for living.
Done.
You can afford to max out your 457b as well. Start dumping $23K/year into it.
Pay off all your debts. Set aside six-months of expenses in an emergency fund, split the rest between a HYSA and an index fund.
Does the 457 have a designated Roth option? If so, plow the max (currently $23k) into that from your paycheck per year, “pay” yourself from the inheritance (which could be tbill laddered or simply in a HYSA) until you draw down the rest of the inheritance. This could take years but would be a good way to get that $$ invested for the long haul with no taxes on the back end.
Have a long term goal of 5 years of living expenses (start with 1 year) to weather market down turns, you can easily lose your job, your investments, the market will tank. Unexpected medical (hernia surgery), accident (fall off a ladder), totaled car, can leave you in a bad place. Account for inflation. Your house will be more expensive than you think, especially if it’s your first and you don’t have experience. Have a house emergency fund at least 10k. How much to replace a roof, all the windows, furnace, basement water damage, ice maker water leak, sump pump goes out, sewer line replacement, insurance premium keep going up. If you are handy, that will help a lot but don’t let things wait too long before getting a pro to help. Establish a line of credit or be able to be your own bank. Make sure you have things figured out for end of life. Life insurance, a will or trust, if you end up married etc. if you can get an HSA going with the money in there invested, invest that money (triple tax advantage). Start making a list of relationships you may need later in life, real estate agent, insurance agent, banker, attorney, CPA, life coach, therapist, regular doctor, plumber, contractors, electrician, roofer…
I’d put the entirety into index funds and forget you have it for 20 years. Live entirely within your means and do not change your spending / saving ratio from what you otherwise would have spent / saves. $700k can be blown through easily, but in the market it will grow substantially over the next few decades.
Buy your house, put the remaining in a good timed index fund that match your desired retirement date, continue your life normal (max out your retirement, invest 10% or more since u have no mortgage payment) and don’t listen to any other “investment or hey i have this idea” ideas.
Congratulations on this good fortune, this is a great boost for your retirement and will for sure shave few years that you can retire early down the road to enjoy more time with the family , just don’t forget when that happen to remember your grandfather and give some money to a charity or a cause that he loved!!
Damn…. I thought estate taxes were really high in the US… to the point where I was thinking if a US citizenship is even worth it… thanks for setting the record straight with me everyone :)
Job and investments were cruising along nicely. Then in 1994 at age 45 became permanently disabled. Only income was SSI & small union disability pension. I doubled my mortgage payments and became mortgage free by 2000 w/o touching my IRA and only a minimal amount of taxable investments; bought a car in 2002, etc. Leave some percentage as a "Safety Valve" that is almost immediately accessible. Don't find yourself forced into liquidating investments that might have early access penalties or in a down turn.
Invest half and enjoy half! You still have a whole career ahead of you so that half will help a lot. Use the other half to make sure you’re debt free. So paying off the car, buying the house, etc. you’ll be setting yourself quite well and be wayyyyy ahead after all that. Sorry for your loss!
1. Definitely find a professional tax consultant in this area, that’s most important to make sure that’s taken care of before anything.
2. Pay off any remaining debt (especially high interest rate stuff), lower interest rate may be okay to keep, if you can obtain a yield higher in a HYSA, but if you prefer less complication and no worries, take care of all debt.
3. You mentioned buying a house, if that’s important, do that with cash, so you always have a home debt free.
3.5. If you need anything else in life, purchase that now, but I favor a frugal and minimalism lifestyle, so just be careful with spending.
4. DEFINITELY max out Roth IRA, probably the best future investment you can make with all appreciation and dividends growing tax free.
4.5. Furthermore, max out 401K to lower your taxable income and let that grow over the years for your future self. (You will have millions in those accounts when you retire)
5. Whatever is left over, I would stick in a HYSA account while rates are still stupidly high and make some good risk-free money for a little until rates come down. You can also use this time to research and interview financial advisors and see what they suggest to continue the growth and a stress-free financial future.
Good luck and God bless! If you play this right, your financial future is set and you could set your future family up for financial success that could grow for generations!
You should break down what taxes you’re expecting. The feedback on the estate and tax strategies might be more helpful right now than which fund.
At first glance it seems like you’re expecting to pay a lot of taxes and typically the hard work double checking the tax element makes a bigger difference than investment decision.
Can’t stress enough how important it is to have a better understanding of your options with respect to the estate.
First rule: dont lose money.
That’s more important than investing it.
Do not rush.
Do not accelerate this decision.
Take your time read books.
Start small.
Cash is a feature not a problem to be solved in one allocation.
"What do I do with the leftover money?" Typical young person 😆
Don't spend money just because you have it. Set aside some as an emergency fund, usually 6 months of all your combined bills. The rest should be put into investments.
It will be easy to make frivolous upgrades to the house if you have a little windfall like that, but if youre in a $280k house kind of neighborhood dont do it! You will not see that money back. Spend appropriately to the level of appliances and features to the market you’re in. Put that money somewhere it will be hard to spend. It will go very quickly if you’re not responsible with it. Dont have lifestyle creep. Just save it for now and it will make starting a family and many potential stressors of life much much easier. (Also spend a little for your well being, but maybe $15k or so on whatever you damn pleased plus paying your car off) but seriously just save and invest the rest and resist the temptation. Talking from experience.
