Page 1 of 1

What to do with cash?

Posted: Tue Jan 07, 2020 9:11 pm
by EllieAndEddysDad
Ok. If this isn’t where I’m supposed to be, forgive me. I’m 39 and wife is 32

I’m stuck and keep overthinking.

Have 90k in a savings account (I know, not smart to let it sit)

Make 180k between wife and I

Primary Home owe 217k worth 350k

Have two former homes as rentals (owe 90k worth 160 which I’ve had for 10 years on 30 year mortgage and have depreciated 4K straight line each year over 10 years) and (owe 100k worth 150k owned for 6 years and depreciated for 4 years) I don’t make much on rentals, I’ve been keeping them for an equity cash out someday, but I feel like the rent payments counted as income are causing me to get creamed during my taxes. I didn’t know until many years in that’s cap gains and depreciation would kill me. I owned them as primary homes and lived in them but moved up to the second house and then moved for work.

I have a 401k with about 200k in it from work. My wife just got offered one with a 3% match at work, which she will participate. Could Probably do a catch-up for her, she hasn’t had one before.

I know the money in my savings is wasting time but I’m worried about getting into the market when it’s had such a big run up. I know that’s silly but it’s overwhelming.

I’ve been thinking about mutual funds but I feel like I get more confused the more I read.

1. I wanna sell the rentals (as I live 6 hours away from them now) and possibly 1021 exchange and buying something closer, or selling both and taking a bath on realizing my depreciation and cap gains. This sucks cause I have dealt with a ton of shit as a landlord and seems I will get killed with both fees. Or I could keep them longer, I’m in no rush.

2. Should I just sink a bunch of the savings into index funds? Mutual funds for some?

3. There are a ton of books, can I get a few recommendations to get me from novice to intermediate

4. I have a 529 for each of my 2 kids. $100 a month for each since birth, one is 2.5 and the other is 6 months old.

5. Probably seems silly to some, but I wanna get better at this.

6. I’ve been complacent and as I’ve started to get more knowledgeable, I’ve realized I should be doing more to position for the future.

Re: What to do with cash?

Posted: Tue Jan 07, 2020 10:00 pm
by ExitStageLeft
Welcome to the forum!

You have a lot of options, but I would give priority to maxing out the wife's 401k savings this year. If that means spending some of the $90k to cover living expenses then do it. Your income puts you at the top of the 22% bracket, so saving in tax-deferred right now is a good option.

Another thing to do is contribute to a Roth IRA account for each of you. That is preferable to saving in a taxable account.

I don't have much to offer about the rentals, other than to point out that it doesn't have to be all or nothing. You could sell one and see how that improves your financial situation and your personal situation. Cutting the landlord responsibilities in half has got to be a good thing.

But foremost you should take your time and make a plan. Don't be in a rush, especially if you decide to invest in a taxable brokerage account. Learn a little before you take an action. There's a wealth of info on the Boglehead wiki page, and the Start Here page has some excellent videos: https://www.bogleheads.org/wiki/Getting_started

Re: What to do with cash?

Posted: Tue Jan 07, 2020 10:27 pm
by lgb
How much do you have in an emergency fund? In other words, that $90K of cash, is there some portion of that you and your wife agree is a cushion between all is good in life vs. all is not good in life?

Interested in your rental scenario, but can't help on whether you're doing good or bad or whether to hold on to it, none of it or some of it... - but I can say from an outside perspective it does seem possibly complicated (in other words, not allowing you to be focused on what else you might be trying to accomplish). It also sounds like if you're able to move 1 or both boxes it could result in some positive $flow back to you that is liquid like your $90K.
Like if those didn't exist, your scenario becomes possibly easier to focus - and you've already articulated you want to sell them. You're just gun shy and concerned whether you should or not - which I get. This would allow you to focus on putting away more towards wife's retirement portion (Roth could also be considered if you're not exceeding the income limit for that) and maximizing that and/or her Retirement. Then focus on your kids college funds and possibly try to determine how much you should have to feel like later on down the road you've got those bases covered. So long as your income to expenses aren't presently upside down - if so for some reason that could be a next priority. (presumably they aren't as you have your mountain of cash created 'somehow' - but we don't know how that mountain was created etc...)

Maybe simplify things in your life - to not be as overwhelmed! We have all been there, and if not will at some point! Not alone!

