Inheritance Help

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Topic Author
gl0ckn3r
Posts: 15
Joined: Tue Dec 29, 2020 12:51 am

Inheritance Help

Post by gl0ckn3r »

I am about to receive a pretty large inheritance in my opinion in the next 6 months to a year (depending on legal side). The inheritance will be somewhere between 350k to 400k. I am currently invested in a Roth IRA with Edward Jones. I have been doing a ton of research on what to do with an inheritance this size and have heard a lot about Vanguard. I am just starting to look through the this forum and wiki, but would love if anyone has any advice whatsoever on how to manage this money. I really like the idea of having a financial advisor to help make decisions in my best interest, but I am not opposed to doing my own investing as long as it doesn't require daily research of stocks, funds, etc. I'd like to pretty much be able to invest my money and not have to think about it too much and just let it ride.

Here is a very basic overview of how I tentatively plan on using the money. All suggestions and criticism welcome. Note, this is at least 6 months out so some of the numbers will be lower due to monthly pay offs.

Total Inheritance: 350k to 400k, let's call it 380k.
Car Loan + Student Loans: 26k
Pay off mortgage to cancel out PMI: 40k
- Side Note: May not do this after talking with BIO. My mortgage rate is 2.875 and that money may be better off invested.
Savings: 50k
Fun: 10k
Investments: 250k

I am currently 24 years old, and have a steady job making 70k a year. I currently contribute 3% towards my 401k (company match is not great), and $200 a month to my IRA and another $200 a month to savings.

Was looking into the 3 fund strategy and think that would allow me to invest and not have to worry about it too much. Would just need to figure out allocations.

Any suggestions on what to do would be greatly appreciated.
AB609
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Joined: Thu Oct 17, 2019 9:02 am

Re: Inheritance Help

Post by AB609 »

It seems like a reasonable plan. I would look at refinancing the mortgage (put some the inherited money into it to get below 80%) to eliminate the PMI.
Once you are set up in Vanguard, I would move the EJ money over to Vanguard. At you age, I would be pretty aggressive on my asset allocation with the $250K.

Edited to ask, is your mortgage payoff $40k or do you need to pay down $40K to get rid of the PMI?
Topic Author
gl0ckn3r
Posts: 15
Joined: Tue Dec 29, 2020 12:51 am

Re: Inheritance Help

Post by gl0ckn3r »

AB609 wrote: Tue Dec 29, 2020 11:20 am It seems like a reasonable plan. I would look at refinancing the mortgage (put some the inherited money into it to get below 80%) to eliminate the PMI.
Once you are set up in Vanguard, I would move the EJ money over to Vanguard. At you age, I would be pretty aggressive on my asset allocation with the $250K.

Edited to ask, is your mortgage payoff $40k or do you need to pay down $40K to get rid of the PMI?
Just bought the house, so it would be approximately 40k to get rid of PMI, which would save me $1200 a year as my PMI is $100. I am also looking into maybe using Vanguard's Financial Advisor's for a while because I still don't trust myself with making the best decisions, especially when it comes to taxes.
lakpr
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Joined: Fri Mar 18, 2011 9:59 am

Re: Inheritance Help

Post by lakpr »

gl0ckn3r wrote: Tue Dec 29, 2020 11:26 am
AB609 wrote: Tue Dec 29, 2020 11:20 am It seems like a reasonable plan. I would look at refinancing the mortgage (put some the inherited money into it to get below 80%) to eliminate the PMI.
Once you are set up in Vanguard, I would move the EJ money over to Vanguard. At you age, I would be pretty aggressive on my asset allocation with the $250K.

Edited to ask, is your mortgage payoff $40k or do you need to pay down $40K to get rid of the PMI?
Just bought the house, so it would be approximately 40k to get rid of PMI, which would save me $1200 a year as my PMI is $100. I am also looking into maybe using Vanguard's Financial Advisor's for a while because I still don't trust myself with making the best decisions, especially when it comes to taxes.
In other words, a $40k investment is getting you $1200 per year return, TAX-FREE. That's a 3% return tax-free, and if I assume a 22% Fed + 5% state tax rate, equivalent to a 4.1% CD.

Do you know of any financial firm that's offering a 4% CD for 4 years (assuming that's what it would take to get below the PMI threshold with normal payments)? I don't. It is a VERY GOOD deal, and I urge you to take it. Sure you can earn more than 4% in stock market, but it is also equally likely that you will lose 10% to 20% over the next 4 years.
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retired@50
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Location: Living in the U.S.A.

Re: Inheritance Help

Post by retired@50 »

After reading your post a few thoughts come to mind.

