What to do with $80K?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
wackeym
Posts: 16
Joined: Sat Apr 05, 2014 11:05 am

What to do with $80K?

Post by wackeym »

This is is a follow-up post of sorts from a few past inquiries I have had. See links below if interested:

viewtopic.php?f=2&t=291390 (Raid Roth to buy condo?)
viewtopic.php?f=2&t=330463&p=5608860#p5608860 (Laid off with severance)
viewtopic.php?f=2&t=334694&p=5699713#p5699713 (2021 Roth IRA contribution tax planning)

To sum things up, I got RIFed in October, got a package, and started a new job in January. Expected 2021 gross income will likely be $105k base +$10k bonus + ~$25k severance for a total of $140k. Will likely be around $120k next year give or take. I didn't raid my Roth (glad I didn't!) and now I have fallen into some money.

I have $80k in cash and I am wondering what to do with it. I would like to have the option to buy a house in the next five years and for a 20% down payment, will likely need $80-$90k. Would like to have ~$20k left after closing as emergency funds. I am a bachelor and am happy renting and keeping things simple for now but would like to have the option in case I meet someone or life changes.

Should I start living off some of this cash and funnel my paychecks into my 401k (I think I will have to do this anyway to get my AGI down for Roth eligibility)? Buy $10k of Ibond a years and continue that investment? Keep the money in high yield savings where it is currently? This is just a much larger cash allocation than I am used to managing. Curious what others have done in this situation. Would love any advice to give, as the advice I have received in the past was very good from you folks.

Age 35
State IL
Monthly Positive cashflow $1,500-$2,000
no debt


New 401k non material
Old 401k $60k S&P 500 fund low expense ratio
TIRA $104k
Roth IRA $79k
HSA ~$30k (everything is VTTSX)
Cash $80k
User avatar
Metsfan91
Posts: 192
Joined: Sat Jan 11, 2020 12:33 pm

Re: What to do with $80K?

Post by Metsfan91 »

Keep it in high yield savings.

You should be able to make maximum contribution to 401k from paycheck. With 6 figure earnings, you won't need to touch this cash.
“Time is your friend; impulse is your enemy.” — John C. Bogle
angelescrest
Posts: 1328
Joined: Tue May 27, 2008 10:48 am
Location: MCOL, no state income tax

Re: What to do with $80K?

Post by angelescrest »

Why would you need to spend the cash even if you max out your retirement contributions?
Topic Author
wackeym
Posts: 16
Joined: Sat Apr 05, 2014 11:05 am

Re: What to do with $80K?

Post by wackeym »

angelescrest wrote: Tue May 04, 2021 8:08 am Why would you need to spend the cash even if you max out your retirement contributions?
Currently I am only maxing out HSA and Roth IRA contributions. I am contributing 5% to my 401k (up to the match). So I have additional headroom in my 401k if I want to invest further here
System1
Posts: 28
Joined: Thu Sep 12, 2019 10:08 pm

Re: What to do with $80K?

Post by System1 »

Maxing out 401k will be about an extra $15k it seems, which at 22% (+5% state) will result in paying $4000 less in taxes. I would do that, it's always nice to pay less in taxes.
tashnewbie
Posts: 1552
Joined: Thu Apr 23, 2020 12:44 pm

Re: What to do with $80K?

Post by tashnewbie »

System1 wrote: Tue May 04, 2021 9:14 am Maxing out 401k will be about an extra $15k it seems, which at 22% (+5% state) will result in paying $4000 less in taxes. I would do that, it's always nice to pay less in taxes.
It's even slightly better because he's in the 24% fed bracket.

OP, definitely max your traditional 401k. At your income level, even without the severance, you can do this and still live on your paychecks.

If you're certain that you'll buy a house in 5 years, then I think it makes sense to be more conservative with this money. HYSA or other checking/savings accounts. Check your local credit unions to see if any have a high yield rewards checking account that is relatively hassle-free. One of mine offers 5% APY on balance up to $10k if I have certain direct deposits (I don't think I'd bother with this type of account if it required a certain number of debit transactions per month, which is common). You could also explore things like T-Mobile Money (1%) and HM Bradley (3%). I have no experience with those, but there are forum threads about them.

If you have flexibility in your house purchase date, which it seems like you do, then I don't think it'd be unreasonable to invest some of the $80k in stock index funds. I was kind of in your same situation a couple years ago. I thought I might want to buy a house in 5-10 years, but I didn't know for sure when or if I'd buy. I just decided to dump all extra money into a taxable brokerage account. I figured when I got closer to knowing that I wanted to buy, I'd start saving the extra monthly cash flow into a more conservative account. At the same time, I had a pretty generous emergency fund, which eventually I decided to decrease, but that decision coincided with my plan to buy a house (so I never downsized the EF; I just diverted some of it into the DP). But now I've decided to put the house search on hold, so the DP money is in a brokerage account.

Do what makes you comfortable. If you're okay with delaying a house purchase, then maybe put $40k into something like VTSAX/VTI (or whatever flavor of total stock market mutual fund is available at the brokerage house you use) and keep the other $40k in a savings/checking account.
Post Reply