My wife and I have recently received a gift of $10,000, and we are expecting a large windfall/inheritance later this year from the death of her grandfather. In light of this, I am debating the best immediate use for the $10k, and wanted some advice. Below is what I consider the relevant information about our situation:
Student Loans: ~ 155k:
Group 1 - ~ $145,000 @ 6.625%
Group 2 - ~ $9,200 @ 3.325%
Emergency Fund: ~ 6 months.
My 401(k): ~$9,100 in VG TR 2030. I'm expecting employer match of ~ $2,700 for 2012. Starting with my first paycheck, maxing out for 2013, and expecting the same employer match.
NO ROTH IRA'S
While we are not entirely sure of all the details, my wife was discussing the inheritance with her grandfather several months ago, and was informed it should be mid-six figures. Normally, I would take this with a grain of salt, but her grandfather ran/owned a bank for the better part of 50 years, and was always on top of his estate/finance matters. Regardless, it is highly likely that the inheritance will be at least enough to pay off all of the student loans, probably significantly more. However, as with anything, I guess I could always be mistaken, and I want to make the best decision. Given the amount of time it can take to settle an estate, it may be a while before we know anything for sure.
Our main focus this year has been aggressively paying off debt (Studen Loans, CC's which are now gone, etc.). All that remains currently is the bulk of my student loans. Because of this, our default decision would be to immediately pay off Group 2, to free up cash flow and further allow us to "snowball" our payments to the remaining debt. However, given that we may be able to pay off all loans soon anyway, I'm conflicted. So, here are my questions:
1) Should I just go ahead and keep with the pattern of aggressively paying off my debt, and send the 10K directly to student loans?
This result obviously keeps things simple, and frees up extra cash flow to continue our aggressive debt payments. It could obviously completely wipe out the smaller group of loans, and leave us with one less monthly obligation in the event that the inheritance is not as big as we were led to believe. Also, it helps us make significant progress toward our goal of being debt free. However, if the inheritance is large, the benefit we gain from putting the $10k toward loans is negligible, as we will be able to pay it off soon anyway.
2) Should I max out 2012 Roth IRA's for both of us??
This would open up some more tax-advantaged space that we may need later this year. As you can see from my current investments, we don't have a huge amount of tax-advantaged space to use for the bonds portion of our AA, in the event our portfolio significantly increases in size. If the inheritance is large, we would likely have to initially buy a fair amount of something like VG Intermediate Term Tax Exempt in a taxable account to make up our desired Stocks/Bonds AA. However, the bonds element of our AA could be transitioned to tax-advantaged accounts through the use of my 401(k) and 2013 Roths, so I'm not sure how big of a problem this is.
Any guidance is welcome!