1. Don't get mixed up with a financial adviser. They often (nearly always) have their own agenda, which involves separating you from your money. Vanguard PAS is the exception to this rule. They are fair and won't over-complicate your portfolio.
2. Move the account that is currently at Edward Jones to Vanguard. EJ is notorious for high fees and overly complicated portfolios. They want people to think that investing is harder than medicine or law, but the truth is much simpler.
3. To be a Boglehead style investor, you certainly don't need to research stocks, or anything like it. You need to be a patient person who doesn't freak out at the current headlines. You need to be a humble person who doesn't think they are smarter than all the other investors. It really shouldn't take you more than an hour or two per year to manage your money.
4. Keep reading, keep learning. Try some of the Boglehead wiki pages linked below.
And keep coming back to the forum with questions. Welcome. :happy

Regards,
https://www.bogleheads.org/wiki/Boglehe ... philosophy
https://www.bogleheads.org/wiki/Asset_allocation
Last edited by retired@50 on Tue Dec 29, 2020 11:37 am, edited 1 time in total.
This is one person's opinion. Nothing more.
lakpr
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Joined: Fri Mar 18, 2011 9:59 am

Re: Inheritance Help

Post by lakpr »

gl0ckn3r wrote: Tue Dec 29, 2020 10:06 am I am currently 24 years old, and have a steady job making 70k a year. I currently contribute 3% towards my 401k (company match is not great), and $200 a month to my IRA and another $200 a month to savings.
Once you do get the inheritance in your hands, I STRONGLY urge you to maximize your 401k contributions. With $70k an year annual income, less standard deduction of $12.5k (for 2021), your AGI without any 401k contributions would be $57.5k. The top of the 12% bracket in 2021 would be $53k approximately, you need to make $4.5 traditional 401k contributions, and the rest $15k as Roth 401k contributions.

Draw your living expenses from the inheritance. With a $350k to $400k inheritance, even with zero growth, you will be able to sustain about 20 years worth of contributions into tax-advantaged vehicles.

Edited to add: yeah, get away from the EJ blood suckers.
Topic Author
gl0ckn3r
Posts: 15
Joined: Tue Dec 29, 2020 12:51 am

Re: Inheritance Help

Post by gl0ckn3r »

lakpr wrote: Tue Dec 29, 2020 11:37 am
gl0ckn3r wrote: Tue Dec 29, 2020 10:06 am I am currently 24 years old, and have a steady job making 70k a year. I currently contribute 3% towards my 401k (company match is not great), and $200 a month to my IRA and another $200 a month to savings.
Once you do get the inheritance in your hands, I STRONGLY urge you to maximize your 401k contributions. With $70k an year annual income, less standard deduction of $12.5k (for 2021), your AGI without any 401k contributions would be $57.5k. The top of the 12% bracket in 2021 would be $53k approximately, you need to make $4.5 traditional 401k contributions, and the rest $15k as Roth 401k contributions.

Draw your living expenses from the inheritance. With a $350k to $400k inheritance, even with zero growth, you will be able to sustain about 20 years worth of contributions into tax-advantaged vehicles.

Edited to add: yeah, get away from the EJ blood suckers.
If I were to draw living expenses from the inheritance, where would I put that money to be able to draw from it with the least amount of tax implications? Just in a high yield savings account, or would I still want to invest it in vanguard funds and draw from there? I still want to get the most out of this inheritance which is why I am thinking of investing almost all of it after I pay off my loans and pay down mortgage to eliminate PMI. Would like to be able to retire early if at all possible.
Topic Author
gl0ckn3r
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Joined: Tue Dec 29, 2020 12:51 am

Re: Inheritance Help

Post by gl0ckn3r »

lakpr wrote: Tue Dec 29, 2020 11:32 am
gl0ckn3r wrote: Tue Dec 29, 2020 11:26 am
AB609 wrote: Tue Dec 29, 2020 11:20 am It seems like a reasonable plan. I would look at refinancing the mortgage (put some the inherited money into it to get below 80%) to eliminate the PMI.
Once you are set up in Vanguard, I would move the EJ money over to Vanguard. At you age, I would be pretty aggressive on my asset allocation with the $250K.

Edited to ask, is your mortgage payoff $40k or do you need to pay down $40K to get rid of the PMI?
Just bought the house, so it would be approximately 40k to get rid of PMI, which would save me $1200 a year as my PMI is $100. I am also looking into maybe using Vanguard's Financial Advisor's for a while because I still don't trust myself with making the best decisions, especially when it comes to taxes.
In other words, a $40k investment is getting you $1200 per year return, TAX-FREE. That's a 3% return tax-free, and if I assume a 22% Fed + 5% state tax rate, equivalent to a 4.1% CD.

Do you know of any financial firm that's offering a 4% CD for 4 years (assuming that's what it would take to get below the PMI threshold with normal payments)? I don't. It is a VERY GOOD deal, and I urge you to take it. Sure you can earn more than 4% in stock market, but it is also equally likely that you will lose 10% to 20% over the next 4 years.
So what I am taking from this is yes, it is a good idea to pay the $40k towards mortgage to eliminate PMI? :D
Minty
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Location: NorCal

Re: Inheritance Help

Post by Minty »

gl0ckn3r wrote: Tue Dec 29, 2020 11:51 am
So what I am taking from this is yes, it is a good idea to pay the $40k towards mortgage to eliminate PMI? :D
But also look into a refi. If you can lower your rate and eliminate PMI, that would be ideal. :greedy
Core Four w/ nominal bonds & TIPS. Refi Rampage: Purchase: 3.875% 30 -> R1 3% 20 -> R2 2.375% 15 -> R3 1.99% 15
Perkunas
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Re: Inheritance Help

Post by Perkunas »

gl0ckn3r wrote: Tue Dec 29, 2020 10:06 am I am about to receive a pretty large inheritance in my opinion in the next 6 months to a year (depending on legal side). The inheritance will be somewhere between 350k to 400k.

