Suggestions for 900K?

[PatrickA5]

We currently have $900K in a Chase brokerage account invested in VUSXX (5.34% mainly state tax free).

About us:

Married, Both 65
On Medicare
Both Retired
No Debt
12% Bracket
His/Hers Trad IRA and Roth IRAs total $1.3 million (67/33). We'll Roth convert to top of 12% bracket.
Total Investment Assets: $2.2 million (1.3 + .9) Total Allocation is 40/20/40.
Expenses $100K (essential expenses around $70K)

Our only income is my SS ($25k) and what's thrown off from the $900K above (currently around $48K). We're waiting until DW is 70 for her SS (around $50K at that time).

We'll be living off the Chase Brokerage money going forward. I think we'll let the IRAs ride.

So, my question is what to do (if anything) with the Chase $900K. I realize that it's not tax-efficient, but we're in a low bracket anyway. There is a chance (less than 20%) that we might need to use the money for a new house purchase in the near future, so we need to keep the money relatively safe from negative returns and easy to get to. This tends to limit things like MYGAs, Long CDs, etc.

I like to keep things simple. Don't care to chase yields and have money all over the place.

Any suggestions on something other than where I already have the money? I like the income now, but figure rates will come down at some point and will have to look elsewhere for better returns.

[pizzy]

Where did the $900k come from?

What is your target AA?

[PatrickA5]

Where did the $900k come from?

What is your target AA?

900K from inheritance. Target allocation is 40% stocks, 60% bonds and/or cash. Pretty much what we currently have.

[pizzy]

Where did the $900k come from?

What is your target AA?

900K from inheritance. Target allocation is 40% stocks, 60% bonds and/or cash. Pretty much what we currently have.

Then I think there is nothing for you to do except tinker. Don't do that.

[thedaybeforetoday]

Where did the $900k come from?

What is your target AA?

900K from inheritance. Target allocation is 40% stocks, 60% bonds and/or cash. Pretty much what we currently have.

Then I think there is nothing for you to do except tinker. Don't do that.

+1
Don't just do something, stand there!

[PatrickA5]

Where did the $900k come from?

What is your target AA?

900K from inheritance. Target allocation is 40% stocks, 60% bonds and/or cash. Pretty much what we currently have.

Then I think there is nothing for you to do except tinker. Don't do that.

I'm sure you're right. Just wondering if there is something a little more long term that might stay at a decent rate when rates go down. I don't think that is going to happen anytime soon (within the next few months), but MMFs tend to drop pretty fast when rates come down. I'm not opposed in taking on a little risk, in perhaps a bond fund or something. As long as it's easily liquidated.

[bloom2708]

You can buy a CD or a 5 or 7 year Treasury. But, those rates are lower (currently) than your 5.3% money market.

Yields are still inverted to the short and ultra short.

If you think rates are going down, then locking in for longer at a slightly lower rate is one course.

If you think rates are holding, then stay where you are. Rates could also go higher. Nobody knows.

I bought some 2 and 3 month treasuries for 5.4 as a little hedge against rates coming down.

For me, lots of things work at rates in the 5.2 or higher range and inflation coming down, but I remind myself that nobody knows nothing and rates could go any direction.

[welderwannabe]

Thats a lot of cash. It looks smart right now since cash is no longer trash and earning 5%+. I'd keep a decent slug of cash aside (maybe $100K+), but then invest the rest of it to your normal AA. Yield curve is inverted right now which is sucking lots of folks into the cash trap.

40/60 is a fine allocation, but I find it overly conservative. Personally im a fan of 60/40, I think its all-weather.

[CommitmentDevice]

Consider I bonds. The current ibonds on offer will beat inflation by 1.3%. You can hold 'em or sell 'em, which is great liquidity. They won't lose value.

You + spouse could get $25K this year ($10K each + $5K through overpaying taxes), and then another $20K in January.

[PatrickA5]

Thats a lot of cash. It looks smart right now since cash is no longer trash and earning 5%+. I'd keep a decent slug of cash aside (maybe $100K+), but then invest the rest of it to your normal AA. Yield curve is inverted right now which is sucking lots of folks into the cash trap.

40/60 is a fine allocation, but I find it overly conservative. Personally im a fan of 60/40, I think its all-weather.

I don't have a problem with 50/50 or even 60/40. Our IRAs are 67/33. But, since we might need the cash quickly (for a house purchase), I wouldn't want to put a bunch of money in stocks and have a chance of a big loss right before needing the money.

