Suddenly have money! Now what?

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Ajd
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Joined: Wed Dec 06, 2017 7:00 pm

Suddenly have money! Now what?

Post by Ajd » Fri Dec 08, 2017 6:03 pm

First time poster, and haven’t lurked for long, so forgive me if I leave something out or ramble!

My wife and I have been students/low-wage non-profit workers from non-money-savvy families. But in the last 4 years, we’ve paid off our student loans, gotten stable state jobs, and made 90k on a lucky house sale. I suddenly find myself paralyzed about our next steps!

Only debt is $245k mortgage. We are 31 and 32, one child, one more due in July. We do contribute to a mandatory pension plan through our jobs. We are both grossing a bit over 50k/year in exactly the same state job class.

First thing I did this year when we made money off our last house is max out a Roth IRA for us both, so 5500 each in there, and 100,000 sitting in a lump in savings.

Here’s my plan, and I’d like some insight as to whether it’s idiotic. We are saving about half our income each month and it’s just sitting there, so I was thinking about maxing out our state job deferred comp 457(b) to the tune of $1500 each until June, just to catch up a bit since we’ve never contributed to anything like that. Also planning to max out Roth IRAs in January again with our savings.

After June I’ll be home on maternity leave (I’m the gestational parent), and I’m not sure whether I’ll return to work in the first year, which is the main reason I’m concerned about contributing to the 457. ShouId I be piling up money like a grumpy dragon just in case? Or should I be throwing as much into retirement right now while we have the two incomes to afford it? And if so, is the 457(b) the way to go?

And should I just keep sitting on the $100k until I know how post-maternity-leave goes or put, say, $50k of it with a robo-advisor? Or even 75k?

We can live on one income, though not with a lot of wiggle room, so I’m not too worried about blowing through an emergency fund. But I’m intimidated by doing such big, time-locked things with what is (for us, right now) a breathtaking amount of money. I would love some advice!

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chasingbutterflies
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Re: Suddenly have money! Now what?

Post by chasingbutterflies » Fri Dec 08, 2017 11:07 pm

Congratulations on amassing such a sum! My advice would be to treat it as a windfall and not do anything for a bit. Just park it in high interest savings. Come the new year max out your roths for 2018 and then wait until July or August. Babies are expensive and you might find yourself needing a bit more money after the birth. Come the end of the year you'll have a better idea of how things have changed in your budget with the new kid and plan/invest accordingly.

mega317
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Joined: Tue Apr 19, 2016 10:55 am

Re: Suddenly have money! Now what?

Post by mega317 » Fri Dec 08, 2017 11:30 pm

I will give you my anecdote. We were in "pile up money" mode for a few years because we figured we'd be buying a house and trying to have a second child around the same time. Lucky for us those have come to pass. Unfortunately my wife has had very minor issues with the pregnancy, and because we have the cash in a taxable account, we have the flexibility for her to take extra time off work while not affecting our lifestyle. Doing what we want to the new house is, of course, optional but kind of expensive.

That said it sounds like you have even more flexibility than us. Another option to what you suggest is do nothing until after the delivery, then if there is nothing unexpected, catch up with larger 457 contributions in the second half of the year. You can spend the next 6 months learning to invest for yourself (it won't take that long) so that you don't have to use a roboadvisor.

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Watty
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Re: Suddenly have money! Now what?

Post by Watty » Fri Dec 08, 2017 11:48 pm

Ajd wrote:
Fri Dec 08, 2017 6:03 pm
ShouId I be piling up money like a grumpy dragon just in case?
In addition to retirement there are other things that need to budget for like;

1) An emergency fund of at least six months expenses.
2) A fund for all the costs for the new baby and for while you are out on maternity leave.
3) A fund to pay cash for your future cars when you need them.

That could use up more than half of the $100,000 that you are trying to figure out what to do with. That might leave you something in the ballpark of $40K that you need to figure out what to do with.

It sounds like you can contribute a lot to your retirement accounts until you go out on maternity leave which is great but I think that just keeping the additional $40K uninvested until the baby is born would be a very reasonable choice. If you kid has even minor and temporary health issues that could make day care impractical and delay you going back to work right away. Having the extra money available could give you more flexibility and you can then figure out what to do with it after the baby is born and things settle down.

Ajd
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Joined: Wed Dec 06, 2017 7:00 pm

Re: Suddenly have money! Now what?

Post by Ajd » Sat Dec 09, 2017 12:42 pm

Okay, sounds like the consensus is I’m getting ahead of myself and should max out the Roths in January but keep things static until baby arrives.

Post-baby, assuming no unexpected chaos, would the logical next steps be 1) keep Roths maxed out, 2) contribute to 457(b), then 3) consider investing with funds in excess of our 6-month emergency fund?

Thanks for input everyone!

Olemiss540
Posts: 553
Joined: Fri Aug 18, 2017 8:46 pm

Re: Suddenly have money! Now what?

Post by Olemiss540 » Sat Dec 09, 2017 2:34 pm

Ajd wrote:
Sat Dec 09, 2017 12:42 pm
Okay, sounds like the consensus is I’m getting ahead of myself and should max out the Roths in January but keep things static until baby arrives.

Post-baby, assuming no unexpected chaos, would the logical next steps be 1) keep Roths maxed out, 2) contribute to 457(b), then 3) consider investing with funds in excess of our 6-month emergency fund?

Thanks for input everyone!
Sounds exactly right, I would personally get 50k invested immediately into low cost index based stock mutual funds. Let them grow and draw from them as necessary to continue to max all tax advantaged space. Would probably shift as much to Roth as possible given your likely in the 15% bracket and in very good shape with your twins (pensions that is).
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

Mudpuppy
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Location: Sunny California

Re: Suddenly have money! Now what?

Post by Mudpuppy » Sat Dec 09, 2017 3:02 pm

Ajd wrote:
Sat Dec 09, 2017 12:42 pm
Okay, sounds like the consensus is I’m getting ahead of myself and should max out the Roths in January but keep things static until baby arrives.

Post-baby, assuming no unexpected chaos, would the logical next steps be 1) keep Roths maxed out, 2) contribute to 457(b), then 3) consider investing with funds in excess of our 6-month emergency fund?

Thanks for input everyone!
That sounds like a good plan, but I would also reiterate the advice to "park" the funds for right now in a high-yield savings account that earns at least 1%. No reason to leave simple interest sitting on the table by having the funds parked in a low-yield savings account.

Edit: Also make sure it's an FDIC or NCUA insured savings account.

Rus In Urbe
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Joined: Sat Dec 09, 2017 2:12 pm

Re: Suddenly have money! Now what?

Post by Rus In Urbe » Sat Dec 09, 2017 3:11 pm

Congratulations on the next arrival----and on your good luck. All good news and you've gotten some great advice here on this thread.

Here's what not to do: Don't have a firm plan.

Nope. Get a plan and put it into action. Designate some for emergency fund. Invest some now. Don't think of this as "having a lot of money" and don't just leave it sitting in a very accessible bank account. Unless you are naturally frugal, money can have a funny way of dribbling out. Windfalls often disappear and leave nothing of substance behind.

Do your homework and thinking. Then divide it into buckets, and don't look back. But have a plan.

3funder
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Joined: Sun Oct 15, 2017 9:35 pm

Re: Suddenly have money! Now what?

Post by 3funder » Sat Dec 09, 2017 4:22 pm

Give it to me. I'll take good care of it ; )

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