....

Any suggestions on what to do would be greatly appreciated.
What will you receive? Cash? Securities? Inherited IRA? This is a major point needing clarification in order to give you specific advice.

Don't forget to check out the Managing A Windfall portion of the Wiki.
Topic Author
gl0ckn3r
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Joined: Tue Dec 29, 2020 12:51 am

Re: Inheritance Help

Post by gl0ckn3r »

Minty wrote: Tue Dec 29, 2020 11:56 am
gl0ckn3r wrote: Tue Dec 29, 2020 11:51 am
So what I am taking from this is yes, it is a good idea to pay the $40k towards mortgage to eliminate PMI? :D
But also look into a refi. If you can lower your rate and eliminate PMI, that would be ideal. :greedy
I just bought the house in September, do you think it is still a good idea to look into refinancing? I believe I would have to pay closing costs again? I thought 2.875 was a pretty good rate!
Topic Author
gl0ckn3r
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Joined: Tue Dec 29, 2020 12:51 am

Re: Inheritance Help

Post by gl0ckn3r »

Perkunas wrote: Tue Dec 29, 2020 11:58 am
gl0ckn3r wrote: Tue Dec 29, 2020 10:06 am I am about to receive a pretty large inheritance in my opinion in the next 6 months to a year (depending on legal side). The inheritance will be somewhere between 350k to 400k.

....

Any suggestions on what to do would be greatly appreciated.
What will you receive? Cash? Securities? Inherited IRA? This is a major point needing clarification in order to give you specific advice.

Don't forget to check out the Managing A Windfall portion of the Wiki.
I believe, according to my Dad, it will be cash. They have lawyers working on the estate now.
dvvader
Posts: 93
Joined: Fri Nov 22, 2019 7:07 pm

Re: Inheritance Help

Post by dvvader »

gl0ckn3r wrote: Tue Dec 29, 2020 10:06 am Total Inheritance: 350k to 400k, let's call it 380k.
Car Loan + Student Loans: 26k
Pay off mortgage to cancel out PMI: 40k
- Side Note: May not do this after talking with BIO. My mortgage rate is 2.875 and that money may be better off invested.
Savings: 50k
Fun: 10k
Investments: 250k

I am currently 24 years old, and have a steady job making 70k a year. I currently contribute 3% towards my 401k (company match is not great), and $200 a month to my IRA and another $200 a month to savings.
This looks like a reasonable plan. Pay off your debts, get rid of PMI, have a little fun in honor of your lost loved one, and invest the rest.

Something you might consider is setting aside some additional cash to supplement your income and enable you to max out your tax advantaged accounts (401k, IRA).
Topic Author
gl0ckn3r
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Joined: Tue Dec 29, 2020 12:51 am

Re: Inheritance Help

Post by gl0ckn3r »

dvvader wrote: Tue Dec 29, 2020 12:02 pm
gl0ckn3r wrote: Tue Dec 29, 2020 10:06 am Total Inheritance: 350k to 400k, let's call it 380k.
Car Loan + Student Loans: 26k
Pay off mortgage to cancel out PMI: 40k
- Side Note: May not do this after talking with BIO. My mortgage rate is 2.875 and that money may be better off invested.
Savings: 50k
Fun: 10k
Investments: 250k

I am currently 24 years old, and have a steady job making 70k a year. I currently contribute 3% towards my 401k (company match is not great), and $200 a month to my IRA and another $200 a month to savings.
This looks like a reasonable plan. Pay off your debts, get rid of PMI, have a little fun in honor of your lost loved one, and invest the rest.

Something you might consider is setting aside some additional cash to supplement your income and enable you to max out your tax advantaged accounts (401k, IRA).
Another user suggested using inheritance as supplemental income as well. How exactly would I go about that? Set some money aside in a high yield savings account and just take what I need from that?
dvvader
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Re: Inheritance Help

Post by dvvader »

gl0ckn3r wrote: Tue Dec 29, 2020 12:04 pm
dvvader wrote: Tue Dec 29, 2020 12:02 pm
gl0ckn3r wrote: Tue Dec 29, 2020 10:06 am Total Inheritance: 350k to 400k, let's call it 380k.
Car Loan + Student Loans: 26k
Pay off mortgage to cancel out PMI: 40k
- Side Note: May not do this after talking with BIO. My mortgage rate is 2.875 and that money may be better off invested.
Savings: 50k
Fun: 10k
Investments: 250k

I am currently 24 years old, and have a steady job making 70k a year. I currently contribute 3% towards my 401k (company match is not great), and $200 a month to my IRA and another $200 a month to savings.
This looks like a reasonable plan. Pay off your debts, get rid of PMI, have a little fun in honor of your lost loved one, and invest the rest.

