What Would you do? (Inheritance)

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Kmac3805
Posts: 3
Joined: Thu Feb 08, 2018 12:57 pm

What Would you do? (Inheritance)

Post by Kmac3805 » Thu Feb 08, 2018 1:38 pm

Hello Fellow Bogleheads...first time posting but have been reading these boards for the past year or so. I feel so fortunate to have stumbled upon such a wealth of information - so, thank you Bogleheads!

I'm hoping to get some guidance here and would also love to hear what others would do in my situation. There look to be several paths and I'm unsure (and slightly overwhelmed) by the position I'm in.

Due to the unfortunate passing of a family member, I will be inheriting roughly $350k is stocks (mixed funds, all at Edward Jones with high expense ratios) and another $50k in cash/CDs. I will not be keeping the stocks at Edward Jones, plan on liquidating and transferring to Vanguard. Although I do not have the paperwork in front of me, if I liquidated today I would incur a capital loss of approx. $35k from the cost basis (date of death about 3 weeks ago).

A little bit about me:

33 Single
Salary (gross) - $90k
Fidelity 401k through employer - $80k BTC Lifepath Index 2050
Roth IRA Vanguard - $13.5k Vanguard 2050 Target Retirement
Taxable brokerage Vanguard
- Vanguard Intl Growth Fund - $3k
- Vanguard Total Bond - $5k
- Vanguard Total Intl Stock Admiral - $12k
- Vanguard Total Stock Market Admiral $31k
Emergency Fund - $15k
Only debt is $8k car loan

Currently living in coastal SoCal and renting in a pretty favorable situation - $1300 in total including all utilities. Living with a friend of mine in a desirable area and basically helping him with his mortgage. 1Br rentals in the area go for approx $2k per month.

So my question to you all is what would you do in my situation? My only plan that is definite is paying off my car loan, bumping my 401k to hit the max $18.5k (employer matches 6%) and maxing out my roth IRA each year. Beyond that, I'm unsure what the best course of action is.
A few options that I'm weighing:
1) Continue renting, put roughly $400k into a 3 fund at vanguard and basically forget about it for the next 20 years (while hopefully adding to that amount monthly).
2) Buy a condo putting 20% down. 1 BR condos in my area are typically $350-400k. Invest the rest in 3 fund at vanguard and forget about it. However, on my salary Id feel a bit uncomfortable paying approx $2k per month in mortgage/prop tax/HOA.
3) Buy a condo cash. Put rest in 3 fund at vanguard and continue to add more after tax $ every month.
4) Buy condo (either 20% down or cash) and rent out while claiming as my primary residence. Continue to rent at my current location and invest any excess cash flow into 3 fund at vanguard.

Thanks again for reading and appreciate any thoughts/input!

aristotelian
Posts: 4372
Joined: Wed Jan 11, 2017 8:05 pm

Re: What Would you do? (Inheritance)

Post by aristotelian » Thu Feb 08, 2018 2:55 pm

Harvesting the loss is a good idea. If you don't have gains to offset, you can carry forward $3k annually for the forseeable future.

Other than that, nothing rash. Definitely don't make a big purchase like a home or rental property until you decide that is what you really want to do.

Read: https://www.bogleheads.org/wiki/Managing_a_windfall

Don't tell anyone about your windfall.

blessed
Posts: 39
Joined: Mon Feb 27, 2017 9:55 pm

Re: What Would you do? (Inheritance)

Post by blessed » Thu Feb 08, 2018 3:17 pm

Kmac3805 wrote:
Thu Feb 08, 2018 1:38 pm

1) Continue renting, put roughly $400k into a 3 fund at vanguard and basically forget about it for the next 20 years (while hopefully adding to that amount monthly).

Thanks again for reading and appreciate any thoughts/input!
You'll get better advice from others as to what option to pick, but if you end up going with option 1 I would not do a 3 fund at vanguard. Assuming you mean total US, total Intl, and total bond as the 3 fund I would convert the entire 80k in your 401k to be your bond allocation and put the 400k into vanguard for the total US and total Intl. With those numbers your AA would be 83/17 equity/bond.

Best wishes, you'll get plenty of good opinions here.

Kmac3805
Posts: 3
Joined: Thu Feb 08, 2018 12:57 pm

Re: What Would you do? (Inheritance)

Post by Kmac3805 » Thu Feb 08, 2018 4:14 pm

aristotelian wrote:
Thu Feb 08, 2018 2:55 pm
Harvesting the loss is a good idea. If you don't have gains to offset, you can carry forward $3k annually for the forseeable future.

