What to do with $150K Bonus?

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Topic Author
luckybamboo
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Joined: Tue Nov 01, 2016 7:56 pm

What to do with $150K Bonus?

Post by luckybamboo »

DH has received a generous $150K take home bonus in these rough times. We can't agree on how to allocate the money. Please give your suggestions

Background
Me-48 yo
Spouse-47 yo (full-time mom)
Emergency Fund - 16 months of basic expenses
Mortgage - $52,000 at 4.375%
No other debt.

Retirement - $1.45 mi (as of 08/15) (65% Stock - 35% Bond)
401K - Maxed with 4% Match from Employer
Backdoor ROTH for DH.

DD-20 yr - Junior in state college with annual expense of $22,000 (room and board). We have $50K in 529 for her.
DS-17 yr - Senior in HS, $70K 529 balance - plans to attend state school with 4 year expense projection of $120,000

Goals in next 5 years:
1. Help kids graduate debt-free
2. Remodel or Buy a new home

My preference: Payoff mortgage by March 2021 ($50,000). Invest ($50,000), leave $50,000 for remodel/new home.

DH preference: Invest $30,000. Leave $120,000 - remodel/new home down payment.

I feel that the plans for home remodel etc aren't definite. Paying down mortgage is a return of 4.375% vs earning 0.8%. DH feels uncomfortable about losing $50K of liquidity.

What do you suggest?
HomeStretch
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Re: What to do with $150K Bonus?

Post by HomeStretch »

Consider:
1. $52k to payoff the 4.375% mortgage now
2. $45k to fund college costs in excess of 529 account balances as you want your kids to graduate debt free
3. $6k backdoor Roth for spouse (if no pro-rata issue)
4. $47k for new house/remodel

Use monthly increase in cash flow (due to no more mortgage payments / 529 contributions) to add to investments and/or house fund.
annu
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Re: What to do with $150K Bonus?

Post by annu »

Refinance, you will get better rates, now the new fee of 0.5% has been delayed to after elections, I will highly recommend to go for that, you can also get some additional money as part of refinance as cash out if it makes sense as well.
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btq96r
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Re: What to do with $150K Bonus?

Post by btq96r »

Answer the question of move or remodel first...it's kind of a biggie.

If the answer is move: save it to add to what you cash out of the current home with for a down payment on a new place.

If staying, I'd pay off the mortgage, bump up the HS Senior's 529 to a point you consider it "good", then use what's left plus mortgage free cash flow to make the remodel happen.
Last edited by btq96r on Sat Aug 29, 2020 4:23 am, edited 1 time in total.
mortfree
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Re: What to do with $150K Bonus?

Post by mortfree »

What’s your monthly mortgage payment excluding taxes and insurance?

I’d payoff the mortgage today. -52k

Then,
You need to figure out remodel or new house before you can do anything else. And the timing in that.

Without definitive plans I’d hang on to the remainder in cash, for now.

Read the wiki page on a windfall, if you haven’t already.
student
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Re: What to do with $150K Bonus?

Post by student »

I would pay off the mortgage. Then invest and remodel.
statefan03
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Re: What to do with $150K Bonus?

Post by statefan03 »

My question is if you have a $150K take home (after tax) bonus then what profession is this, I need to switch careers... :happy
Topic Author
luckybamboo
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Re: What to do with $150K Bonus?

Post by luckybamboo »

mortfree wrote: Sat Aug 29, 2020 3:47 am What’s your monthly mortgage payment excluding taxes and insurance?
It is $1079
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anon_investor
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Re: What to do with $150K Bonus?

Post by anon_investor »

luckybamboo wrote: Sat Aug 29, 2020 8:24 am
mortfree wrote: Sat Aug 29, 2020 3:47 am What’s your monthly mortgage payment excluding taxes and insurance?
It is $1079
Definitely payoff the mortgage. The balance is so small that you won't be able to refinance.

Then invest the rest.
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goingup
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Re: What to do with $150K Bonus?

Post by goingup »

Pay off the mortgage today. No sense waiting til March 2021. That interest is high and without the monthly payment you can cash flow college expenses.

Invest the rest according to your AA.
Topic Author
luckybamboo
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Re: What to do with $150K Bonus?

Post by luckybamboo »

statefan03 wrote: Sat Aug 29, 2020 5:52 am My question is if you have a $150K take home (after tax) bonus then what profession is this, I need to switch careers... :happy
He works for consulting company and specializes in large Process transformation and automation using AI and Robotics
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Iowa David
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Re: What to do with $150K Bonus?