Something you might consider is setting aside some additional cash to supplement your income and enable you to max out your tax advantaged accounts (401k, IRA).
Another user suggested using inheritance as supplemental income as well. How exactly would I go about that? Set some money aside in a high yield savings account and just take what I need from that?
Yes exactly. With an income of $70,000, you'll need to contribute closer to 30% to max out your 401k for the year, which will obviously reduce your paycheck. Just keep a little extra in savings, say ~$15,000, and pull from it monthly as needed. Nothing too fancy.
jayars35
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Location: North Carolina

Re: Inheritance Help

Post by jayars35 »

In July, I inherited accounts that were at Edward Jones and Wells Fargo. Both contained stocks and some mutual funds. I moved both to Schwab. There were not annual account fees, but the investment options, in both accounts, did carry high fees. I have no complaints about the two advisors at either firm, I simply did not need their assistance. I don't think you would go wrong at Vanguard, if you go that route. Using some of the money to get rid of PMI, I think is an A+ idea as I think of PMI as a total waste of funds for the payer.

While an inheritance carries some unpleasant emotions with it, mine was the loss of my parents, the investment opportunity for you is wonderful, especially at your age.
Coach
Minty
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Re: Inheritance Help

Post by Minty »

gl0ckn3r wrote: Tue Dec 29, 2020 11:59 am
Minty wrote: Tue Dec 29, 2020 11:56 am
gl0ckn3r wrote: Tue Dec 29, 2020 11:51 am
So what I am taking from this is yes, it is a good idea to pay the $40k towards mortgage to eliminate PMI? :D
But also look into a refi. If you can lower your rate and eliminate PMI, that would be ideal. :greedy
I just bought the house in September, do you think it is still a good idea to look into refinancing? I believe I would have to pay closing costs again? I thought 2.875 was a pretty good rate!
Take a look at the Refi Mega Thread. People are getting no point/no fee 30s at 2.375 and 15s at 1.99. Of course, it depends on loan amount, location, credit rating etc. And 2.875 is a pretty good rate. It depends on whether saving a fraction is too much bother for you (why not, since you have do deal with PMI anyway?). There are people on the Refi thread who have done four refis this year, in some circumstances, they pay you.
Core Four w/ nominal bonds & TIPS. Refi Rampage: Purchase: 3.875% 30 -> R1 3% 20 -> R2 2.375% 15 -> R3 1.99% 15
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Flobes
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Re: Inheritance Help

Post by Flobes »

gl0ckn3r wrote: Tue Dec 29, 2020 10:06 am I am about to receive a pretty large inheritance...
I am currently invested in a Roth IRA with Edward Jones....
I have been doing a ton of research on what to do...any advice whatsoever on how to manage this money...
I really like the idea of having a financial advisor to help make decisions in my best interest, but I am not opposed to doing my own investing
Welcome to the Forum.

You have arrived at the very best place to learn how to manage your financial life. There are many smart, wise and savvy people who will generously share knowledge and expertise when you need specific guidance.

Many of us stumbled in here after receiving an inheritance. Including me.

Congrats on being careful and considered and conscientious about your new money at this time. But also remember, it is most important to grieve your loss fully and deeply.

Here's some general advice about your inheritance:

• Don't tell anyone. Nobody. Not your friends. Not your coworkers. Not even other family.

• You can do this on your own. Investments, taxes, insurance, savings, retirement: all of it is learnable and manageable. You now need a will. Lots of moving parts. You've got ample time, both now in this coming year and for your long future ahead.

• Goal is get everyone else out of your money and certainly out of your decisions, including advisers, accountants, dealers, salespeople, brokers, agents, robots, etc. Caveat: Investment advisors are not tax experts, tax advisors are not budget savvy, debt advisors have sparse investment acuity, etc. Synthesize all the moving parts into your plan. If need be, you can hire one-time fee-only expertise, but avoid any and all ongoing "helpers" and recurring fees.

• Edward Jones is not an advisor. They are salespeople, they do not operate in your interest, they have limited competence, they are needlessly expensive. Leave promptly.

• Avoid lifestyle creep. Fun is good, excess is destructive. Self-discipline is your lifetime best friend.

• Give some away. Philanthropy is the best way to express your gratitude.

• Don't make any decisions until you're confident. Take your time. Don't put the chicken before the cart. As John Bogle himself taught, "Don't just do something. Stand there."
gl0ckn3r wrote: Tue Dec 29, 2020 10:06 am I am currently 24 years old, and have a steady job making 70k a year. I currently contribute 3% towards my 401k (company match is not great), and $200 a month to my IRA.
Seriously consider thinking about this windfall as a means to shift to more tax-deferred and tax-free growth. Fully fund your Roth IRA every year in January. Maximize annual 401k limits, if there are good investment options there (and at some point, you'll post those here and we'll help you choose). This is significant opportunity to solidly build for your long-term, which will ultimately ease all of your decades of short-terms.
lakpr
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Re: Inheritance Help

Post by lakpr »

gl0ckn3r wrote: Tue Dec 29, 2020 11:51 am So what I am taking from this is yes, it is a good idea to pay the $40k towards mortgage to eliminate PMI? :D
Yeah, it is absolutely an excellent idea and one I would urge you to do the day after you get the cash in hand.