Other than that, nothing rash. Definitely don't make a big purchase like a home or rental property until you decide that is what you really want to do.

Read: https://www.bogleheads.org/wiki/Managing_a_windfall

Don't tell anyone about your windfall.
thanks, appreciate your input! I'll check out the wiki

Kmac3805
Posts: 3
Joined: Thu Feb 08, 2018 12:57 pm

Re: What Would you do? (Inheritance)

Post by Kmac3805 » Thu Feb 08, 2018 4:16 pm

blessed wrote:
Thu Feb 08, 2018 3:17 pm
Kmac3805 wrote:
Thu Feb 08, 2018 1:38 pm

1) Continue renting, put roughly $400k into a 3 fund at vanguard and basically forget about it for the next 20 years (while hopefully adding to that amount monthly).

Thanks again for reading and appreciate any thoughts/input!
You'll get better advice from others as to what option to pick, but if you end up going with option 1 I would not do a 3 fund at vanguard. Assuming you mean total US, total Intl, and total bond as the 3 fund I would convert the entire 80k in your 401k to be your bond allocation and put the 400k into vanguard for the total US and total Intl. With those numbers your AA would be 83/17 equity/bond.

Best wishes, you'll get plenty of good opinions here.
Thank you! But wouldnt it create an issue if I'm adding approx. $24k pre tax per year into my 401k? Just constant reballancing?

I live a pretty comfortable/frugal lifestyle and dont really *need* the money (for the time being at least).

mikeyzito22
Posts: 61
Joined: Sat Dec 02, 2017 5:42 pm

Re: What Would you do? (Inheritance)

Post by mikeyzito22 » Thu Feb 08, 2018 10:42 pm

I don't mean to be rude OP....however, I pay more than $2,000 for mortgage, heat, bills etc. and make way less than you in salary. I would jump on something with that money that is only 2K a month, especially with where it is, and you make money by owning not just giving it away to rent. Always, real estate ownership trumps most other investments unless you think Cali is going to fall into the sea in the next 20 years, go get a property before jumping into changing your portfolio. Get that first, then adjust retirement, assess allocation and the like.

FoolMeOnce
Posts: 215
Joined: Mon Apr 24, 2017 11:16 am

Re: What Would you do? (Inheritance)

Post by FoolMeOnce » Fri Feb 09, 2018 12:07 am

Kmac3805 wrote:
Thu Feb 08, 2018 4:16 pm
blessed wrote:
Thu Feb 08, 2018 3:17 pm
Kmac3805 wrote:
Thu Feb 08, 2018 1:38 pm

1) Continue renting, put roughly $400k into a 3 fund at vanguard and basically forget about it for the next 20 years (while hopefully adding to that amount monthly).

Thanks again for reading and appreciate any thoughts/input!
You'll get better advice from others as to what option to pick, but if you end up going with option 1 I would not do a 3 fund at vanguard. Assuming you mean total US, total Intl, and total bond as the 3 fund I would convert the entire 80k in your 401k to be your bond allocation and put the 400k into vanguard for the total US and total Intl. With those numbers your AA would be 83/17 equity/bond.

Best wishes, you'll get plenty of good opinions here.
Thank you! But wouldnt it create an issue if I'm adding approx. $24k pre tax per year into my 401k? Just constant reballancing?

I live a pretty comfortable/frugal lifestyle and dont really *need* the money (for the time being at least).
I think the general point is to put tax-inefficient bonds in your retirement account rather than in taxable. Do some or all of the current $80K, depending on your target allocation, and adjust your future contributions to maintain your target allocation. Rebalance in your retirement account when necessary and possible.

Luckywon
Posts: 173
Joined: Tue Mar 28, 2017 10:33 am

Re: What Would you do? (Inheritance)

Post by Luckywon » Fri Feb 09, 2018 12:22 am

If you do decide to liquidate any positions, make sure you check what the fees are to do so at EJ.

I was charged close to $500 to sell a position of around $30,000 at EJ!! So unless you have some better agreement at EJ, transfer the positions in kind to another brokerage and liquidate them there. Also, ask the accepting brokerage if they will reimburse any transfer/closing fees charged by EJ, and waive brokerage fees to liquidate the positions. For an incoming transfer of that size, they will almost certainly be happy to do so, in addition to paying you an incentive bonus for the privilege of accepting your account.