Re: What to do with cash?

Posted: Tue Jan 07, 2020 10:43 pm
by EllieAndEddysDad
Thanks for the replies. I have started to watch some of the “start here” videos!

The mountain of cash came from a combo of relocations checks my company gave me (5 moves in 12 years) and savings from income as we have lived. It used to be larger but down payment on the new home (4 years ago) and an engagement ring/wedding ring, basement remodel and landscaping stuff when we built took it down a bit.

Our expenses are great, DTI ratio is pretty stellar, no credit cards, paid off her student loans and we each have a $450 car payment (mine has zero interest). Our daycare sucks, $1500 a month. My wife makes 40k of the income stated above, so she has kicked around the idea of being a stay at home mom. I’m not sure if she did and I sold the rentals if it wouldn’t be more tax advantageous
As she brings home around 8k after taxes when figuring daycare out of her income for conversation sake.

Tax rates are the most cumbersome things ever. It makes my head hurt trying to figure it out.

Gotta keep learning I guess.

I think I wanna sell the first rental and deal with realizing the depreciation and the cap gains. Do I have any out on cap gains as I lived there for 3 years before putting it into service as a rental? Or once it becomes a rental is all profit taxed as cap gains income?

Re: What to do with cash?

Posted: Tue Jan 07, 2020 10:48 pm
by lgb
If you're not able to ask your tax person/accountant questions to address your tax concerns - however simple it may or may not be - and not feel like they are talking 'above' you. You might poke around with someone else until you get the right person that will really help explain it. We have had some that can do 'their' job, but it is not for 'me' to understand or care about leaving it a mystery as to why we are doing what we're doing (but it does get done properly!), and then we've had our present tax/accountant and they take time to answer questions and or explain things to make certain we understand why we are doing or not doing something. Like they are eager to want to explain and have us understand.

Maybe bump that up in priority if that is something that is paralyzing you from taking action on other things. (as it seems like it might be) - Sometimes change can be a real good thing!

Re: What to do with cash?

Posted: Tue Jan 07, 2020 10:55 pm
by EllieAndEddysDad
Yeah, I have normally done all of this on my own, only last year getting a tax consultant to do my taxes, which is probably why I am still letting money sit in an account. My wife’s boss started offering their small office a 401k thru Edward Jones, which I have found on the board to not be positive to invest with unless you wanna pay a ton of fees. The edjo reps offer to meet with us and “help us” find a way to invest our cash got me curious.

6 months of emergency would be about 36k counting mortgage, cars and daycare plus utilities and such.

So we have about 50 to invest I would say.

Probably time to find a investment person who won’t charge me a fortune (while also not free) to help us out.

Appreciate the info! I stumbled on this board last night and was up til 2am reading a million posts.

Re: What to do with cash?

Posted: Tue Jan 07, 2020 10:59 pm
by annu
You are not alone. Two things:
1) There is no easy/clear answer, but just like you invested time into rentals, invest into investing process. I used https://www.bogleheads.org/wiki/Main_Page, very helpful. I am following the 4 fund approach, with allocating 10% to REITS inplace of bonds, as I like RE investing as well, so using VNQ and VNQI ETS from vanguard.
2) Look into CD ladders while you get more knowledgeable, I have one for 3.2% and another for 2.4%, lookup CD ladders

Real estate needs work, but I feel it is easier to understand as well. I personally feel more aware of things with RE. Stocks still lots of thigns to learn, for e.g. I read a thread on Dividends, and where they come from and was shocked to say the least(to sum it up, dividend dont make stocks liek CDs).

At the end of the day, regardless of what doomsayers say or what majority folks here say, no one knows or can know, so go with what you are most comfortable with. And take Vanguard risk charts only as suggestion(they rate things at risks from 1 to 5), 1 does not mean low risk, it just means, compared to risk 5 investment, it is risk 1, it still involves risk...

if you have some time, look into muni funds, one example Vanguard VWITX, it is safer investment, and you do not pay state taxes on dividends, so can make more then CDs, but will depend upon your state and tax rates.

Also if you meant 1031 exchange, it will need you find a property similar in profile, biggerpockets is a good place to find more info, bu tlike this forum where folks like investing in market, over their RE investing is way of life, but you will get more responses there for sure.

With RE, you do get 20% deduction through 2026, so if not needed to sell now, maybe keep little longer and sell after.