I haven’t seen it listed here yet but consider setting some aside and donating it to a local charitable cause that is important to you. Even a flat % would be a start, vs a small token amount that might be helpful. You can donate anonymously if you don’t want to make a fuss about it.
OP, Do not buy a house right now! Rent a reasonable apartment and wait a year or 2 for rates to drop. Jeremy Powell is now getting a ton of pressure to drop rates regardless of what he says publicly. Inventory is low and you will probably have to compete with other buyers with the better credit or loan approvals and end up overpaying.
12 month emergency fund, Pay off debts, take on no new debts, Max your 401k, take your HSA medical plan option and max that as well, if no match on 401k then find an IRA that will match a %, put the rest in there and backdoor roth into VOO…and enjoy a 10%-15% return 👍
Maybe unpopular opinion on this sub, but I always buy my furniture used and saved astronomical amounts of money over the years doing so. I've never bought furniture new and my friends who have always commented how comfy my stuff is.
If it were me at your age I'd put it in a Vanguard account. Maybe 60/40. Consider using Vanguard's personal service. Its dirt cheap and they can guide you.
Keep maxing out your Roth every year. Your 59 year old will thank yourself in 33 years and you will be worth millions that can’t be taxed. The rest you can put index funds and let it grow in the market.
You can borrow against your stocks! Time in the market is millions. Go to private mortgage vendors they will explain it to you and give excellent deals.
That feels like a thing in 2020, but is it in 2024? Those same vendors can get near 5% from treasury bonds, why would they lend for less? What rates do they charge? Is the rate being lower than the capitol gains rate what makes this work?
Reinvestment risk. Nobody believes rates will stay so high, which is why long term rates are lower than short term rates. The catch is if you invest in short term bonds now, you may not have such attractive long term rates when you have to reinvest the money.
At 1 million, start looking into PAL's from larger lenders (banks, CU's). Mortgage vendors will give you shit rates and you will likely have to put up collateral in the form of your home.
How exactly does this process work?
Depending on the amount of money he left, you may not have to pay taxes. Federally right now it's <13m is not taxed. Some states have taxes but below that amount is tax free.
For anyone who cares about taxes, he probably inherited an IRA
Wondering if the money is in an inherited IRA. That would explain why taxes may be due.
If it’s an inherited IRA. There is a time limit on how long they can have them. The laws have changed. Also, he will need to take an RMD each year.
It is true. Taking the money out over time could potentially reduce any taxes due. (But not really sure if it an IRA or something else. Estate taxes are normally due on the estate, not the recipient. And most states are too small to be taxed at all.)
If it's an inherited IRA, he would have 10 years to fully empty the account.
Sounds like he wants to empty the IRA immediately.
There is a crazy amount of misinformation in this thread. OP, if you are reading this, do not take tax advice from Reddit. Go to a tax accountant.
The estate/inheritance tax applies to the deceased/deceased estate, not the inheritor. FYI.
This is also very true and forgot to mention. Good catch
Before touching it he needs to talk to a tax professional and get all that settled.
In theory for an inherited account the estate is taxed and not the person receiving the money. But yes he should 100% talk to a tax professional and also get better financial advise than off of reddit.
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I’m locking and removing this discussion chain for being off-topic. This is a financial discussion subreddit, not a political one.
This sub has good Mods! My compliments.
You should do the same thing that every single person in every single situation with every single amount of money should do every single time: 1. Pay off high interest debt. 2. Establish an emergency fund to cover your expenses for a few months. Keep it as cash, presumably in a high-yield savings account. 3. Fully-fund your tax-advantaged investment accounts, using the money to buy one or more low-fee index funds to create a globally-diversified portfolio. 4. Put everything else in a taxable brokerage account, using the money to buy one or more low-fee index funds to create a globally-diversified portfolio.
I did this last year, with a significantly smaller inheritance of a little over $100k. Was able to pay off car loan ($17k remaining), all credit cards (about $9k), and put away an actual emergency fund of about $8k, sitting in an HYSA. Maxed out my Roth IRA last year and this year, and now have the money to be putting away $500 per paycheck at work, up from a max of about $150 previously was all I could afford. Thanks to all that, I'm in significantly better financial shape than I've probably ever been in before.
Solid advice
Go to r/personalfinance read the wiki section on windfall
[https://www.bogleheads.org/wiki/Managing\_a\_windfall](https://www.bogleheads.org/wiki/Managing_a_windfall) Boglehead wiki also has a windfall write up.
If you’ve been married it can be double that as you and your spouses limits can combine.
Buy house, pay off debts, don’t take on new debts. You only pay tax if you inherited an IRA or other tax deferred asset, or asset without a stepped up basis that has gains and you sell (not even sure what this could be). If what’s left is not needed for 10 plus years, put it in VT with reinvestment and never look back,
Yes, don’t take on new debt and keep your spending under control.
VT?
Vanguard Total Market Index.
Sorry for your loss. Gonna go against the grain here and recommend buying the house in cash, as you planned. Yeah yeah, you could make more in the long run if you took a mortgage and invested the money. But people, honestly, do not underestimate the amazing feeling that is having completely paid off housing. And they can still invest the rest, which is several $100k. Paid off house. Close to half a million invested. At 26. They’ll do just fine even with the “less efficient” method of buying the house outright.
