Inheritance question

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Savingsgal
Posts: 32
Joined: Thu Sep 14, 2017 1:15 pm

Inheritance question

Post by Savingsgal »

Recently came into an inheritance of about $200k.
$120k cash and $80k in an inherited IRA.
HHI 200k

We are trying to decide on how to manage the inheritance.
Age 41/50 and have a 9 and 6 year old.
$480k combine in retirement ( currently maxing our 401k/Roth)

$400k house with $250k left on mortgage
No 529
No debt
$100k in cash .

We were considering disbursing the $80k ira over 10 years and using it of education cost. The remainder on paying house off.

What makes the most sense in this situation.

Thanks
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FIREchief
Posts: 5477
Joined: Fri Aug 19, 2016 6:40 pm

Re: Inheritance question

Post by FIREchief »

Savingsgal wrote: Tue Aug 25, 2020 11:55 am Recently came into an inheritance of about $200k.
$120k cash and $80k in an inherited IRA.
HHI 200k

We are trying to decide on how to manage the inheritance.
Age 41/50 and have a 9 and 6 year old.
$480k combine in retirement ( currently maxing our 401k/Roth)

$400k house with $250k left on mortgage
No 529
No debt
$100k in cash .

We were considering disbursing the $80k ira over 10 years and using it of education cost. The remainder on paying house off.

What makes the most sense in this situation.

Thanks
What's the rate on your mortgage?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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gwe67
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Re: Inheritance question

Post by gwe67 »

Keep in mind that inheritance is not community property until commingled. Might want to check with an actual lawyer.
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Topic Author
Savingsgal
Posts: 32
Joined: Thu Sep 14, 2017 1:15 pm

Re: Inheritance question

Post by Savingsgal »

What's the rate on your mortgage?

-3.25
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CAsage
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Re: Inheritance question

Post by CAsage »

If you are currently maxing out your retirement accounts, then look at the interest rate on your mortgage vs the practically zero you are getting on your savings. The tax deduction may be lost in the current MFJ standard deduction, so it might be worthwhile to pay off a good chunk of that mortgage. Any spendy home improvements coming up? How old are the cars? Otherwise, if you are sure at least one of your kids are doing to college, then open a 529 account because that's another tax advantaged account. And if there are any projected lower taxable income years coming up (might not at your tender prime working age), then the next 5 years might be better than 10 (Federal taxes revert in 2026?).
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FIREchief
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Re: Inheritance question

Post by FIREchief »

Savingsgal wrote: Tue Aug 25, 2020 12:49 pm What's the rate on your mortgage?

-3.25
There's probably a strong case to be made to pay off your mortgage. You would essentially be earning 3.25% guaranteed interest, which is much(!) better than you can earn in any safe fixed income investments right now.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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gwe67
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Re: Inheritance question

Post by gwe67 »

The situation is not clear, but if you inherited the money and are married, realize that by paying down the mortgage you are giving half of your inheritance to your spouse.
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SD2SR
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Re: Inheritance question

Post by SD2SR »

Savingsgal wrote: Tue Aug 25, 2020 12:49 pm What's the rate on your mortgage?

-3.25
Historically speaking, your mortgage rate is very low and likely to be outpaced by average total returns on more aggressive investments over the long run (I know, I know, "no one knows nothing", "past performance does not equal future returns", etc.). I would adjust the IRA to your AA and let it ride.

As a father to two little ones, and believing a debt-free education is one of the greatest gifts you can give to your children, my gut is to take the $120k in cash and fund your kids' education in two aggressive age-based 529's at $60k each. Remember, recent legislation made 529's funds available for more than just college, i.e. private school expenses, etc. And, if one or both of your kids does not end up attending school, you can always change the beneficiary to a grandchild(ren), or even yourself or your spouse.
chemocean
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Re: Inheritance question

Post by chemocean »

Savingsgal wrote: Tue Aug 25, 2020 11:55 am Recently came into an inheritance of about $200k.
$120k cash and $80k in an inherited IRA.
Since you mentioned the 10 year dispersion, OP please confirm the original owner died in 2020.
Topic Author
Savingsgal
Posts: 32
Joined: Thu Sep 14, 2017 1:15 pm

Re: Inheritance question

Post by Savingsgal »

Savingsgal wrote: ↑
Recently came into an inheritance of about $200k.
$120k cash and $80k in an inherited IRA.
Since you mentioned the 10 year dispersion, OP please confirm the original owner died in 2020.


Yes the original owner passed away in 2020.

We are also considering opening a taxable account ( likely for educational expenses )and adding to it.
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