Re: What to do with cash?

Posted: Tue Jan 07, 2020 11:21 pm
by jbow44
I'm no expert in real estate so I won't go there. However, if your question is what to do with cash on hand not doing anything and you have cars that are unpaid, even with zero interest, that's an easy place to increase your net worth. If you don't want to commit to stocks, mutual funds etc. just decrease your dept. No harm in that. Write a check and drive without car payments

Re: What to do with cash?

Posted: Wed Jan 08, 2020 12:44 am
by dru808
jbow44 wrote: Tue Jan 07, 2020 11:21 pm I'm no expert in real estate so I won't go there. However, if your question is what to do with cash on hand not doing anything and you have cars that are unpaid, even with zero interest, that's an easy place to increase your net worth. If you don't want to commit to stocks, mutual funds etc. just decrease your dept. No harm in that. Write a check and drive without car payments
Great suggestion 👍

Re: What to do with cash?

Posted: Wed Jan 08, 2020 2:33 am
by EllieAndEddysDad
Thanks y’all, I was pretty close to paying off one of the vehicles but wanted some advice before paid off a zero percent loan if the money should have instead went into an investment.

I’m grateful for your advice!

Re: What to do with cash?

Posted: Wed Jan 08, 2020 3:00 am
by babystep
EllieAndEddysDad wrote: Tue Jan 07, 2020 10:43 pm Thanks for the replies. I have started to watch some of the “start here” videos!

The mountain of cash came from a combo of relocations checks my company gave me (5 moves in 12 years) and savings from income as we have lived. It used to be larger but down payment on the new home (4 years ago) and an engagement ring/wedding ring, basement remodel and landscaping stuff when we built took it down a bit.

Our expenses are great, DTI ratio is pretty stellar, no credit cards, paid off her student loans and we each have a $450 car payment (mine has zero interest). Our daycare sucks, $1500 a month. My wife makes 40k of the income stated above, so she has kicked around the idea of being a stay at home mom. I’m not sure if she did and I sold the rentals if it wouldn’t be more tax advantageous
As she brings home around 8k after taxes when figuring daycare out of her income for conversation sake.

Tax rates are the most cumbersome things ever. It makes my head hurt trying to figure it out.

Gotta keep learning I guess.

I think I wanna sell the first rental and deal with realizing the depreciation and the cap gains. Do I have any out on cap gains as I lived there for 3 years before putting it into service as a rental? Or once it becomes a rental is all profit taxed as cap gains income?
Looks like yes. Check the IRS rule: https://www.irs.gov/taxtopics/tc701

ExitStageLeft had great advice above.

Re: What to do with cash?

Posted: Wed Jan 08, 2020 3:06 am
by babystep
EllieAndEddysDad wrote: Wed Jan 08, 2020 2:33 am Thanks y’all, I was pretty close to paying off one of the vehicles but wanted some advice before paid off a zero percent loan if the money should have instead went into an investment.

I’m grateful for your advice!
What is the rate on primary home ? The mortgage interest on primary, unlike rental property interest, is not federal tax deductible because of high standard deductions around 24k. I will rather pay down mortgage than very low rate auto-loan.

I would use 90k for expenses such that I can contribute to two 401ks to the maximum and 2 roth or backdoor roth IRAs.

Re: What to do with cash?

Posted: Wed Jan 08, 2020 5:15 am
by mortfree
With two rentals and a primary home holding on to that 90k may be the best thing until you sell one or two of the rentals.

Otherwise I could see taking a smaller amount for investing. Say 25k.

Stay far away from Edward Jones.

Re: What to do with cash?

Posted: Wed Jan 08, 2020 7:16 am
by snowox
To keep it simple I would pay off the car and live off the difference and have your Wife front load her 401k with here entire check. If you have more left then max out your year pay in on your 529's. Put all but 5k at the very least in VMMXX set up to transfer to your bank account.

Re: What to do with cash?

Posted: Wed Jan 08, 2020 11:46 pm
by EllieAndEddysDad
Thanks all. I will most likely pay off the car which is 22k and then put some into vmmxx. Also going to look into selling one of the rentals after is peak to my cpa when filing my 2019 taxes. Will look to put some towards the wife’s 401 and a Roth if my income isn’t prohibiting with limits. Love this board!