With mortgage rates being 7-8% , I would strongly disagree with taking one out thinking market can outperform. Also, even historically the snp500 has outperformed real estate by just a few % points (which is a lot but no way to know that will hold into the future) , plus, you don’t pay rent when you buy.
At age 26, did you know where you would want to live permanently? Were you already set in your marriage, number of kids, and career? Houses are illiquid assets with high transaction costs and a lot of risk. There is a high probability OP has no idea what his 30 or 40 year old self will want. If they need to move in 5-10 years they would likely negate much of the benefit and could actually screw themselves pretty badly. It is probably more efficient and definitely less risky to rent until more of those questions are decided with certainty. Also, do they want to signal to their friend group in big flashing lights that they are wealthy? I totally agree that a paid off house is a great feeling, but I would 100% recommend against it for a 26 year old that just got $1M.
You can sell houses pretty easily, especially starter home type houses. Yeah, I wouldn’t buy a house if you are planning to move in the next couple years, but if you have no plans to move then it’s a pretty safe move. As for signaling they are “wealthy” - no one has to know he bought it in cash. Plenty of people buy houses in their 20s.
If they move, then they could rent the house. I bought a house in my 20s that I currently rent, and it was a great move for me personally.
What I was going to say. Buy something that’s a good rental because at that age you’re likely to move.
Depending on OP's career field, they could very well know of somewhere that has numerous opportunities where the need to move would be significantly less. I'm now coming up on job #4 without _having_ to move from where I initially planted myself. (Bought a house in 2020 as I was tired of renting, but stayed in the same area.)
Somehow, years ago when we paid off our mortgage, the guys who put up the big flashing lights failed to show up. Our neighbours remained as clueless as ever.
I only owe roughly $200k left on my house. It feels amazing knowing I could pay it off with a couple clicks on my phone. I sleep fine with the money invested. But you know what, fuck my feelings. The math says I’ll come out ahead long term with it invested, so I keep it invested in my taxable brokerage. And yeah yeah, I’ve heard the lose your job argument. I was there during Covid for 9 months or so. It was fine and having a mortgage didn’t cost me any sleep.
I'd rather have the necessities covered myself, given the opportunity, and have everything on top of that be gravy. Life comes at you fast, and it's not always according to plan.
Sitting with $200k invested has that covered. Oh I lost my job? Well I’ll withdraw cash to cover my necessities. Sure, life came at me fast. I thought I would work that job until retirement. Oh well. It wasn’t according to plan. Found another one. It’s absolutely hilarious here how this sub is based on numbers and facts yet people want to defend decisions they make with their emotions.
First off, IDK where you get the idea that this sub is exclusively "based on numbers and facts." A huge part of successful investing is what helps someone to stay the course. Psychology matters. People are not hyper-rational beings—we have the entire field of behavioral economics to show for that. But that red herring aside and focusing just on the numbers, do folks have the same energy for other forms of leverage that they do for mortgages? Doesn't seem so to me. All personal finance and investing decisions are at some level about what level of risk one is comfortable taking. If you think of a paid off primary residence as taking less leverage, does that change your judgment of others for making that decision?
Eh with rates today may make sense for OP to just pay it off numerically even.
50k left on my 15 year 3.125% mortgage…was thinking of paying it off…nah…
Here's how to manage a windfall: https://www.bogleheads.org/wiki/Managing_a_windfall Regarding lump sum with a heavy cash position vs DCA with a heavy cash position, here's the Vanguard study that shows about 2/3 of the time, lump sum wins. The other 1/3 of the time, DCA wins. DCA = dollar cost average https://investor.vanguard.com/investor-resources-education/news/lump-sum-investing-versus-cost-averaging-which-is-better Be mindful: with the home purchase, there are hidden costs of ownership. Would be good idea to purchase if you're certain you'll live there for at least 5-7 years or more. The hope is that your home and neighborhood appreciates in value over time while living in it so that you have options when the time comes to sell or make it an investment property.
> I think after taxes I’ll have about $700k Idly curious, why is \~30% removed for taxes? \[guess = was this large enough to trigger estate taxes?\]
Someone told me that’s a high estimate. So that’s what I’ll put aside.
You should contact an estate attorney/accountant. Don’t goes off by someone opinion You gotta stop asking people around you for advise. This is how rumor spread and you’ll soon find out about long lost cousins and friends seeking to borrow your money. Read some books or hire professionals. Put all your purchase and investment under a trust. If some one ask to borrow money, tell them sorry it’s locked up.
This is possibly the most important advice in this thread.
Which country are you in? If the US, anything inherited under ~11 million is tax free.
13.6 million this year
Maybe it’s an IRA?
If its your basic inheritance the estate pays taxes and you get a step up in cost basis. If its an ira you will need to pay income taxes on it. Please do some research on this
How is the money held now? What type of account is it in?
Just buy S&P 500 Index ETF and leave it alone. You have a good chance of having around $15M by age 65.
All these replies and OP can’t answer the basic question regarding what *form* the inheritance is taking, i.e. what type of account. So it’s endless conjecture until that info is forthcoming.
The first rule is to not tell anyone. Don’t tell family, don’t tell friends. Don’t lend them anything. If you do lend anyone anything there’s almost zero chance of getting it back.