[theplayer11]

Thats a lot of cash. It looks smart right now since cash is no longer trash and earning 5%+. I'd keep a decent slug of cash aside (maybe $100K+), but then invest the rest of it to your normal AA. Yield curve is inverted right now which is sucking lots of folks into the cash trap.

40/60 is a fine allocation, but I find it overly conservative. Personally im a fan of 60/40, I think its all-weather.

I don't have a problem with 50/50 or even 60/40. Our IRAs are 67/33. But, since we might need the cash quickly (for a house purchase), I wouldn't want to put a bunch of money in stocks and have a chance of a big loss right before needing the money.

if you might need the money quickly, I would keep it in VUSXX

[Navillus1968]

We currently have $900K in a Chase brokerage account invested in VUSXX (5.34% mainly state tax free).

About us:

Married, Both 65
On Medicare
Both Retired
No Debt
12% Bracket
His/Hers Trad IRA and Roth IRAs total $1.3 million (67/33). We'll Roth convert to top of 12% bracket.
Total Investment Assets: $2.2 million (1.3 + .9) Total Allocation is 40/20/40.
Expenses $100K (essential expenses around $70K)

Our only income is my SS ($25k) and what's thrown off from the $900K above (currently around $48K). We're waiting until DW is 70 for her SS (around $50K at that time).

We'll be living off the Chase Brokerage money going forward. I think we'll let the IRAs ride.

So, my question is what to do (if anything) with the Chase $900K. I realize that it's not tax-efficient, but we're in a low bracket anyway. There is a chance (less than 20%) that we might need to use the money for a new house purchase in the near future, so we need to keep the money relatively safe from negative returns and easy to get to. This tends to limit things like MYGAs, Long CDs, etc.

Can you clarify whether the entire $900k might be needed for the potential house purchase?

If the requirement to maintain liquidity & stability of principal for the house purchase did not exist, my advice would be put your fixed income in TIRA & invest the taxable $900k in VTI or similar. With $25k of SS income, your dividends & LTCG would be tax-free in the 12% bracket, instead of having fully taxable interest from VUSXX.
Unless you actually require the full $900k to be available for the house purchase, I would leave enough house money in VUSXX in taxable & re-balance into stocks with the rest, buying additional VUSXX in TIRA to make 40% overall.

Have you looked at your taxes in 10 years, when both of you are on SS & RMDs have begun? With $75k of SS income & $50k-60k of RMDs (https://www.schwab.com/ira/ira-calculators/rmd), plus the $48k of VUSXX interest, you will be solidly in the future 25% bracket MFJ & the eventual widow could easily be inside the 28% bracket (https://www.manning-napier.com/insights ... et-in-2025).

While the current 22% bracket exists, I would increase Roth conversions into the 22% bracket over the next 3 years. With a $870k TIRA, you probably don't need to convert to the top of the 22% bracket, but maybe target about 8-10% of the TIRA balance each year?
In 2026 & beyond, you can continue Roth conversions to the top of the 15% bracket.

[PatrickA5]

We currently have $900K in a Chase brokerage account invested in VUSXX (5.34% mainly state tax free).

About us:

Married, Both 65
On Medicare
Both Retired
No Debt
12% Bracket
His/Hers Trad IRA and Roth IRAs total $1.3 million (67/33). We'll Roth convert to top of 12% bracket.
Total Investment Assets: $2.2 million (1.3 + .9) Total Allocation is 40/20/40.
Expenses $100K (essential expenses around $70K)

Our only income is my SS ($25k) and what's thrown off from the $900K above (currently around $48K). We're waiting until DW is 70 for her SS (around $50K at that time).

We'll be living off the Chase Brokerage money going forward. I think we'll let the IRAs ride.

So, my question is what to do (if anything) with the Chase $900K. I realize that it's not tax-efficient, but we're in a low bracket anyway. There is a chance (less than 20%) that we might need to use the money for a new house purchase in the near future, so we need to keep the money relatively safe from negative returns and easy to get to. This tends to limit things like MYGAs, Long CDs, etc.

Can you clarify whether the entire $900k might be needed for the potential house purchase?

If the requirement to maintain liquidity & stability of principal for the house purchase did not exist, my advice would be put your fixed income in TIRA & invest the taxable $900k in VTI or similar. With $25k of SS income, your dividends & LTCG would be tax-free in the 12% bracket, instead of having fully taxable interest from VUSXX.
Unless you actually require the full $900k to be available for the house purchase, I would leave enough house money in VUSXX in taxable & re-balance into stocks with the rest, buying additional VUSXX in TIRA to make 40% overall.