@Flobes above gave superb advice. I would urge you to print it and stick to a wall so you can refer to it daily.
catdoctor
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Re: Inheritance Help

Post by catdoctor »

+1 on what Flobes said
Topic Author
gl0ckn3r
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Re: Inheritance Help

Post by gl0ckn3r »

Flobes wrote: Tue Dec 29, 2020 1:03 pm
gl0ckn3r wrote: Tue Dec 29, 2020 10:06 am I am about to receive a pretty large inheritance...
I am currently invested in a Roth IRA with Edward Jones....
I have been doing a ton of research on what to do...any advice whatsoever on how to manage this money...
I really like the idea of having a financial advisor to help make decisions in my best interest, but I am not opposed to doing my own investing
Welcome to the Forum.

You have arrived at the very best place to learn how to manage your financial life. There are many smart, wise and savvy people who will generously share knowledge and expertise when you need specific guidance.

Many of us stumbled in here after receiving an inheritance. Including me.

Congrats on being careful and considered and conscientious about your new money at this time. But also remember, it is most important to grieve your loss fully and deeply.

Here's some general advice about your inheritance:

• Don't tell anyone. Nobody. Not your friends. Not your coworkers. Not even other family.

• You can do this on your own. Investments, taxes, insurance, savings, retirement: all of it is learnable and manageable. You now need a will. Lots of moving parts. You've got ample time, both now in this coming year and for your long future ahead.

• Goal is get everyone else out of your money and certainly out of your decisions, including advisers, accountants, dealers, salespeople, brokers, agents, robots, etc. Caveat: Investment advisors are not tax experts, tax advisors are not budget savvy, debt advisors have sparse investment acuity, etc. Synthesize all the moving parts into your plan. If need be, you can hire one-time fee-only expertise, but avoid any and all ongoing "helpers" and recurring fees.

• Edward Jones is not an advisor. They are salespeople, they do not operate in your interest, they have limited competence, they are needlessly expensive. Leave promptly.

• Avoid lifestyle creep. Fun is good, excess is destructive. Self-discipline is your lifetime best friend.

• Give some away. Philanthropy is the best way to express your gratitude.

• Don't make any decisions until you're confident. Take your time. Don't put the chicken before the cart. As John Bogle himself taught, "Don't just do something. Stand there."
gl0ckn3r wrote: Tue Dec 29, 2020 10:06 am I am currently 24 years old, and have a steady job making 70k a year. I currently contribute 3% towards my 401k (company match is not great), and $200 a month to my IRA.
Seriously consider thinking about this windfall as a means to shift to more tax-deferred and tax-free growth. Fully fund your Roth IRA every year in January. Maximize annual 401k limits, if there are good investment options there (and at some point, you'll post those here and we'll help you choose). This is significant opportunity to solidly build for your long-term, which will ultimately ease all of your decades of short-terms.
Awesome reply thank you so much! So you advise to not go the route of the Vanguard Personal Advisors? I think I'd still feel comfortable at least having them help me set everything up in Vanguard and get the ball rolling, then maybe next year I'll be more knowledgeable (and confident) and can take on my investments by myself. If I were to right away start managing my own investments, what is the best way to find a good fee-only expert? Again, thank you for this well thought out response, super helpful stuff in there that I will refer back to!
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Flobes
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Re: Inheritance Help

Post by Flobes »

gl0ckn3r wrote: Tue Dec 29, 2020 2:19 pm So you advise to not go the route of the Vanguard Personal Advisors? I think I'd still feel comfortable at least having them help me set everything up in Vanguard and get the ball rolling, then maybe next year I'll be more knowledgeable (and confident) and can take on my investments by myself.
Although it sure doesn't feel like it now, your decisions about how to invest -- once you actually receive all the money and then get it to Vanguard -- is actually the easiest part of it.

First: Look in the mirror. What are your financial goals? How much are you willing to risk? How much are you willing to lose? When do you want to spend some of it? On what? What's your thinking about international investing? What are your career/job/work aspirations? How much sleep well at night (SWAN) "safe" money do you need? Your investing strategy should reflect these matters. Only you can answer these crucial challenging questions for you.

Commit to spending some time reading on the Forum. You don't need to make this decision yet.

Vanguard Personal Advisors will offer you a standard investing approach and asset allocation, one that you can easily handle yourself (and we on the Forum can help you initiate and maintain). They are an excellent low-cost service best suited for those who freak out when there's a downturn, those who are of limited intellectual capacity, those who are undereducated, those who are impulsive and unsteady, and those who have no confidence. You will greatly exceed all of those criteria once you've invested your time here learning; you're already on your way!.