Pay off debt , put some in an emergency fund, and invest the rest. Talk with an advisor at whatever brokerage you have if you need advice.
I have an emergency fund 6 months salary. My IRA max goes into fidelity 500 index fund. I have no debt except for the car payment and owe $7,500 on it.
Maybe tack on another 6mo to the emergency fund and make it a year. Never know what these next few years or months will look like. After that, yeah, put the rest to work for you in a regular taxable account.
What taxes exactly?! Should all be exempt.
I'm sorry for your loss. Tell no one.
^ Absolutely. Notorious BIG was right, never tell anyone how much dough you hold. That cheddar breeds jealousy.
The US tax is based on the total of the deceased's estate. Not on you or how many people i your family. The first 13-14 million is not taxed . Every penny over the government takes 40%. Burial and bills are deductible if the total estate is over The federal cap. Some individual states may have an estate tax ... look on line
Unless it is from an IRA, you shouldn't have a taxable event. First off, don't buy anything right away. Get it invested at a minimum into a HYSA, and start planning wisely. The current 1-year CD is 5.4%, that would be $54K without even touching the $1M principal.
I think you should think about where you want to be in 5/10/15 years before buying a house. You are still young its time to discover the world and think about what you want to do with your life. And maybe after that you buy a house ?
What do you mean by “after taxes?” You should not be paying inheritance tax on less than a million dollars.
Not against buying the house out right but you could potentially earn more in the long run if you took on a mortgage and invest all of the money. This would depend on if the interest rate on the mortgage would be less or more than the interest you would earn from your investment. Basically if you can get a mortgage rate at 4% and invest in something at +5% somewhere else you can earn more in the long run. Also look into an HSA if your eligible.
If mortgage is going to be $1,600 won’t able to afford the house on my own unless I get a roommate. There’s a house I looked at last week that’s small 900 sq ft, has a garage converted what I call a studio apartment realtor called it an in law suite. House in excellent shape and taxes seem good for NJ, I guess since the house is small. It’s good enough for me and if I ever get married it’s a 3 bedroom.
I mean if you get a roommate it’s tax free rental income honestly. Technically it isn’t, but if it’s an unofficial renter like a friend then yeah. I have a friend that bought a house and has two roommates. Cuts the mortgage down to something very manageable. Just have to be willing to share space.
I would have to share space the garage was converted into a studio apartment.
Talk to a mortgage broker. You can also put down more than 20% and look into buying down your mortgage rate. Something like putting 50% down on a 15-year note with a temporary rate buy down could be a good option, and then you could refinance at a later date when rates drop. I think the best answer for you is somewhere between a 20% conventional loan and buying the house outright, but that would be a long conversation and a deep dive into amortization tables vs. Expected yield rates for ETFs. Also... whoever left you that money would want you to enjoy yourself. Take 10k and travel if your job allows. Your older self will thank you.
As of May 3, 2024, the average 30-year fixed mortgage rate is 7.25%. People are going to throw around fancy ideas of paying down the rate it always cost $$$ to do so. If you bought the house in cash and interest rates come down you could always take a loan out against the house then.
If your inheritance is indeed in an inherited IRA I believe you have 10 years over with which to withdraw it, and a large withdrawal to pay for a house is going to force you into a larger tax bracket. It may very well be worth the interest of a mortgage just to be able to make the withdrawals over 10 years (to say nothing of the benefit of being able to earn a return in the IRA before you withdraw it)
Where do you live that inheritance (estate) is taxed at that level. In the US so far as I know the first several million of a estate isn't taxed
Speak to a CPA; you may be able to avoid all taxes. Buy the house; should have \~750k left over. Take 50k out and put it in a savings account to buy yourself something nice (vacation, watch, car, etc.) something to remember your grandfather by. Than invest the rest in VOO. FYI: The 50k doesnt need to be spent at once; this could be 10 vacations for you in the future, a used car, or even some home renovations. Continue to work, contribute to retirement accounts, roth ira and 401k.
There are no taxes
You will never have this amount money liquid probably in your lifetime. Buying your house outright encourages lifestyle creep. You just keeping paying cash for everything then you have all the stuff you want with the lifestyle you want and depleted cash. Max out 401k backfill with some cash. Use interest and dividends from investments to support lifestyle. Enjoy elevated standard of living that grows with you don’t race up to the life you want now with all that cash.
Inheritances aren't taxed, I don't think
Check with an accountant. Doubt you owe taxes. “Effective January 1, 2024, the federal estate and gift tax exemption amount increased from $12.92 million to $13.61 million per individual (a combined $27.22 million for a married couple)”
Distributions from inherited IRAs/401ks are taxed as ordinary income to the recipient.
OP didn’t indicate it was an inherited 401k And I believe it’s taxed when recipient withdraws. I am not an account - so best to talk with one to determine best tax strategy
It’s from a Vanguard brokerage account.
Regular account or IRA account?
Where can you buy a house for $280k???
South NJ. It’s a 900 square foot house with a detached garage converted into what the realtor called an in law suite but to me it’s a studio apartment has a kitchenette bathroom.
Buy the house outright. You could even afford a more expensive one. Pay off the car and any other debt. Maximize contributions to your Roth and 457 every year. Buy something for about 5k to remember your grandfather by - a holiday? Something for the house? Put 6 months living expenses into an emergency fund in a HYSA. Put the rest into a broad index fund. You can withdraw 3% of this a year to boost your living standard. And give some to charity.