Have you looked at your taxes in 10 years, when both of you are on SS & RMDs have begun? With $75k of SS income & $50k-60k of RMDs (https://www.schwab.com/ira/ira-calculators/rmd), plus the $48k of VUSXX interest, you will be solidly in the future 25% bracket MFJ & the eventual widow could easily be inside the 28% bracket (https://www.manning-napier.com/insights ... et-in-2025).

While the current 22% bracket exists, I would increase Roth conversions into the 22% bracket over the next 3 years. With a $870k TIRA, you probably don't need to convert to the top of the 22% bracket, but maybe target about 8-10% of the TIRA balance each year?
In 2026 & beyond, you can continue Roth conversions to the top of the 15% bracket.

Thanks for your detailed response and thoughts.

We could potentially use most of the money for a new house purchase, but we would sell our current home for around $450K, so some of the $900K will be coming back to us after we sell our current home. So, after the purchase/sale we'd probably have somewhere around $600K left over. At that point, I would be much more likely to find something longer term and with more risk and could potentially reallocate between taxable and IRAs as you suggest.

I have done tax calculations for when we start taking RMDs (8 years). According to my spreadsheets, accounting for increases in brackets and standard deductions, we'll have around $25K of the 12% (15%) bracket left (after SS and RMDs). I think our taxable stash will be significantly less than the $900K now, assuming home purchase and the need to use some of it yearly for living expenses / gifts. I think we'll end up being very close to the top of the 12% (15%) bracket, so I would be hesitant to Roth convert into the 22% (25%) bracket currently. Of course, there's the argument that the surviving spouse will be paying higher taxes due to using Single brackets, but I'm not sure I want to overpay my taxes now doing large conversions to solve that problem.

[Navillus1968]

We currently have $900K in a Chase brokerage account invested in VUSXX (5.34% mainly state tax free).

About us:

<SNIP>

Can you clarify whether the entire $900k might be needed for the potential house purchase?

<SNIP>

Thanks for your detailed response and thoughts.

We could potentially use most of the money for a new house purchase, but we would sell our current home for around $450K, so some of the $900K will be coming back to us after we sell our current home. So, after the purchase/sale we'd probably have somewhere around $600K left over. At that point, I would be much more likely to find something longer term and with more risk and could potentially reallocate between taxable and IRAs as you suggest.

I have done tax calculations for when we start taking RMDs (8 years). According to my spreadsheets, accounting for increases in brackets and standard deductions, we'll have around $25K of the 12% (15%) bracket left (after SS and RMDs). I think our taxable stash will be significantly less than the $900K now, assuming home purchase and the need to use some of it yearly for living expenses / gifts. I think we'll end up being very close to the top of the 12% (15%) bracket, so I would be hesitant to Roth convert into the 22% (25%) bracket currently. Of course, there's the argument that the surviving spouse will be paying higher taxes due to using Single brackets, but I'm not sure I want to overpay my taxes now doing large conversions to solve that problem.

OK, sounds like you've done your due diligence & have a plan. Keep an eye on the standard deduction- post-TCJA it drops by about half. OTOH, itemizing deductions becomes much more likely when the $10k SALT cap is lifted, so it's a complex picture.

If I were you, I would just plan to sell my current home well before buying the new house, which would free up about $450k for stocks in taxable today. If that requires moving into a furnished apartment for a while prior to buying, c'est la vie. YMMV, obviously.

[Call_Me_Op]

I would consider keeping $150k in the money market fund, and use the other $750k to build a 5 year treasury ladder ($150k/rung). That would at least lock in some higher rates for a few years. You can roll the ladder (buy a new 5 year treasury note) each year with proceeds you do not plan to spend. You do need, however, to accept slightly lower rates beyond 2 years because of the inverted yield curve.

[PatrickA5]

I would consider keeping $150k in the money market fund, and use the other $750k to build a 5 year treasury ladder ($150k/rung). That would at least lock in some higher rates for a few years. You can roll the ladder (buy a new 5 year treasury note) each year with proceeds you do not plan to spend. You do need, however, to accept slightly lower rates beyond 2 years because of the inverted yield curve.

Any "gotchas" on selling the Treasuries in the case I find a house? I've never owned Treasuries before.

[PatrickA5]

We currently have $900K in a Chase brokerage account invested in VUSXX (5.34% mainly state tax free).