Hopefully I just saved you thousands of dollars, at EJ expense. :sharebeer

DavidW
Posts: 75
Joined: Wed Jan 24, 2018 4:14 pm

Re: What Would you do? (Inheritance)

Post by DavidW » Fri Feb 09, 2018 1:00 am

aristotelian wrote:
Thu Feb 08, 2018 2:55 pm
Harvesting the loss is a good idea. If you don't have gains to offset, you can carry forward $3k annually for the forseeable future.

Other than that, nothing rash. Definitely don't make a big purchase like a home or rental property until you decide that is what you really want to do.

Read: https://www.bogleheads.org/wiki/Managing_a_windfall

Don't tell anyone about your windfall.
Agreed. Telling anyone about your windfall will create resentment or envy. Living in Southern Cal, it is tempting to get a nice car but like another poster stated, real estate is probably the next big thing for you. That is assuming you still want to stay in the area.

The other consideration you haven't mentioned is education. In your field, would it be beneficial for you to get a advance degree to further increase your salary. At 33, you have another 32 years to work. If you go to school full time, you can usually come out in 2 years and significantly increase your income... If you go part time, it could take 5 years and you will have no life for those 5 years.... You have the luxury to take time away from work and focus on school...

Just a thought...

gotester2000
Posts: 509
Joined: Sun Nov 12, 2017 1:59 am

Re: What Would you do? (Inheritance)

Post by gotester2000 » Fri Feb 09, 2018 2:02 am

I would go for option 2) or 3), if you feel good about job and location. You can make some money each month by buying that condo and sharing it with someone instead of option 4).

Option 1) is the most difficult - you have the carrot dangling in front of you and not going to eat it for 20 years seems impractical to me - especially as it is a gift.

CMLAW1
Posts: 119
Joined: Sun Sep 06, 2015 8:22 pm

Re: What Would you do? (Inheritance)

Post by CMLAW1 » Fri Feb 09, 2018 6:44 am

DavidW wrote:
Fri Feb 09, 2018 1:00 am
aristotelian wrote:
Thu Feb 08, 2018 2:55 pm
Harvesting the loss is a good idea. If you don't have gains to offset, you can carry forward $3k annually for the forseeable future.

Other than that, nothing rash. Definitely don't make a big purchase like a home or rental property until you decide that is what you really want to do.

Read: https://www.bogleheads.org/wiki/Managing_a_windfall

Don't tell anyone about your windfall.
Agreed. Telling anyone about your windfall will create resentment or envy. Living in Southern Cal, it is tempting to get a nice car but like another poster stated, real estate is probably the next big thing for you. That is assuming you still want to stay in the area.

The other consideration you haven't mentioned is education. In your field, would it be beneficial for you to get a advance degree to further increase your salary. At 33, you have another 32 years to work. If you go to school full time, you can usually come out in 2 years and significantly increase your income... If you go part time, it could take 5 years and you will have no life for those 5 years.... You have the luxury to take time away from work and focus on school...

Just a thought...
I like the idea of taking time off to focus on school to get it done quicker. I did that with my inheritance and I increased my
Income from 30k to 75k in 2 years. This made me much more stable and gave me the ability to invest the rest of the inheritance and not have to take more and more money out

ivk5
Posts: 329
Joined: Thu Sep 22, 2016 9:05 am

Re: What Would you do? (Inheritance)

Post by ivk5 » Fri Feb 09, 2018 7:01 am

Lots of good food for thought already in this thread. You might also consider searching other recent windfall threads - they come up all the time.
mikeyzito22 wrote:
Thu Feb 08, 2018 10:42 pm
I don't mean to be rude OP....however, I pay more than $2,000 for mortgage, heat, bills etc. and make way less than you in salary. I would jump on something with that money that is only 2K a month, especially with where it is, and you make money by owning not just giving it away to rent. Always, real estate ownership trumps most other investments unless you think Cali is going to fall into the sea in the next 20 years, go get a property before jumping into changing your portfolio. Get that first, then adjust retirement, assess allocation and the like.
Just want to offer a grain of salt to go with the quoted post:
  1. this is far from a consensus view here - lots of different perspectives
  2. "Always" is a very strong word
  3. there are plenty rent vs buy calculators out there that can help you evaluate your specific circumstances (here's one that's commonly referenced)
  4. life circumstances may be a significant consideration; consider tradeoff of transaction costs vs flexibility (in five years you may not still be 33 & Single, for example)

aristotelian
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Re: What Would you do? (Inheritance)