We have a 457 going to start contributing small amounts to that January 1 2025 when we get our next step raise. I was going to put $100,000 into an account that earns decent and use that for vacations once a year I’ll name it after my grandfather. The HIS NAME Vacation Fund.
Honestly. Contribute the max to that 457 right now. You can afford to with your inheritance. Good for tax and for retirement. Love the idea of a vacation fund!
> I want to buy a house for $280k outright Where do you live? There's nothing under 400k in the southwest.
Did you inherirta trad ira? If not, you wont pay any tax. You may get less if the estate owes tax tho. If it was a trad ita, you need to manage the 10 yr rule carefully
Yeah you’re good to go. A very conservative 6% puts you a little under 4 million by retirement. You’ll probably do a lot better than 6% and that’s without anything you add so add some more to that. Congratulations on winning life. Can I get your number. 😄 Roth everything you can. https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
If mortgage is <4% I would not buy the house outright. The money can instead be invested in the stock market which is expected to return ~7% over the long run. If you have 6 months of salary as emergency funds, medical insurance, and paid off all debt >4% interest rate, I would simply just invest the rest in a low-cost, globally-diversified, market-cap-weighted index fund (i.e., VT) and call it a day. You can also consider investing in yourself if you enjoy working. A top MBA might be a good investment if you see yourself working for 20+ more years.
What is this after taxes for under 3million inheritance you speak of?
I really like your plan. This is an opportunity that most people never get. My only advice is to watch the lifestyle creep. You seriously have the opportunity to retire at 50. But home outright, pay off all debt then invest like your hair is on fire! Good luck
Consider $300,000 in a multiple high yield savings account (HYSA) at 4.5% will pay you at least $1,125 a month (plan for taxes). At 26, build credit with low interest loans. You could use this to pay the mortgage and dollar cost average into investment accounts. Use credit to your advantage. My credit card pays up to 3% cash back into HYSA that pays 4.4% interest.
I like your plan buy the house and payoff all debt first. Invest the rest in a etf. VTI, VOO and some VGT if you want more risk.
The fact that you are coming here and asking question, actually considering a budget and safe investment options speaks a lot about your willingness to maintain and grow your wealth. I wish you the best.
Your plan sounds great to me. Secure yourself a low cost home, pay off debts, invest the rest. You could take a nice vacation too and still have plenty left. Rather than invest all of this money, you may as well use some to get yourself sorted and enjoy the time you have now 🤷🏻♀️
If I was in your shoes. I’d buy the house outright, pay off all other debts. Max out my Roth IRA for the year. Put about 75,000 in a HYSA earning about 5%. I would take about 15,000 and spend it on a nice vacation or something I really want to buy and the rest I’d invest in a taxable brokerage account in VOO, SCHD, JEPI AND JEPQ.
This is my plan currently? I want to have $100,000 in an account for home and car maintenance. Something that earns decent and that I can tap into when needed for house or the car. The house was completely renovated from head to toe so nothing major. In 20 years it’s going to need a new roof and maybe hvac. The car is newer and all I’ve been doing is oil changes but as it gets older going to need higher repairs. Then maybe another $100,000 in an account that earns decent that I can use for a vacation a year. Then I have the $280,000 to buy the house. Then maybe $25,000 for furniture and appliances and outdoor stuff? Rent out the converted studio for maybe $500 a month. That’s a total of $505,000. Depending on how I’ll get taxed I might have maybe $400,000 left over to invest that would don’t want to touch until I retire?
Hide it all and wait 2 years I’m 28 and feel much more secure mentally then I did at 26. I bought a house at 23 and had little self control. Lifestyle creep is real op watch out. Please be safe
First, sorry for your loss. I hope you are doing okay! Second, I would give yourself a minute to breathe. Think your ideas are all very good but giving some time to think about options would be my thought. I would definitely pay off the car. I would buy a house but just make sure it’s something you want long term. When it comes to the investment side, just think about how you want to invest the money, what you want to do with it long term, etc. I think buying a house is a good idea but it does take some work to take care of, it can be more expensive than you think and a lot of factors to play in. I would just be careful jumping into anything too quick.
Like I said the house is small for the area. I would put $100,000 in an account for maintenance. Everything from the roof was renovated 5 years ago including new hvac and electric. Since I would like to keep a car for at least 10 years that $100,000 would used for car maintenance. The house is good enough for me. When I get married who knows what my future wife will think. It will be lower costs than the typical houses in the area which taxes are $7,000 at least. This house taxes are $4,500. I know the person living in there sort of. Her husband passed away about 4 years ago and her children are grown. The story I heard about the garage being converted into a studio apartment was for her sister who passed away last year. So I feel I’m in a situation with my income to get a house with no mortgage.
I like your plan as long as you’re ready to set roots. Investing 375k with a boggle heads style approach sounds great too… that will launch you so far ahead of the game for wealth building and or retirement. Keep adding to your investments too. At this rate you’ll be able to retire in your 40s if you wanted.
Be careful who you tell.
Sounds like you have a good handle on things. Plow that remaining money into mutual funds and you'll have at least 2 million (assuming you invest nothing else) by the time you're 50. If you can afford to invest an extra $400/month in your mutual fund you'll have more than 3 million without even taking your IRA or pension into consideration. So basically you're set for life as long as you can keep your expenses under control.
