Equity money from house

[joel2125]

I am looking to sell my house sometime this next year and the market suggests that I will pull out about $1mil in equity after I pay off the mortgage. I will still be working for a couple of years so my tax bracket will be high. Allocating the new money to a total market bond fund will likely lose money in the short term but if I reinvested dividends the tax liability would be lower than say putting the money in CD's and banking the interest. The stock market is a bit fluffy so I am not inclined to stash it there. Any thoughts on what to do with the money? Much appreciated. J

[Texas Proud]

I would say that parking $1 mill is not an easy task... especially with how little you have given...

What other kind of investments do you have?

Will you need the money anytime soon?

Do you have a pension that will pay all or most of your expenses?

Many more like this that others will put down...


For me, I would not park $1 mill in a bond fund... I would allocate it to some stock and some bonds... but that is just me...

[joel2125]

I have a 401k with 3.5 mil, two other houses, one of which is a rental that I would like to move into to save money on cap gains when we do sell. We do not need the money for at least two years as I can scale back my work enough to avoid w/d from retirement savings for two years or more. No pension but up to $50 k a year from SS at age 65 or so. 401k currently 85% equities but I need to sell off individual stocks over the next few years and reallocate to passive total market fund for 80/20 in retirement. Debt free if I sell the big house. Ultimate plan is to get down to one house in four years at age 63 or so. So I would say the equity money from the house has a fairly long time horizon. I just hate to see a loss in stocks/bonds right out of the box. Can reallocate slowly over a five year span os so but where to start?

[RunningBum]

Reinvesting dividends does nothing to change your tax liability. It's the same thing as getting the dividends in cash and purchasing new shares. Maybe a tax exempt bond or money market fund is what you want.

[Another Reader]

How much capital gain is in your house? Is the gain eligible for the $500k exclusion for a married couple?

[joel2125]

Yes we do qualify for the $500k. Capital gains tax should be around $45k. I have never had any investable money outside the 401k so this is all new to me.

[DrRoy]

How about muni bonds with maturity to match your need for the $?

[CH47]

Quote:

Originally Posted by joel2125 I have a 401k with 3.5 mil, two other houses, one of which is a rental that I would like to move into to save money on cap gains when we do sell. We do not need the money for at least two years as I can scale back my work enough to avoid w/d from retirement savings for two years or more. No pension but up to $50 k a year from SS at age 65 or so. 401k currently 85% equities but I need to sell off individual stocks over the next few years and reallocate to passive total market fund for 80/20 in retirement. Debt free if I sell the big house. Ultimate plan is to get down to one house in four years at age 63 or so. So I would say the equity money from the house has a fairly long time horizon. I just hate to see a loss in stocks/bonds right out of the box. Can reallocate slowly over a five year span os so but where to start?

I assume the 50k SS figure is for you and your spouse combined, as that amount is above the individual max.

[OldShooter]

Starting your strategy thinking by focusing on taxes is IMO like trying to pick a dog by concentrating on the tail.

Your goal is simple: You want a strategy that will maximize the amount of money that ends up in your hands. This may also maximize the amount of money that ends up in the government's hands, but what do you care? For example, if you could end up with $10 and the government ends up with $5, isn't that better than you ending up with $5 and the government ending up with nothing?

You have to look at the big picture. Your goal is NOT to minimize the taxes you pay. Pick the best dog, not the best tail.

[exnavynuke]

I'm not understanding why you don't want to have this money invested the same as the rest of your retirement investments. You've already established an investment allocation, either stick with it with all of your investments or modify it for all your investments.

[kcowan]

If this is your first venture into equities, then go with Bogleheads couch potato.

If you have other investments, then you have to share them with us.

[Scuba]

Quote:

Originally Posted by exnavynuke I'm not understanding why you don't want to have this money invested the same as the rest of your retirement investments. You've already established an investment allocation, either stick with it with all of your investments or modify it for all your investments.

I agree with this.

[pb4uski]

Quote:

Originally Posted by joel2125 I have a 401k with 3.5 mil, two other houses, one of which is a rental that I would like to move into to save money on cap gains when we do sell. ....

Just keep in mind that only a portion of the gain will be eligible for the primary residence gain exclusion and it can get complicated quickly... see https://www.kitces.com/blog/limits-t...ins-exclusion/

[pb4uski]

Quote:

Originally Posted by exnavynuke I'm not understanding why you don't want to have this money invested the same as the rest of your retirement investments. You've already established an investment allocation, either stick with it with all of your investments or modify it for all your investments.

Quote:

Originally Posted by Scuba I agree with this.

+1 Best practice is to decide on what asset allocation that you want and then invest accordingly considering tax efficiency.

Let's say you have $3.5m in tax-deferred.

Now you have a $1 million windfall that increases your retirement assets to $4.5 million... $1 million in taxable accounts and $3.5 million in tax deferred.

Step 1 is to determine your AA. Let's say that you decide that 60/40 is your target given your appetite for risk... that converts to a total of $2.7 million in stocks and $1.8 million for fixed income for your $4.5 million total.

Step 2 is to consider tax-efficient placement. Read https://www.bogleheads.org/wiki/Tax-...fund_placement

One option would be to put the $1 million in muni bonds (or a muni bond fund) and then in tax-deferred adjust to $2.7 million in equities and $0.8 million in fixed income. Another alternative would be to invest the $1 million in equities and then in the tax-deferred adjust to $1.7 million of equities and $1.8 million of fixed income. Or some combination thereof. Either way, you end up with $2.7 million in equities and $1.8 million in fixed income, consistent with your overall 60/40 target AA.