Post by aristotelian » Fri Feb 09, 2018 7:32 am

mikeyzito22 wrote:
Thu Feb 08, 2018 10:42 pm
I don't mean to be rude OP....however, I pay more than $2,000 for mortgage, heat, bills etc. and make way less than you in salary. I would jump on something with that money that is only 2K a month, especially with where it is, and you make money by owning not just giving it away to rent. Always, real estate ownership trumps most other investments unless you think Cali is going to fall into the sea in the next 20 years, go get a property before jumping into changing your portfolio. Get that first, then adjust retirement, assess allocation and the like.
That may be true but I think it is at least prudent to follow the Wiki advice of waiting 6 months before anything major. Buying a first house is the biggest purchase you will make in your life and a bad decision can be disastrous. It's much easier to make the decision to buy than it is to undo that decision if you have second thoughts.

angelescrest
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Re: What Would you do? (Inheritance)

Post by angelescrest » Fri Feb 09, 2018 11:42 pm

I would definitely do #1. Least recommend #4. I think one should almost never buy a one bedroom condo unless they live in the downtown of a major metro area, but even then don’t recommend it.

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Watty
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Re: What Would you do? (Inheritance)

Post by Watty » Fri Feb 09, 2018 11:58 pm

Sorry for your loss. Liquidating the investments and moving the money from EJ is a good choice. After that there is no hurry to do much while you figure out a long term plan so I would suggest;

1) Pay off the car.
2) Max out your retirement accounts.
3) Make sure that you have plenty of car insurance. You are more likely to be sued now.
4) Make sure that you have an umbrella policy with at least a million dollars in coverage. This should not be expensive unless you have a bad driving record.
5) Put the rest into six month CD's, you will need to split it between two banks to keep below the $250K FDIC insurance limit.

You may want to also do something like put 5% of the money into a splurge fund if you want to spend some of it on things like travel or whatever. You do not have to spend this but this would be to prevent you from spending too much right away.

I would highly suggest that you not buy a condo until at least next fall. That will give you time to get used to the loss and to come up with a long term plan.

angelescrest
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Location: The Third Coast

Re: What Would you do? (Inheritance)

Post by angelescrest » Sat Feb 10, 2018 7:26 am

aristotelian wrote:
Fri Feb 09, 2018 7:32 am
mikeyzito22 wrote:
Thu Feb 08, 2018 10:42 pm
I don't mean to be rude OP....however, I pay more than $2,000 for mortgage, heat, bills etc. and make way less than you in salary. I would jump on something with that money that is only 2K a month, especially with where it is, and you make money by owning not just giving it away to rent. Always, real estate ownership trumps most other investments unless you think Cali is going to fall into the sea in the next 20 years, go get a property before jumping into changing your portfolio. Get that first, then adjust retirement, assess allocation and the like.
That may be true but I think it is at least prudent to follow the Wiki advice of waiting 6 months before anything major. Buying a first house is the biggest purchase you will make in your life and a bad decision can be disastrous. It's much easier to make the decision to buy than it is to undo that decision if you have second thoughts.
I wanted to note that the idea of real estate always trumping most other investments is definitely not a well established view on this forum.

Admiral
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Re: What Would you do? (Inheritance)

Post by Admiral » Sat Feb 10, 2018 8:00 am

I do not agree that liquidating everything all at once is a good choice. Because: taxes. And I say this as someone who moved investments to Vanguard from another broker. Not 350k, but six figures.

In many cases, Vanguard will allow you to transfer holdings in without selling them. Call them and ask. This of course does nothing to eliminate holdings with high ERs. However, it does allow you to unwind these holdings at your leisure, taking the tax hit over time. Or, at some point, selling an individual holding for a loss. Yes, paying high fees sucks, but if I have to do it for six months or a year to control when or how much tax I pay, I will do that.

Good luck.

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Strayshot
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Re: What Would you do? (Inheritance)

Post by Strayshot » Sat Feb 10, 2018 8:25 am

OP,
The good news is that you are thinking this through and looking at your options. Sorry for your loss.

Some things may transfer in kind to vanguard, but some will not. I like your option 1, because of stepped up basis on death and the recent pullback you can harvest losses, so I see no reason not to do so and liquidate everything because it is unlikely you will keep any of the current EJ investments anyways as you build your 3 fund portfolio at Vanguard.

Time in the market, not timing the market, go ahead and dump it all in.

