What to do with house proceeds?

[Blazerdude20]

Hey everyone,

My wife and I just sold our home and are completing the purchase of our long term home. We bought at the bottom of the housing bust and are lucky to have made a good sized profit off our first home. After downpayment on our new house we will have $21k left over from our sale.

My question is what should we do with this money?

Our initial thought was to payoff her car (19k) but we are upside down in value so wouldn't want to risk it being totaled after paying it off (we have gap on the loan). The car is also only 1.99% interest.

We have also thought about opening a Roth IRA. We have 401k's with our employers but would like to retire before 59 1/2. We currently have a small savings of a couple thousand dollars. So we would like to save a little for our bank account.

Would it make sense to put half into a Roth and the rest in savings? Also unsure where we should open an account.

Thanks!

[pb4uski]

Add it to your emergency fund. I like online savings that currently pay 0.7-1.0% for something like an emergency fund.

[Meadbh]

Congratulations on making a profit on the sale of your home! Sounds like you are taking on more debt with the new one. Assuming you managed to get a low mortgage rate, it's probably not necessary to put the $21K against the principal. Have your closing and moving costs been covered? Do you need new furniture for the new house? Do you have an adequate emergency fund? If the answers are yes, no and yes, then I would consider retiring the consumer debt (the car loan). If that is not what you want to do, I would suggest adding the $21K to your investment portfolio and following your usual asset allocation. Sounds like a Roth IRA might be its natural home.

[Blazerdude20]

Quote:

Originally Posted by Meadbh Congratulations on making a profit on the sale of your home! Sounds like you are taking on more debt with the new one. Assuming you managed to get a low mortgage rate, it's probably not necessary to put the $21K against the principal. Have your closing and moving costs been covered? Do you need new furniture for the new house? Do you have an adequate emergency fund? If the answers are yes, no and yes, then I would consider retiring the consumer debt (the car loan). If that is not what you want to do, I would suggest adding the $21K to your investment portfolio and following your usual asset allocation. Sounds like a Roth IRA might be its natural home.

The 21k is after down payment and moving costs. The only expense to be paid for with the house still is a new dining set. Fingers crossed DW doesn't go overboard with that purchase .

We don't have much of an emergency fund at this point. Its about $2000. But we are adding $800 a month to our savings account.

Since a Roth is post tax couldn't i just withdraw principal from the account if i have job loss or similar emergency?

Thanks everyone.

[obgyn65]

Maybe half of the proceeds to pay down debt and the other half to the Roth IRA?

Quote:

Originally Posted by Blazerdude20 My question is what should we do with this money? Our initial thought was to payoff her car (19k) but we are upside down in value so wouldn't want to risk it being totaled after paying it off (we have gap on the loan). The car is also only 1.99% interest. We have also thought about opening a Roth IRA. We have 401k's with our employers but would like to retire before 59 1/2. !

[Meadbh]

Quote:

Originally Posted by Blazerdude20 The 21k is after down payment and moving costs. The only expense to be paid for with the house still is a new dining set. Fingers crossed DW doesn't go overboard with that purchase . We don't have much of an emergency fund at this point. Its about $2000. But we are adding $800 a month to our savings account. Since a Roth is post tax couldn't i just withdraw principal from the account if i have job loss or similar emergency? Thanks everyone.

Emergency fund should be priority #1 IMHO. Something safe and liquid, never mind growth. Cash or cash equivalents, short term CDs, HISA, or possibly a money market fund. Ideally there should be 3-6 months' expenses in the Emergency fund. Sh*t happens!

[pb4uski]

Quote:

Originally Posted by Meadbh Emergency fund should be priority #1 IMHO. Something safe and liquid, never mind growth. Cash or cash equivalents, short term CDs, HISA, or possibly a money market fund. Ideally there should be 3-6 months' expenses in the Emergency fund. Sh*t happens!

Good idea.

[steelyman]

There are limits to what you can contribute to a Roth IRA annually, you might want to check that out. But if you don't have one it's good to establish one to get the five-year "clock" ticking. Any excess, I agree that placing in savings/emergency fund is good.

For the Roth, the usual answers to "where" are Vanguard and Fidelity.

[Cassie]

My vote is to put $5000 or $5500 (depending on age) in a Roth and the rest in an EF. Do you have a house/car maitenance fund? For me, my EF is separate from my house/car savings. Congrats on making a profit.

[ERD50]

Quote:

Originally Posted by Meadbh Emergency fund should be priority #1 IMHO.

Absolutely. Owning a home and upside-down car can trigger emergencies, and you need to be prepared. You can direct your $800 to other, less-accessible investments.

Quote:

Something safe and liquid, never mind growth. Cash or cash equivalents, short term CDs, HISA, or possibly a money market fund.

I'll mildly disagree with this. People forego the opportunity cost of having that money in less aggressive investments, and this will be a big deal over many years.

As long as the money is liquid (just about any mutual fund or ETF - many have check writing privileges), it is available for emergencies. People get all worked up about this, "What if the market is down when I need it?" OK, what if? You'll have a little loss, but in general we expect our assets to appreciate, so odds are it will be up, not down.

Maybe I've been lucky, but I don't recall ever needing $10,000 or more to cover an emergency. I've planned for new roofs, etc. Even a totaled car had a replacement check in hand before I could get out and buy a replacement, I was only down a few thousand for deductible and new cost versus the used car that was lost. So I say let the money grow at the overall AA you choose.

-ERD50

[Walt34]

Quote:

Originally Posted by Blazerdude20 We don't have much of an emergency fund at this point. Its about $2000. But we are adding $800 a month to our savings account.

I wouldn't feel comfortable with only $2k immediately available for "stuff happens" events so I'd put the $21k in that pile.

YMMV.