Post by Iowa David »

Pay off the Mortgage. Psychologically, you will have the benefit of feeling like you did something actionable with the bonus, you'll have a sense of relief knowing that the mortgage is paid off, you'll appreciate the additional monthly cash flow to help then make a decision on what you do with the house remodel and other plans.
"Just a 1 percent difference in expenses makes an 18 percent difference in returns when compounded over 20 years." The Boglehead's Guide to Investing
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ruralavalon
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Re: What to do with $150K Bonus?

Post by ruralavalon »

Congratulations on the nice bonus :).

1) Pay off the mortgage now.

2) Make the move/no move decision.

3) If not moving, then remodel and invest the remainder.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
novemberrain
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Re: What to do with $150K Bonus?

Post by novemberrain »

Refinance but don’t payoff mortgage
DSInvestor
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Re: What to do with $150K Bonus?

Post by DSInvestor »

Pay off the mortgage now. That eliminates $1079 monthly expense which should ease some anxiety about loss of 50K liquidity. Don't forget, you still have 100K left over after the mortgage payoff. Next decide whether to renovate or buy new home.

Consider backdoor Roth IRA for yourself as well. If you file taxes married filing jointly, spousal IRA contributions are allowed based on your spouse's income.
Last edited by DSInvestor on Sat Aug 29, 2020 11:18 am, edited 1 time in total.
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EnjoyIt
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Re: What to do with $150K Bonus?

Post by EnjoyIt »

Pay off the mortgage immediately. The 4.35% guaranteed return is a no brainer. The rest is just personal preference.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
lazynovice
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Re: What to do with $150K Bonus?

Post by lazynovice »

I would pay off the mortgage, fund a back door Roth for you, and top off the college fund for child number 2. Then put the remainder into an account for remodel/down payment for when you make that decision along with the mortgage payment you’ll now “pay yourself”
mortfree
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Re: What to do with $150K Bonus?

Post by mortfree »

novemberrain wrote: Sat Aug 29, 2020 10:54 am Refinance but don’t payoff mortgage
Are you saying a cash out refinance?

With a 50k balance it will be challenging to refinance that small amount - based on what others have said here and in other threads over the years.
psychoslowmatic
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Re: What to do with $150K Bonus?

Post by psychoslowmatic »

I would "refinance" your mortgage by taking out a HELOC and paying off the mortgage at closing. You can find 2.75% adjustable if you look, Tower FCU or local banks. Keep the balance on the HELOC just long enough that they'll cover closing costs then pay it off. Draw on the line if needed for renovation or down payment on the next place. Or leave it open with a 0 balance, you get access to capital without paying for it.
Financologist
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Re: What to do with $150K Bonus?

Post by Financologist »

Normally my answer would be to compromise by meeting in the middle. But in this case I'm compelled to take a position on the mortgage. Pay it off right now.

Then top off the 529 accounts. This checks one of the boxes for your life goals and at the same time does not entirely compromise liquidity since those funds are accessible for the most part ( yes with penalty but it seems unlikely that you will need to tap those accounts for anything other than their intended purpose).

Set aside remaining funds for the remodel. Unlike college, the timing of the remodel is up to you. You can adapt that timeline to changing circumstances. These funds also remain liquid.

Good luck
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Orbuculum Nongata
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Re: What to do with $150K Bonus?

Post by Orbuculum Nongata »

goingup wrote: Sat Aug 29, 2020 8:37 am Pay off the mortgage today.
Invest the rest according to your AA.
+1
Potential - distraction = performance.
novemberrain
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Re: What to do with $150K Bonus?

Post by novemberrain »

mortfree wrote: Sat Aug 29, 2020 12:04 pm
novemberrain wrote: Sat Aug 29, 2020 10:54 am Refinance but don’t payoff mortgage
Are you saying a cash out refinance?

With a 50k balance it will be challenging to refinance that small amount - based on what others have said here and in other threads over the years.
You are right. I didn't notice the remaining mortgage amount. I just saw the rate - 4.3%.
deltaneutral83
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Re: What to do with $150K Bonus?

Post by deltaneutral83 »

I wouldn't have bonds and a 4+% mortgage, that hasn't done well the last decade, don't know how long the mortgage has been in place. The issue to me is that your mortgage as it stands now is such a small part of your financial picture that I'd just knock it out and be done with it. Reaching for a spread on $50k when you have $1.5M in investable assets just isn't that big of a deal either way. Refinance and invest the windfall or pay the mortgage down, doesn't matter.