You have a very favorable living situation and I would not change a thing, you are still young (caveat would be if you are marrying soon and planning to have kids, you will need more space)

You may choose not to use vanguard, take a look at the brokerage bonus thread and see if Schwab or Fidelity is offering a cookie for the level of funds you are bringing in. They are both good platforms and the extra 500-1000 might be worth it.

tbone1
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Re: What Would you do? (Inheritance)

Post by tbone1 » Sat Feb 10, 2018 8:38 am

congratulations. my first bit of advise is to continue living as though you've never inherited anything. drive your car until it's cost-prohibitive to continue fixing it. live below your means. invest as much as you can in low-expense funds...stocks, perhaps. you've heard all of this before. what I would consider is getting with an accountant as well as a financial advisor ONLY to hear what they suggest. typically a meeting is free. don't feel pressured to have them manage your money for you. but, they can at the very least explain tax repercussions -- ways to minimize taxes. good luck.

2tall4economy
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Location: Global

Re: What Would you do? (Inheritance)

Post by 2tall4economy » Sat Feb 10, 2018 11:40 am

Do a buy vs rent calculator. In hcol and vhcol areas renting is almost always the best option. I’ve actually never seen a case where it isn’t but I don’t like saying “always” or”never”. Real estate in general tracks inflation. When it doesn’t it’s because of sudden salary and job growth. It’s never a good “investment” unless it’s being rented out, because all you are doing is speculating.

If it says buying is best, Being single and considering buying real estate I would be very careful that whatever you buy is rentable (ie shows well, in good location, good schools, etc). Life changes and adding another person to it (or more) means you need an exit strategy for you present situation, and the simple answer of just selling has a lot of cost associated with it. I say this as A person that owns rental properties - it’s worked for me but not everyone should be a landlord.

I don’t know that I understand the size of your investments and emergency fund and age along with the view that you live frugally. In any case, your e fund is too large most likely - which I would argue you no longer need, at least at the same level.

What I’d do if you really plan to work another 20 years:
Keep renting, Max iras, check into doing a backdoor 401k and if so then max that out too (50k vs 18k per year), keep renting, reduce the emergency fund, put the taxable cash into some equities and keep a portion to live off as cash while you preferentially juice your 401k with the backdoor contributions.
You can do anything you want in life. The rub is that there are consequences.

Olemiss540
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Re: What Would you do? (Inheritance)

Post by Olemiss540 » Sat Feb 10, 2018 11:50 am

Pay off car, bump EF to 45k, and the dump the rest into the market (total stock and total international).

It seems your short term (5-8 years) needs can be met with your salary, so why not invest in your future self. Would DEFINATELY bring the financial independence date up a few years!

Can always buy a condo, 20% down won't be hard to scrape up in a few years if you keep living within your means. Having a nest egg in the 500k range at your age would be awesome.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

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sergeant
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Re: What Would you do? (Inheritance)

Post by sergeant » Sat Feb 10, 2018 12:42 pm

Admiral wrote:
Sat Feb 10, 2018 8:00 am
I do not agree that liquidating everything all at once is a good choice. Because: taxes. And I say this as someone who moved investments to Vanguard from another broker. Not 350k, but six figures.

In many cases, Vanguard will allow you to transfer holdings in without selling them. Call them and ask. This of course does nothing to eliminate holdings with high ERs. However, it does allow you to unwind these holdings at your leisure, taking the tax hit over time. Or, at some point, selling an individual holding for a loss. Yes, paying high fees sucks, but if I have to do it for six months or a year to control when or how much tax I pay, I will do that.

Good luck.
Taxes? What taxes? He actually has a loss since taking ownership.

The idea put forth above that real estate always beats other investments is not good advice. I suggest that OP read the wiki and not rush into anything except pay off car and start maxing his retirement accounts.
Lincoln 3 EOW!

mikeyzito22
Posts: 61
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Re: What Would you do? (Inheritance)

Post by mikeyzito22 » Mon Feb 12, 2018 10:25 pm

aristotelian wrote:
Fri Feb 09, 2018 7:32 am
mikeyzito22 wrote:
Thu Feb 08, 2018 10:42 pm
I don't mean to be rude OP....however, I pay more than $2,000 for mortgage, heat, bills etc. and make way less than you in salary. I would jump on something with that money that is only 2K a month, especially with where it is, and you make money by owning not just giving it away to rent. Always, real estate ownership trumps most other investments unless you think Cali is going to fall into the sea in the next 20 years, go get a property before jumping into changing your portfolio. Get that first, then adjust retirement, assess allocation and the like.
That may be true but I think it is at least prudent to follow the Wiki advice of waiting 6 months before anything major. Buying a first house is the biggest purchase you will make in your life and a bad decision can be disastrous. It's much easier to make the decision to buy than it is to undo that decision if you have second thoughts.
Cool..wait it out. :sharebeer

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