Sold land for $35k - What would you do if you were me?

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Wahorn
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Sold land for $35k - What would you do if you were me?

Post by Wahorn » Tue Feb 18, 2014 4:54 pm

Recently sold land that I purchased in 2007 and received $35k (I will need to pay capital gains tax next year on about $21k)
39 yrs old, married with 3 kids
Mortgage balance $310k (15 yr loan @ 2.5% - 14 yrs remaining)
Rental Mortgage balance $145k (15 yr loan @ 3.75% - 12.5 yrs remaining)
Receiving about $300/mo profit from tenants over our rental mortgage payment
Contributing $100/mo into 529 for each kid (we know this will not be enough)
$27k emergency fund (savings/checking)
$296k retirement funds
$40k ROTH IRA
$25k ROTH IRA (wife)
No other debt

My ROTH IRA (2013): $1,580 (can contribute another $3,920 by April 15)
Wife ROTH IRA (2013): $4,200 (can contribute another $800 by April 15)

My plan is to first max out ROTH IRA for 2014+ for me and my wife ($5,500 max) as we are currently contributing about $350/mo each.

OPTION 1:
$35,000
-$4,720 Max out remaining 2013 ROTH IRAs
=$30,280 into Vanguard taxable mutual funds:
70% Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
30% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX)

OPTION 2:
$35,000
Invest all $35k into Vanguard taxable mutual funds.

OTHER OPTIONS?
We are thinking of using some or most of this new money to purchase an inground pool or car in several years. Any advice on how to invest this money? Looking currently looking at tax efficient mutual funds…should we be looking at ETFs? We are willing to take risks for bigger potential earnings.

Thank you for reading and your advice.

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SteveNet
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Re: Sold land for $35k - What would you do if you were me?

Post by SteveNet » Tue Feb 18, 2014 6:15 pm

Wahorn wrote:
We are thinking of using some or most of this new money to purchase an inground pool or car in several years. Any advice on how to invest this money? Looking currently looking at tax efficient mutual funds…should we be looking at ETFs? We are willing to take risks for bigger potential earnings.

Thank you for reading and your advice.
Cd's if it's short term.
Being frugal is hard to learn, but once learned is hard to stop.

dickenjb
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Location: Philadelphia PA

Re: Sold land for $35k - What would you do if you were me?

Post by dickenjb » Tue Feb 18, 2014 6:27 pm

Option one is clearly superior to option 2 as the investments in the Roth will not be taxed.

mnvalue
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Re: Sold land for $35k - What would you do if you were me?

Post by mnvalue » Tue Feb 18, 2014 6:39 pm

dickenjb wrote:Option one is clearly superior to option 2 as the investments in the Roth will not be taxed.
+1. Remember you can pull the contributions from the Roth if you need, though this should be avoided if possible. And also, just because it's in a Roth doesn't mean you have to invest in stocks. If you decide this money is for a pool in 5 years and you want it in CDs, put it in a CD in a Roth IRA. Later, if you don't have any other taxable money to use first, you pull the contribution from the Roth and roll the earnings into your regular Roth. If you need to spend those earnings, then just reduce that year's Roth contribution by the amount of the earnings. Worst case, you're in about the same situation. But if you come into more money later or plans change, you could end up way ahead.

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jimb_fromATL
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Location: Atlanta area & Piedmont Triad NC and Interstate 85 in between.

Re: Sold land for $35k - What would you do if you were me?

Post by jimb_fromATL » Tue Feb 18, 2014 7:24 pm

Sounds like you're doing fine.

I might suggest that you max the Roths for 2013 first ... before doing it for 2014, which you can do any time between now and April 2015. Don't lose the once-per-year use-it-or-lose-it opportunity to do that to the max for any year.

Also set aside enough in relatively liquid assets like money market or cds to pay the cap gains tax for federal and state tax if applicable. (Maybe somebody else knows whether you must file estimated taxes and pay some of the taxes quarterlly -- else do some research on it yourself. Or you might be able to have more withheld from your job(s) to pay some it as you go for the rest of the year.)

Do you have 401(k)s or other employer sponsored retirement plans available?
If so, are you maxing them?

Another thought: If you're going to have to pay cap gains tax, your marginal bracket must be at least 25%, so it would be good to contribute the max to any any available tax deferred plans if you're not maxing them already. If it's necessary to hold some of the cash to use for living expenses in order to more comfortably max the 401(k) or other plans, that would would probably be better than investing in after-tax/taxable accounts.

jimb

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noyopacific
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Re: Sold land for $35k - What would you do if you were me?

Post by noyopacific » Tue Feb 18, 2014 7:57 pm

Wahorn wrote: We are thinking of using some or most of this new money to purchase an inground pool or car in several years. . .
One of my brothers, a Real Estate Agent, did an analysis a few years ago on the effect of inground pools on property values (in California.) He found that in the resale market, an inground pool had basically zero value in a resale (and possibly a slight negative effect on value) but that houses with pools took significantly longer to sell.

If you want access to a pool, you might want to consider putting the money in a CD and use part of the income towards the cost of a swim & tennis club membership. This would allow you to avoid the burden of pool maintenance, energy, chemicals and repairs as well as insurance and the liability for the injury or death of visitors. I've also read that it is statistically more dangerous to own a residential pool than to own firearms. http://scienceblogs.com/deltoid/2001/07 ... olsvsguns/

If you later found you weren't using the pool enough to justify the expense, if it's in your backyard, you're pretty much stuck with it, if you don't maintain it, it's going to turn into a stinky, scum & trash-filled mess. If it's a club membership, you can probably give up the membership. And if some day you want to sell your house, you won't have to hear those dreaded words: "The buyer really liked the house but isn't interested in owning a pool."
The information contained herein, while not guaranteed by us, has been obtained from from sources which have not in the past proved particularly reliable.

Wahorn
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Re: Sold land for $35k - What would you do if you were me?

Post by Wahorn » Fri Feb 21, 2014 9:01 am

Thank you all for the replies!

I think we will choose OPTION 1 and max out the 2013 ROTH IRAs as many have suggested.

We are not currently maxing out our 401k's. We are contributing up to the match for my wife's 401k. However, we are contributing nearly 20% when you add up all of our 401ks, pension plans, ROTH IRAs so we think that is adequate. Even though we'd like to max out 401ks, we don't have any extra cash each month to do so right now.

Our plan is to use the remaining money from the land and invest in a taxable vanguard account to be used later for big expenses. Thanks again and we welcome any further input!

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