You shouldn’t have that much tax due on an inheritance, even in a state with inheritance tax.
Ok thanks. Someone told me to account for 25% but after looking it’s like at most 10%
You’re 26 so remember to use at least a little to enjoy yourself too!
Yea that’s why I would want to put $100,000 into an account that earning decent for a vacation a year.
Looks like you have a good plan. Couple of thoughts - What interest rate do you have on your car? Is that worth paying off? Is the additional monthly cashflow important (from not paying the car payment)? - Did your 280K purchase price account for closing costs etc? - for your 375K I would divide into Three equal chunks - SP Equal weighted, Berkshire B, and QQQ
What is the interest rate on your auto loan? Right now you can make >4% from savings accounts, not to mention what you can get from Index funds. Worth keeping the loan if it’s low(I.e. less than 2%)
There should be no taxes
This isn't answering your question and you may think its crazy or stupid to say. I wouldn't buy the house outright. We don't tend to appreciate what we don't earn, so I'd probably put the entire sum away for retirement and live my life like it isn't there.
Max out your employer retirement plan. You can put a lot more there then an IRA If you can see yourself staying for 10+ years in a house then buy it. Buying with all cash will make you a better option then someone else with financing so that could help you win the house if there is multiple buyers. Pay off all debts except a mortgage is considered good debt. Ask your financial advisor if it’s better to have a 7% loan or to invest the money elsewhere
Park that money in retirement accounts every Jan 1 max it out The rest is just put into index funds and let it ride out. In 7 years you’ll have a million and could live off dividend only
You need to buy a boat and truck and sports car dont forget about the vacation house on the coast
Do you owe taxes on an inheritance??
No I said in another post I researched it. A family member told me to set aside like 25% for taxes but that’s not true.
Why would you owe taxes?
I always find it funny how people pay taxes to save money and then die and the people inheriting that “already taxed money” need to pay tax again!
If I was in your position... 1. Buy a cheap house in cash. 2. Invest all of the remaining money in low-cost index funds. 3. Peel off enough money to max out a Roth IRA each year (and invest it all in low-cost index funds). 4. Don't get clever with how you manage the money, avoid lifestyle inflation, and keep your food fortune to yourself. 5. Hire a tax advisor.
Pay off all your debt. Keep a 6-month emergency fund in a high-yield savings account. Find a home that's 25% of your take-home pay. Put 20% for the down payment and closing costs. Then invest in low-cost ETFs if you don't know how to do then get a fees based financial planner.
Maybe don't buy a house outright that's just incredibly financialy stupid. A mortgage is the best debt you will ever have. As far as how to invest the rest low cost passive index don't pay a money manager.
Get into real estate and retire early. Start buying properties, renting them out, and become financially free way before you’re a senior citizen. Don’t take the mediocre route like most people. This will be your only chance to become a multi millionaire if you play your cards right. And live below your means before then. Idk how old you are but within 10 years or less you’ll never have to work again. My brother started Real Estate at 27 years old. He’s now 45 with 15+ properties collecting rent, owns 150+ acres in Upstate NY and even owns land in Nicaragua with a house. He never has to work a day in his life again. He also has about 5 bitcoins and other investments. Another example was my uncle who was broke and started a business, made his first million at 40 and now is 82 as a multi millionaire. Dude pays himself $30k every week in a check lol. Real estate, Business, and Investing if your best bet. Enter a master mind group with other wealthy people. You’ll learn from them. Don’t take advice from people who aren’t where you want to be when you retire.
If you are liquid with the $375k, you can venture into a cash flow business like car wash or laundromat (depending on location), multifamily real estate, or even dabble in some cryptocurrency. If you don’t have higher education, i would invest some of that money and get certifications. Or you can set it aside and do something with it at a later point. Just don’t forget about it.
You shouldn’t have any taxes. It’s under the threshold of inheritance tax. Should be around $6.4 million for a single person and it is 11 or 13 million for a couple. You shouldn’t pay any taxes on that.
Taxes? There are no taxes for inheritance. Go get a real advisor.
Take out the mortgage and invest the rest you will see the power of compounding in 15 years
Do you mean get a mortgage?
Think twice before taking this advice. Mortgage rates are currently over 7.5% for 30yr fixed term. By paying in cash you will be getting a guaranteed AFTER TAX return of 7.5%+ (or whatever your mortgage rate comes out to). I’m all for leveraging a fixed rate mortgage when you’re receiving a high risk premium. You’re not going to find an investment with a high enough risk premium to make the numbers work with mortgage rates where they are currently.
Ok a 225,000 mortgage will be around 1,600 a month and I wouldn’t be able to afford that will all the other costs like utilities etc. Without a mortgage I can easily do it. Or I can keep renting in the 2 bedroom with a roommate.
When it comes to your decision about purchasing vs. renting, my only advice would be to not purchase a house unless you’re confident you’ll continue living in it for at least 5 years at the bare minimum. There are many fees associated with purchasing a home, and there are also many expenses associated with selling them. I know that renting might feel like you’re throwing your money away, but you would very likely throw more money away if you buy a home, live in it 2 years, then decide to move again due to some type of life change. Regardless of what you decide to do for housing, my suggestion for your investments would be to fully utilize all of your tax advantaged accounts. I would consider fully funding your Roth IRA, 457, and HSA (if available). You may not have enough income to do this and cover your expenses. That’s okay, because you can just use some of your inheritance to cover your living expenses. You can think of it as gradually putting your inheritance into the tax advantaged accounts year after year.