Well now I see that small of a mortgage probably isn't worth their time to refinance, so I'd just pay it off.
LittleMaggieMae
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Re: What to do with $150K Bonus?

Post by LittleMaggieMae »

I'd use some of the bonus for your (the spouse) own retirement accounts - this year's IRA/Roth IRA AND next years. I'd then use 2021 to "save up" to fund your (spousal) retirement accounts in '22 - rinse and repeat.

I guess I'd pay off the mortgage, next. I would just do it as soon as the bonus money hits your account. I wouldn't wait. I'd probably just divert/earmark the 1K per mortgage payment to your (spousal) retirement accounts- and continue on as you are with the rest of your retirement savings. If you are already funding your accounts (as well as all the one's your hubby gets) then I'd just divert/earmark the $$ for some future plans and save/invest it.

I'd also think about opening a HELOC on your paid off house. It can give you flexibility with how to pay for the remodel OR be used when you are in the process of selling/buying a new house (imagine you have to carry two houses for 3 or 4 or 5 or 6 months...) it may help you buy the house you want without a "contingency" based on the sale of your old house. Or use it for some short term low interest debt if needed when the last kid goes to college.

For the rest of the bonus - I'd leave it up to you.

Not a particularly life changing "bonus" :wink:
Compound
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Re: What to do with $150K Bonus?

Post by Compound »

What is the estimated cost of the remodel? Is it expected to be expensive (and thus the reason for your spouse’s desire to hold onto the cash)?

Assuming the remodel is unlikely, my priority list would look like this:
1. Spousal backdoor Roth IRA
2. Pay off mortgage
3. Cash for remodel/child #2 education (perhaps using a 529 depending upon current projections and how it’s invested).
Topic Author
luckybamboo
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Re: What to do with $150K Bonus?

Post by luckybamboo »

LittleMaggieMae wrote: Sat Aug 29, 2020 1:41 pm I'd use some of the bonus for your (the spouse) own retirement accounts - this year's IRA/Roth IRA AND next years. I'd then use 2021 to "save up" to fund your (spousal) retirement accounts in '22 - rinse and repeat.
Unfortunately, the only option I have for retirement is Taxable as my personal traditional IRA (rolled over from 401K) is $100K. So, I can't do Backdoor ROTH. AGI is too high for ROTH. We have been adding $19000 (401K) equivalent in the taxable as my share of savings.
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AlabamaPaul
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Re: What to do with $150K Bonus?

Post by AlabamaPaul »

I'm confused. Which one of you has the $100k IRA, the one still working or the stay at home Mom?
HomeStretch
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Re: What to do with $150K Bonus?

Post by HomeStretch »

luckybamboo wrote: Sat Aug 29, 2020 4:32 pm Unfortunately, the only option I have for retirement is Taxable as my personal traditional IRA (rolled over from 401K) is $100K. So, I can't do Backdoor ROTH. AGI is too high for ROTH. We have been adding $19000 (401K) equivalent in the taxable as my share of savings.
If the 401k offers a mega Backdoor, prioritize the mega Backdoor for retirement savings over a Taxable account as a Roth account grows tax free.
https://www.bogleheads.org/wiki/After-tax_401(k)
Topic Author
luckybamboo
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Re: What to do with $150K Bonus?

Post by luckybamboo »

AlabamaPaul wrote: Sat Aug 29, 2020 4:41 pm I'm confused. Which one of you has the $100k IRA, the one still working or the stay at home Mom?
Stay at home Mom. All DH traditional IRAs are rolled into 401K and backdoor ROTH is done yearly.
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AlabamaPaul
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Re: What to do with $150K Bonus?

Post by AlabamaPaul »

luckybamboo wrote: Sat Aug 29, 2020 5:09 pm
AlabamaPaul wrote: Sat Aug 29, 2020 4:41 pm I'm confused. Which one of you has the $100k IRA, the one still working or the stay at home Mom?
Stay at home Mom. All DH traditional IRAs are rolled into 401K and backdoor ROTH is done yearly.
Got it, thanks...
Wricha
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Re: What to do with $150K Bonus?

Post by Wricha »

Pay off mortgage (no brainer). There is probably a very high chance that you will buy a new/different house rather than live through a major renovation project. That way you still have the same amount of money available for the new house with the benefit of not paying interest on the borrowed money at a guaranteed rate.

Then take remaining $100k invest for the very short term till you landed on your new home.
TimeTheMarket
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Re: What to do with $150K Bonus?

Post by TimeTheMarket »

Why in the wold would you not pay off a 4.375% mortgage? Pay it off Monday.
Username is not serious :)
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