About us:

<SNIP>

Can you clarify whether the entire $900k might be needed for the potential house purchase?

<SNIP>

Thanks for your detailed response and thoughts.

We could potentially use most of the money for a new house purchase, but we would sell our current home for around $450K, so some of the $900K will be coming back to us after we sell our current home. So, after the purchase/sale we'd probably have somewhere around $600K left over. At that point, I would be much more likely to find something longer term and with more risk and could potentially reallocate between taxable and IRAs as you suggest.

I have done tax calculations for when we start taking RMDs (8 years). According to my spreadsheets, accounting for increases in brackets and standard deductions, we'll have around $25K of the 12% (15%) bracket left (after SS and RMDs). I think our taxable stash will be significantly less than the $900K now, assuming home purchase and the need to use some of it yearly for living expenses / gifts. I think we'll end up being very close to the top of the 12% (15%) bracket, so I would be hesitant to Roth convert into the 22% (25%) bracket currently. Of course, there's the argument that the surviving spouse will be paying higher taxes due to using Single brackets, but I'm not sure I want to overpay my taxes now doing large conversions to solve that problem.

OK, sounds like you've done your due diligence & have a plan. Keep an eye on the standard deduction- post-TCJA it drops by about half. OTOH, itemizing deductions becomes much more likely when the $10k SALT cap is lifted, so it's a complex picture.

If I were you, I would just plan to sell my current home well before buying the new house, which would free up about $450k for stocks in taxable today. If that requires moving into a furnished apartment for a while prior to buying, c'est la vie. YMMV, obviously.

Thanks for the reminder about the Standard Deduction reverting back. I hadn't considered that in my projections.

I doubt we'd consider selling before buying a new one. We like our current house, and the odds of finding something we like better aren't that great. We looked for years before we found the house we're in now. My DW and I kid each other after viewing open houses - we look at each other and say "not perfect".

[welderwannabe]

I don't have a problem with 50/50 or even 60/40. Our IRAs are 67/33. But, since we might need the cash quickly (for a house purchase), I wouldn't want to put a bunch of money in stocks and have a chance of a big loss right before needing the money.

Only you can decide what a 20% probability of needing the money is worth to you as far as being out of the market.

[MrCheapo]

Agency bonds are yielding close to 6% now. Just be careful they are not ones that can be called soon.

Where did the $900k come from?

What is your target AA?

900K from inheritance. Target allocation is 40% stocks, 60% bonds and/or cash. Pretty much what we currently have.

Then I think there is nothing for you to do except tinker. Don't do that.

I'm sure you're right. Just wondering if there is something a little more long term that might stay at a decent rate when rates go down. I don't think that is going to happen anytime soon (within the next few months), but MMFs tend to drop pretty fast when rates come down. I'm not opposed in taking on a little risk, in perhaps a bond fund or something. As long as it's easily liquidated.

[hudson]

We currently have $900K in a Chase brokerage account invested in VUSXX (5.34% mainly state tax free).

About us:

Married, Both 65
On Medicare
Both Retired
No Debt
12% Bracket
His/Hers Trad IRA and Roth IRAs total $1.3 million (67/33). We'll Roth convert to top of 12% bracket.
Total Investment Assets: $2.2 million (1.3 + .9) Total Allocation is 40/20/40.
Expenses $100K (essential expenses around $70K)

Our only income is my SS ($25k) and what's thrown off from the $900K above (currently around $48K). We're waiting until DW is 70 for her SS (around $50K at that time).

We'll be living off the Chase Brokerage money going forward. I think we'll let the IRAs ride.

So, my question is what to do (if anything) with the Chase $900K. I realize that it's not tax-efficient, but we're in a low bracket anyway. There is a chance (less than 20%) that we might need to use the money for a new house purchase in the near future, so we need to keep the money relatively safe from negative returns and easy to get to. This tends to limit things like MYGAs, Long CDs, etc.

I like to keep things simple. Don't care to chase yields and have money all over the place.

Any suggestions on something other than where I already have the money? I like the income now, but figure rates will come down at some point and will have to look elsewhere for better returns.

You have 900K invested in a short term treasury (VUSXX...Vanguard Treasury Money Market Fund) fund with a weighted average maturity of 32 days.
You have short term needs for a new house. How short? If it's 32 days or so, you are good. If longer, consider longer treasuries.
Are you planning on spending all of the 900K on a new house? If not, consider longer treasuries (maybe TIPS?) that match when you will spend the money.
Bottom line? Match your investments with your spending horizon.