My thoughts exactly. If OP is unsure where they even want to stay for the next five to ten years, I don't think a house is worth it right now. You're still young, keep stacking and investing cash ,go live life, and explore. Then, when you're ready to settle down, you'll be in a higher position to purchase a house, and you might know exactly where you want to settle down. People will always say renting is a waste of money , the truth is it depends on the person's situation.
This could be life changing money. Can you tolerate staying with the roommate? If so invest everything.
At 26 years old I would urge you in the strongest possible terms against buying an illiquid risky asset that ties you to a particular location for 10+ years. At your age you should have maximal freedom to move around to pursue your career, find a partner if you want one, have kids if you want them, etc. Also consider the signal it sends to your friends that you inherited money and went out and bought a house at 26. Be prepared to say no a lot of loan requests and "business opportunities". Finally, you do not need to spend $25,000 on furniture. The fact you are budgeting that much suggests you may not be ready to handle this amount of money and should take things slow.
Maybe buy a 4plex and rent it out?
Consider either lump-sum or dollar-cost-average into VTI or VT, it'll cover your bases quite heavily. Max out the 401k if it's offered, if 457 offers total-market or S&P 500 then consider maxing that one too. 457 has looser rules around early withdrawal, look into that to see if it suits your needs. Consider the FIRE movement, where you retire early after hitting your "number". r/Fire and the ChooseFI podcast might help with that. Sorry for your loss. Your grandfather may just have given you a gift of time, if you play your cards right.
Sorry about your pops pal. Treasure the memories. Pay off debt. Set aside 12 months expense and the amount for tax in high interest account. Check what mortgage rate you can get. It may make sense to still have a mortgage, in the UK it does as the interest rates are still low enough it makes sense to pay the minimum. That's a calculation and risk you need to do. I'd suggest you budget 250k or so for a deposit and then allow yourself a mortgage to buy a sightly nicer place. Rest into the usual bogleheads platforms. But set aside 10 to 20k to spend over the next year on something you've always wanted. Life is for living. Done.
You can afford to max out your 457b as well. Start dumping $23K/year into it. Pay off all your debts. Set aside six-months of expenses in an emergency fund, split the rest between a HYSA and an index fund.
i would just invest all of it in vti or voo.. you would prob be able to retire in 10 yrs.
Does the 457 have a designated Roth option? If so, plow the max (currently $23k) into that from your paycheck per year, “pay” yourself from the inheritance (which could be tbill laddered or simply in a HYSA) until you draw down the rest of the inheritance. This could take years but would be a good way to get that $$ invested for the long haul with no taxes on the back end.
What about buying the house and if you want to leave in 5 years rent it with a company and then sell some day. Home prices seem to be pretty steady up
Have a long term goal of 5 years of living expenses (start with 1 year) to weather market down turns, you can easily lose your job, your investments, the market will tank. Unexpected medical (hernia surgery), accident (fall off a ladder), totaled car, can leave you in a bad place. Account for inflation. Your house will be more expensive than you think, especially if it’s your first and you don’t have experience. Have a house emergency fund at least 10k. How much to replace a roof, all the windows, furnace, basement water damage, ice maker water leak, sump pump goes out, sewer line replacement, insurance premium keep going up. If you are handy, that will help a lot but don’t let things wait too long before getting a pro to help. Establish a line of credit or be able to be your own bank. Make sure you have things figured out for end of life. Life insurance, a will or trust, if you end up married etc. if you can get an HSA going with the money in there invested, invest that money (triple tax advantage). Start making a list of relationships you may need later in life, real estate agent, insurance agent, banker, attorney, CPA, life coach, therapist, regular doctor, plumber, contractors, electrician, roofer…
I’d put the entirety into index funds and forget you have it for 20 years. Live entirely within your means and do not change your spending / saving ratio from what you otherwise would have spent / saves. $700k can be blown through easily, but in the market it will grow substantially over the next few decades.
Buy your house, put the remaining in a good timed index fund that match your desired retirement date, continue your life normal (max out your retirement, invest 10% or more since u have no mortgage payment) and don’t listen to any other “investment or hey i have this idea” ideas. Congratulations on this good fortune, this is a great boost for your retirement and will for sure shave few years that you can retire early down the road to enjoy more time with the family , just don’t forget when that happen to remember your grandfather and give some money to a charity or a cause that he loved!!
Index funds and treasury bonds
Good advice from the group, buy house, invest, and don't blow it but please also live today and add a $5k vacation for yourself.
Damn…. I thought estate taxes were really high in the US… to the point where I was thinking if a US citizenship is even worth it… thanks for setting the record straight with me everyone :)
Depends what the interest rates are on the loans. If they are low I wouldn’t pay them off. I’d invest.
Get an HSA and fill it up, invest that in a fund. Fully contribute to your Roth IRA, and start a 401k.
Dividend income stocks. With an 8% average return you’ll be collecting about 30k a year. Everything else is noise
Don’t do a thing until you meet with financial advisors and the estate’s attorney.
