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Paid off home- Now where should extra money be invested ??????
Old 11-12-2006, 07:23 PM   #1
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Paid off home- Now where should extra money be invested ??????

Just paid off the home and now we are debt free. The only bills we have are living expenses that are $3000 per month and we have income coming in at the rate of $12,000 per month which leaves $9000 per month to invest. We also will receive $25,000 every January for the next 10 years due to a former employer program payout.
Our 401K plans are maxed out, make too much for IRA's, and we were going to look at Municipal bonds, REITs and Index Funds to put this $9000 per month into.
Any advice or guidance which way we should invest this $9,000 each month?
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Re: Paid off home- Now where should extra money be invested ??????
Old 11-12-2006, 09:29 PM   #2
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Re: Paid off home- Now where should extra money be invested ??????

I bought FIREX for my Roth recently. Would also work in taxable account at not much in the way of dividends.
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Re: Paid off home- Now where should extra money be invested ??????
Old 11-12-2006, 09:51 PM   #3
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Re: Paid off home- Now where should extra money be invested ??????

Foodeefish,

Congratulations on paying off the house.

Stock index funds, munis and muni bond funds are good choices for the extra money in taxable accounts. Decide on an asset allocation and invest accordingly.

I suspect that at you income level it would be best to keep REITs in tax deferred accounts. If you don't have a REIT option in your 401k you can contribute to a REIT fund in an after tax IRA.

Vanguard, Fidelity and T Rowe Price are some of the favorites on this site.

MB
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Re: Paid off home- Now where should extra money be invested ??????
Old 11-12-2006, 11:50 PM   #4
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Re: Paid off home- Now where should extra money be invested ??????

Quote:
Originally Posted by Foodeefish

Our 401K plans are maxed out, make too much for IRA's, and we were going to look at Municipal bonds, REITs and Index Funds to put this $9000 per month into.
Any advice or guidance which way we should invest this $9,000 each month?
Don't forget (as Nords helped enlighten instruct me in one of his posts a while ago)...if you make too much to contribute to a ROTH, and you can't deduct a Traditional IRA contribution, you can make NON-DEDUCTIBLE traditional IRA contributions at ANY income level (still the same limit of $4,000 (for 2006) in non-deductible contributions per year)

Sure, you don't get to deduct it, but you still gain the advantage of tax-deferred growth. Just make sure to never roll any ROTH, 401(k) or other IRAs into the same account, or you'll be asking for a paperwork and calculator nightmare.

Also, I would be committing heresy if I didn't honor dear ol' Uncle M by beating him to his infamous quote

psssst.....Wellesley (offered by Vanguard)

At your funding rate, you'd be a Voyager client (get reduced commissions and even lower mutual fund expense ratio fees) in about 3 years, when your balance in all accounts gets to $250k.

Any chance you are self-employed or your spouse is/can be? There are many other ways to jack up that $15k/year 401(k) limit if you can be an independent contractor or self-employed.

One last note....if you regularly engage in donating money to 501(c)(3) organizations, you might consider setting up a Charitable Trust held by Vanguard. It lets you donate a lump-sum today (or an amount this year and any amounts in future years), and you take the donation as a deduction against your taxes in the year it was made. You then tell Vanguard how to manage the money, and then tell them to make out checks to whatever registered 501(c)(3) groups ($500 min. check amount) you wish whenever you want to. Minimum initial contribution to start an account is $25k, with minimum additional contributions of $5k.

It allows you to let the money grow "tax-free" in the Vanguard trust account (i.e. not in your account), and you get to take the deduction in a year that may be higher income than later years (which it sounds like you might be in, with that extra $25k from your previous employer). You can find out more at

http://www.vanguardcharitable.org/

T Rowe Price also has a similar service at
http://www.programforgiving.org/
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Re: Paid off home- Now where should extra money be invested ??????
Old 11-13-2006, 12:30 PM   #5
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Re: Paid off home- Now where should extra money be invested ??????

Quote:
Originally Posted by Foodeefish
Any advice or guidance which way we should invest this $9,000 each month?
You're already fully funding your 401(k) to the match and you have an asset allocation, right? The only difference would be the extra digit in the DCA transfers.

I think you can screw up market timing at $9000/month a lot faster than you can screw it up at the smaller amounts. Just about everything seems to be fully valued (or worse) unless you consider the dropping dollar's boost to international investments.

One consideration would be that you can possibly get a better deal buying ETF shares 3-4 times per year ($27K-$36K per $8 commission) than by DCA'ing into even Vanguard index funds. It just depends on the expense ratio of the ETF vs equivalent index mutual fund.
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Re: Paid off home- Now where should extra money be invested ??????
Old 11-13-2006, 09:35 PM   #6
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Re: Paid off home- Now where should extra money be invested ??????

I don't have any advice, but your problem is a nice one to have !
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Re: Paid off home- Now where should extra money be invested ??????
Old 11-14-2006, 07:17 AM   #7
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Re: Paid off home- Now where should extra money be invested ??????

Quote:
Originally Posted by MooreBonds
Don't forget (as Nords helped enlighten instruct me in one of his posts a while ago)...if you make too much to contribute to a ROTH, and you can't deduct a Traditional IRA contribution, you can make NON-DEDUCTIBLE traditional IRA contributions at ANY income level (still the same limit of $4,000 (for 2006) in non-deductible contributions per year)
Does IRS tax only on the gains in these accounts as compared to IRAs with before tax deposits??
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Re: Paid off home- Now where should extra money be invested ??????
Old 11-14-2006, 11:33 AM   #8
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Re: Paid off home- Now where should extra money be invested ??????

Quote:
Originally Posted by donheff
Does IRS tax only on the gains in these accounts as compared to IRAs with before tax deposits??
Yep. The difference in basis is tracked on Form 8606, a truly evil torture device used to calculate how much tax you'll pay on Roth conversions.
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Re: Paid off home- Now where should extra money be invested ??????
Old 11-15-2006, 09:09 PM   #9
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Re: Paid off home- Now where should extra money be invested ??????

Real estate can offer some tax advantages.
You could start a business and open a sep ira. I believe you can do that in addition to 401k. Although at your income level I am wondering how good an idea delaying the taxes would really be ? The business might have other advantages. Like supporting a home office and computers.
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