Importantly, they are not tax advisors. And they cannot help you with taxable vs tax-deferred vs tax-free decisions. Let alone insurances, where and how to hold your cash reserves (perhaps outside of Vanguard?), debt, mortgages, estate planning, etc. You need to assess all of this in your new financial paradigm.
gl0ckn3r wrote: Tue Dec 29, 2020 2:19 pm If I were to right away start managing my own investments, what is the best way to find a good fee-only expert?
As you hang out here on the Forum, you'll see this topic comes up frequently.

Harry Sit, who posts here as tfb, runs The Finance Buff website. He offers a service that matches you to an appropriate advice-only (not asset management) expert. Check it out here: Advice Only Advisors.

NB: You don't need to make this decision yet. Wearing the floaties will not teach you how to swim.
gl0ckn3r wrote: Tue Dec 29, 2020 2:19 pm Again, thank you for this well thought out response, super helpful stuff in there that I will refer back to!
It's my honor, pleasure and privilege to pay forward some of the extraordinary wisdom I've learned from the kind sages here on the Forum. You're most welcome. Come back often to ask questions, raise concerns, study, and even offer help.


PS Have you read Bill Bernstein's If You Can: How Millennials Can Get Rich Slowly yet?
jodhpur
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Joined: Fri Jul 17, 2020 3:17 pm

Re: Inheritance Help

Post by jodhpur »

I agree to use the inheritance as supplemental income--or what I think they mean. Take your 70k a year and put max into 401k, HSA, Roth. Live off what's left. Put the inheritance into a taxable account 80-90% stock and 10-20% bonds and try to not touch it. You've got a huge safety net--don't mess it up. And no need in a financial advisor.
Topic Author
gl0ckn3r
Posts: 15
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Re: Inheritance Help

Post by gl0ckn3r »

jodhpur wrote: Tue Dec 29, 2020 4:01 pm I agree to use the inheritance as supplemental income--or what I think they mean. Take your 70k a year and put max into 401k, HSA, Roth. Live off what's left. Put the inheritance into a taxable account 80-90% stock and 10-20% bonds and try to not touch it. You've got a huge safety net--don't mess it up. And no need in a financial advisor.
I wont be able to put my inheritance all into a taxable account and max out my 401k and HSA and still be able to live off my paycheck. At least not comfortably I don't think. I may put a chunk of the inheritance into my savings account and pull from that when I need to if I am maxing all of those accounts out via my paycheck.
260chrisb
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Re: Inheritance Help

Post by 260chrisb »

gl0ckn3r wrote: Tue Dec 29, 2020 10:06 am I am about to receive a pretty large inheritance in my opinion in the next 6 months to a year (depending on legal side). The inheritance will be somewhere between 350k to 400k. I am currently invested in a Roth IRA with Edward Jones. I have been doing a ton of research on what to do with an inheritance this size and have heard a lot about Vanguard. I am just starting to look through the this forum and wiki, but would love if anyone has any advice whatsoever on how to manage this money. I really like the idea of having a financial advisor to help make decisions in my best interest, but I am not opposed to doing my own investing as long as it doesn't require daily research of stocks, funds, etc. I'd like to pretty much be able to invest my money and not have to think about it too much and just let it ride.

Here is a very basic overview of how I tentatively plan on using the money. All suggestions and criticism welcome. Note, this is at least 6 months out so some of the numbers will be lower due to monthly pay offs.

Total Inheritance: 350k to 400k, let's call it 380k.
Car Loan + Student Loans: 26k
Pay off mortgage to cancel out PMI: 40k
- Side Note: May not do this after talking with BIO. My mortgage rate is 2.875 and that money may be better off invested.
Savings: 50k
Fun: 10k
Investments: 250k

I am currently 24 years old, and have a steady job making 70k a year. I currently contribute 3% towards my 401k (company match is not great), and $200 a month to my IRA and another $200 a month to savings.

Was looking into the 3 fund strategy and think that would allow me to invest and not have to worry about it too much. Would just need to figure out allocations.

Any suggestions on what to do would be greatly appreciated.
Welcome to the forum. Some great advice has already been given so I'll abstain. Congrats on your inheritance. You're in the right place and are gonna be good for a LONG time! You're 24, take a deep breath, take your time, do some research, ask questions, and take a long term look at what this money can do for you in the future. It's difficult at any age. More so at a young age. You've got a good income, good savings, and are off to a great start. Don't waste the opportunity. It's a lot of money. Good luck.
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MNGopher
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Re: Inheritance Help

Post by MNGopher »

gl0ckn3r wrote: Tue Dec 29, 2020 4:15 pm
jodhpur wrote: Tue Dec 29, 2020 4:01 pm I agree to use the inheritance as supplemental income--or what I think they mean. Take your 70k a year and put max into 401k, HSA, Roth. Live off what's left. Put the inheritance into a taxable account 80-90% stock and 10-20% bonds and try to not touch it. You've got a huge safety net--don't mess it up. And no need in a financial advisor.
I wont be able to put my inheritance all into a taxable account and max out my 401k and HSA and still be able to live off my paycheck. At least not comfortably I don't think. I may put a chunk of the inheritance into my savings account and pull from that when I need to if I am maxing all of those accounts out via my paycheck.
Yeah, just put enough in your savings account to make up the deficit to your current lifestyle that maxing out all retirement accounts will cause. Then in subsequent years you just sell a bit at a time from your taxable account investments (at long term capital gains rates) to continue to max out your retirement accounts. Do this for a decade and you will be on the path to retiring early. Money put into tax advantaged accounts in your 20's will be huge when you're ready to retire.
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Sandi_k
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Re: Inheritance Help