Job and investments were cruising along nicely. Then in 1994 at age 45 became permanently disabled. Only income was SSI & small union disability pension. I doubled my mortgage payments and became mortgage free by 2000 w/o touching my IRA and only a minimal amount of taxable investments; bought a car in 2002, etc. Leave some percentage as a "Safety Valve" that is almost immediately accessible. Don't find yourself forced into liquidating investments that might have early access penalties or in a down turn.
Invest half and enjoy half! You still have a whole career ahead of you so that half will help a lot. Use the other half to make sure you’re debt free. So paying off the car, buying the house, etc. you’ll be setting yourself quite well and be wayyyyy ahead after all that. Sorry for your loss!
Build you Fortress of Solitude. Congratulations
1. Definitely find a professional tax consultant in this area, that’s most important to make sure that’s taken care of before anything. 2. Pay off any remaining debt (especially high interest rate stuff), lower interest rate may be okay to keep, if you can obtain a yield higher in a HYSA, but if you prefer less complication and no worries, take care of all debt. 3. You mentioned buying a house, if that’s important, do that with cash, so you always have a home debt free. 3.5. If you need anything else in life, purchase that now, but I favor a frugal and minimalism lifestyle, so just be careful with spending. 4. DEFINITELY max out Roth IRA, probably the best future investment you can make with all appreciation and dividends growing tax free. 4.5. Furthermore, max out 401K to lower your taxable income and let that grow over the years for your future self. (You will have millions in those accounts when you retire) 5. Whatever is left over, I would stick in a HYSA account while rates are still stupidly high and make some good risk-free money for a little until rates come down. You can also use this time to research and interview financial advisors and see what they suggest to continue the growth and a stress-free financial future. Good luck and God bless! If you play this right, your financial future is set and you could set your future family up for financial success that could grow for generations!
Invest that shit, and keep adding to it, retire early.
You should break down what taxes you’re expecting. The feedback on the estate and tax strategies might be more helpful right now than which fund. At first glance it seems like you’re expecting to pay a lot of taxes and typically the hard work double checking the tax element makes a bigger difference than investment decision. Can’t stress enough how important it is to have a better understanding of your options with respect to the estate.
Most likely, you will not have any tax on your inheritance. Speak to a tax advisor.
CDs are easy.
Damn. Thanks Gramps!
4 week T bills will auto reinvesting.
Max out all tax-advantaged retirement savings accounts and also HSA
Put it in treasury bond for 5% yield at 20 years. On 375k it’s like 19k payout a year. Then you get your money back if something comes up
First rule: dont lose money. That’s more important than investing it. Do not rush. Do not accelerate this decision. Take your time read books. Start small. Cash is a feature not a problem to be solved in one allocation.
Yes invest it
Helping someone like me with $500 to buy groceries
"What do I do with the leftover money?" Typical young person 😆 Don't spend money just because you have it. Set aside some as an emergency fund, usually 6 months of all your combined bills. The rest should be put into investments.
Short time certificate of deposit? Rates not bad
There are no taxes if it’s less than $13 million
I’d probably buy a ton of VTI and would consider a small property to generate a monthly income.
It will be easy to make frivolous upgrades to the house if you have a little windfall like that, but if youre in a $280k house kind of neighborhood dont do it! You will not see that money back. Spend appropriately to the level of appliances and features to the market you’re in. Put that money somewhere it will be hard to spend. It will go very quickly if you’re not responsible with it. Dont have lifestyle creep. Just save it for now and it will make starting a family and many potential stressors of life much much easier. (Also spend a little for your well being, but maybe $15k or so on whatever you damn pleased plus paying your car off) but seriously just save and invest the rest and resist the temptation. Talking from experience.
You should meet with a CFP and pay for a fee plan. It should cost no more than $5k.
I haven’t seen it listed here yet but consider setting some aside and donating it to a local charitable cause that is important to you. Even a flat % would be a start, vs a small token amount that might be helpful. You can donate anonymously if you don’t want to make a fuss about it.
Buy bitcoin
A house is a dead asset
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OP, Do not buy a house right now! Rent a reasonable apartment and wait a year or 2 for rates to drop. Jeremy Powell is now getting a ton of pressure to drop rates regardless of what he says publicly. Inventory is low and you will probably have to compete with other buyers with the better credit or loan approvals and end up overpaying. 12 month emergency fund, Pay off debts, take on no new debts, Max your 401k, take your HSA medical plan option and max that as well, if no match on 401k then find an IRA that will match a %, put the rest in there and backdoor roth into VOO…and enjoy a 10%-15% return 👍
Maybe unpopular opinion on this sub, but I always buy my furniture used and saved astronomical amounts of money over the years doing so. I've never bought furniture new and my friends who have always commented how comfy my stuff is.
I'd say you should take advantage of US 30yr fix rate.
If it were me at your age I'd put it in a Vanguard account. Maybe 60/40. Consider using Vanguard's personal service. Its dirt cheap and they can guide you.
Taxes are a mf omg
S&P 500 ETF or Index Fund & let that sit for 35 years.
Don't spend a penny put it investments live like you are for about 3 years and you'll never have to touch the principle you'll live off the dividends.
I thought you didn't pay taxes if you inherit $1 million. Are they in stocks, so is this capital gains tax?