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What would you do with this $$?
04-30-2015, 03:11 AM
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#1
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Dryer sheet wannabe
Join Date: Sep 2013
Posts: 12
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What would you do with this $$?
Hi,
So we are beginning the process to adopt a newborn. All fees for the adoption are set aside and we have begun a 529 at Vanguard in our name until he/she arrives.
After reading bogleheads a bit, we are leaning toward lump sum 529 investing to set it and forget it to focus on other things. I like treating things as a one time debt to pay off like a home/car. We are starting with a lump sum of $70,000 before the child is 1. We are currently $15,000 invested with $4000-6000 per month going in until we reach $70,000. **What do you think of $70,000 as our target amount?**
After that, we will have this "extra" money. We had been throwing it in taxable accounts but I'm not sure we want to do that now.
Would you?
Take the $4000-6000 per month and put it in taxable? (Too much for roth and yes we max 401k's/hsa's -- can't do trad ira to roth conversions because of 401k to trad conversions we hold that will make a large chunk taxable--live and learn)
Take the $4000-6000 a month and put it on mortgage. Current mortgage is 29 years left, $400k at 3.375% (7/1 ARM that we are paying $1,000 extra on now). $4000 on top of current principal pay down will pay it off in 6-7 years and $6000 extra will pay it off in under 4 years
Another 529 plan. We plan to adopt about one year give or take after we finalize our first adoption and will lump sum another 529. Would you start this now?
OTHER-- have another idea for what you would do with the money?
We have about $470k in investments and besides our mortgage have no other debt. I'd like to reach FI and possibly RE in 10 years and we are on track with other savings/investments barring unforeseen catastrophic illness.
So, what would you do?
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04-30-2015, 03:50 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,376
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I would do taxable accounts. You don't cite your age but if you want to RE you will need money that you can access without penalty and taxable account money fits the bill. Also, if you are living off taxable funds in ER your income will be low and you can do Roth conversions at a low tax rate. Plus, if the taxable account investments are in equities, current taxes on dividends and capital gains will be at lower preferred rates.
I would not rush to pay off a 3.375% mortgage (I fact, I have one at that exact rate that I took out just before retiring that is cheap money and I will just pay on schedule).
__________________
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Retired Jan 2012 at age 56
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04-30-2015, 03:54 AM
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#3
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Recycles dryer sheets
Join Date: Mar 2014
Location: Islands
Posts: 363
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First off, congratulations!
The 529 should be in your name with the child as beneficiary. Do not put the 529 directly in their name. If you did it would count as the child's asset one day regarding financial aid. I learned this from Clark Howard.
I have always been told to fund your own retirement before your child's college education. I do both. There are many variables ahead - - private vs public, scholarships, etc. Back when I had a FA they warned us not to overfund our 529. You can just do the one account, then if the first child doesn't need or use it all, transfer the beneficiary to child two.
Your interest rate on your mortgage is so low, I would not be in a hurry to pay it off unless you are very close to ER. Even then some argue against paying it off. The question is how much of the 7 year arm do you have left? And, what will happen to your rate - likely go up. Do you plan to stay in this home beyond the 7 year time frame?
Personally, I would fund some in the 529 but also fund my retirement. Once you have funded the 529 to your satisfaction (albeit at a slower rate while adding to retirement simultaneously), then pay down the mortgage. Just my 2 cents. Good luck!
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04-30-2015, 08:39 AM
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#4
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Dryer sheet wannabe
Join Date: Sep 2013
Posts: 12
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Thanks for the input.
I am 29 and DH is 30. ARM could adjust to 5.375 in 6.5 years but I'm not concerned about the increase at this time.
I will re-focus the funds back to Vanguard instead of the mortgage...it just sounded like a great idea there for a minute getting that paid off.
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05-02-2015, 03:36 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Aug 2004
Location: St. Louis
Posts: 2,179
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Quote:
Originally Posted by pb4uski
I would do taxable accounts. You don't cite your age but if you want to RE you will need money that you can access without penalty and taxable account money fits the bill. Also, if you are living off taxable funds in ER your income will be low and you can do Roth conversions at a low tax rate. Plus, if the taxable account investments are in equities, current taxes on dividends and capital gains will be at lower preferred rates.
I would not rush to pay off a 3.375% mortgage (I fact, I have one at that exact rate that I took out just before retiring that is cheap money and I will just pay on schedule).
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I agree with all of the above, PLUS - can you get a quote on a longer term fixed mortgage? If you think you'll be in the house for 10+ more years, why not lock in with this exceptionally low rates? when the ARM resets, rates could still be relatively low...but why take that gamble, because there's a good chance you will need to refi at that time - and if rates have risen, you won't get anywhere near a low rate that they are now. And rates most likely won't get any lower - so your maximum possible benefit is that your mortgage payment would remain the same, while your maximum possible negative outcome is that your monthly mortgage payment doubles or more!
Also, another reason to keep funds in taxable is that if you choose to roll the dice and not lock in a longer-term mortgage, at least you will have a sizeable taxable account you can cash out to pay down a good chunk (or all) of the mortgage when it resets.
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