Post by Sandi_k »

gl0ckn3r wrote: Tue Dec 29, 2020 4:15 pm
jodhpur wrote: Tue Dec 29, 2020 4:01 pm I agree to use the inheritance as supplemental income--or what I think they mean. Take your 70k a year and put max into 401k, HSA, Roth. Live off what's left. Put the inheritance into a taxable account 80-90% stock and 10-20% bonds and try to not touch it. You've got a huge safety net--don't mess it up. And no need in a financial advisor.
I wont be able to put my inheritance all into a taxable account and max out my 401k and HSA and still be able to live off my paycheck. At least not comfortably I don't think. I may put a chunk of the inheritance into my savings account and pull from that when I need to if I am maxing all of those accounts out via my paycheck.
Yes, that's what he means by "supplemental."

So, $375k

- $40k to pay down PMI, $335k left.
- Roth IRA for 2020: $6k, $329 left
- Roth IRA for 2021, $6k, $323 left.
- $23k for "fun" or trips or one-time upgrade to your car/travel/whatever you value. $300k left.
- Put $25k in your "supplemental" account, and invest $275k.

- Sign up to max out your 401(k) - $19,500. Since it's shielding your income from tax, you allocate $19,500/26 pay periods = $750 per paycheck. Since it's pre-tax, you'll only see about a 75% x $750 decrease in your check, or ~$575 difference.

Each pay period, draw down $575 from the "supplemental" account to make your paycheck "whole" again.

At the end of 2021, sell $25k of your investments from the regular "windfall" brokerage account, and move to your supplemental "make my paycheck whole" account for 2022.

Keep in mind that this is essentially "laundering" the cash, and transferring it into retirement account savings. You're investing $19,500 in your 401(k) and $6k in your Roth - so saving it. But then you're withdrawing it from the NON retirement investment account, so you're essentially taking money from your right pocket, and then stashing it in your "401(k)" left pocket.

The best part of this is that your inheritance account is EARNING money for you on the vast majority of it, and you're withdrawing it so slowly that you're increasing your assets in the inheritance account, AND the employer's 401(k) account, AND the Roth account.

Hope that makes sense, and welcome! You can do this. +1,000 on the If You Can article by Bernstein.

https://www.etf.com/docs/IfYouCan.pdf
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gl0ckn3r
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Joined: Tue Dec 29, 2020 12:51 am

Re: Inheritance Help

Post by gl0ckn3r »

Sandi_k wrote: Tue Dec 29, 2020 9:59 pm
gl0ckn3r wrote: Tue Dec 29, 2020 4:15 pm
jodhpur wrote: Tue Dec 29, 2020 4:01 pm I agree to use the inheritance as supplemental income--or what I think they mean. Take your 70k a year and put max into 401k, HSA, Roth. Live off what's left. Put the inheritance into a taxable account 80-90% stock and 10-20% bonds and try to not touch it. You've got a huge safety net--don't mess it up. And no need in a financial advisor.
I wont be able to put my inheritance all into a taxable account and max out my 401k and HSA and still be able to live off my paycheck. At least not comfortably I don't think. I may put a chunk of the inheritance into my savings account and pull from that when I need to if I am maxing all of those accounts out via my paycheck.
Yes, that's what he means by "supplemental."

So, $375k

- $40k to pay down PMI, $335k left.
- Roth IRA for 2020: $6k, $329 left
- Roth IRA for 2021, $6k, $323 left.
- $23k for "fun" or trips or one-time upgrade to your car/travel/whatever you value. $300k left.
- Put $25k in your "supplemental" account, and invest $275k.

- Sign up to max out your 401(k) - $19,500. Since it's shielding your income from tax, you allocate $19,500/26 pay periods = $750 per paycheck. Since it's pre-tax, you'll only see about a 75% x $750 decrease in your check, or ~$575 difference.

Each pay period, draw down $575 from the "supplemental" account to make your paycheck "whole" again.

At the end of 2021, sell $25k of your investments from the regular "windfall" brokerage account, and move to your supplemental "make my paycheck whole" account for 2022.

Keep in mind that this is essentially "laundering" the cash, and transferring it into retirement account savings. You're investing $19,500 in your 401(k) and $6k in your Roth - so saving it. But then you're withdrawing it from the NON retirement investment account, so you're essentially taking money from your right pocket, and then stashing it in your "401(k)" left pocket.

The best part of this is that your inheritance account is EARNING money for you on the vast majority of it, and you're withdrawing it so slowly that you're increasing your assets in the inheritance account, AND the employer's 401(k) account, AND the Roth account.

Hope that makes sense, and welcome! You can do this. +1,000 on the If You Can article by Bernstein.

https://www.etf.com/docs/IfYouCan.pdf
This makes a lot more sense, thank you! So lets say when I get this money I instantly put $25 or maybe $50k in my high yield savings (adding fun money in the mix). I max out my 401k from paycheck, and IRA from inheritance, and take out whatever money I need from my savings to get by. Now, in a year from now, if I need to replenish my savings, I can take out some more money. Since this money was invested for a year, would I not have to pay any capital gains on it if I take out less than $40k? If that's the case, that sounds like a super solid plan. Honestly though, with the quick math you did, if I can expect to only lose say $600-$700 per paycheck, I don't think I'll need much in my savings to pull from as I already have more than that left over each month already. Correct me if I am wrong with any of these assumptions!
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Sandi_k
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Re: Inheritance Help

Post by Sandi_k »

gl0ckn3r wrote: Tue Dec 29, 2020 10:18 pm
Sandi_k wrote: Tue Dec 29, 2020 9:59 pm
gl0ckn3r wrote: Tue Dec 29, 2020 4:15 pm
jodhpur wrote: Tue Dec 29, 2020 4:01 pm I agree to use the inheritance as supplemental income--or what I think they mean. Take your 70k a year and put max into 401k, HSA, Roth. Live off what's left. Put the inheritance into a taxable account 80-90% stock and 10-20% bonds and try to not touch it. You've got a huge safety net--don't mess it up. And no need in a financial advisor.
I wont be able to put my inheritance all into a taxable account and max out my 401k and HSA and still be able to live off my paycheck. At least not comfortably I don't think. I may put a chunk of the inheritance into my savings account and pull from that when I need to if I am maxing all of those accounts out via my paycheck.
Yes, that's what he means by "supplemental."

So, $375k

- $40k to pay down PMI, $335k left.
- Roth IRA for 2020: $6k, $329 left
- Roth IRA for 2021, $6k, $323 left.
- $23k for "fun" or trips or one-time upgrade to your car/travel/whatever you value. $300k left.
- Put $25k in your "supplemental" account, and invest $275k.

- Sign up to max out your 401(k) - $19,500. Since it's shielding your income from tax, you allocate $19,500/26 pay periods = $750 per paycheck. Since it's pre-tax, you'll only see about a 75% x $750 decrease in your check, or ~$575 difference.

Each pay period, draw down $575 from the "supplemental" account to make your paycheck "whole" again.

At the end of 2021, sell $25k of your investments from the regular "windfall" brokerage account, and move to your supplemental "make my paycheck whole" account for 2022.

Keep in mind that this is essentially "laundering" the cash, and transferring it into retirement account savings. You're investing $19,500 in your 401(k) and $6k in your Roth - so saving it. But then you're withdrawing it from the NON retirement investment account, so you're essentially taking money from your right pocket, and then stashing it in your "401(k)" left pocket.

The best part of this is that your inheritance account is EARNING money for you on the vast majority of it, and you're withdrawing it so slowly that you're increasing your assets in the inheritance account, AND the employer's 401(k) account, AND the Roth account.

Hope that makes sense, and welcome! You can do this. +1,000 on the If You Can article by Bernstein.

https://www.etf.com/docs/IfYouCan.pdf
This makes a lot more sense, thank you! So lets say when I get this money I instantly put $25 or maybe $50k in my high yield savings (adding fun money in the mix). I max out my 401k from paycheck, and IRA from inheritance, and take out whatever money I need from my savings to get by. Now, in a year from now, if I need to replenish my savings, I can take out some more money. Since this money was invested for a year, would I not have to pay any capital gains on it if I take out less than $40k? If that's the case, that sounds like a super solid plan. Honestly though, with the quick math you did, if I can expect to only lose say $600-$700 per paycheck, I don't think I'll need much in my savings to pull from as I already have more than that left over each month already. Correct me if I am wrong with any of these assumptions!
If you sell from the $275k "inheritance" pot more than 1 year and 1 day from the day you bought it, you will pay capital gains - but they'll be at the lower, long-term rate.

Sounds like you're well on your way! Congrats on a solid plan, and a cool head. The compounding and head start you're getting from this early gift will be transformative if you keep your head screwed on straight - and your mouth tightly zipped! :D
backpacker61
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Joined: Wed May 20, 2020 6:36 am

Re: Inheritance Help

Post by backpacker61 »

I'm sorry for your loss.

Consider setting some of your savings aside into a Health Savings Account (and investing the unspent balance), if you are eligible.

https://www.bogleheads.org/wiki/Health_savings_account

I've had a Vanguard account for over 30 years, and they are a fine choice to invest with. They should help you set up a brokerage account without you needing to join PAS.

If you spend some time reading on the Bogleheads board and the Vanguard web site, you will find more than enough help to select appropriate investments. The 3 fund portfolio is a great start.

Here is a great start:

https://investor.vanguard.com/investing/how-to-invest/
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