Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Lump Sum of Cash
Old 01-25-2018, 07:53 PM   #1
Dryer sheet wannabe
 
Join Date: Jan 2018
Posts: 15
Lump Sum of Cash

We are coming into a lump sum of cash and I want to make sure I make the right choice of what to do with it. We currently invest fully in my husbands 401k and IRA as well as my IRA plus $200 per month in an index fund and $50 in a 529. We hope to retire before 59 and my husband is 10 years older than I am. I donít get a company match so we were holding off on contributing to my 403b until we finished paying for our last year of daycare. Our two choices for the cash are:

1) Prepay for the remainder of daycare (around $18,000) and start maxing my 403b now. We would probably still have about $10,000 left to dump in an index fund at Vanguard.
2) Dump all the cash into an index fund with Vanguard, continue to pay monthly daycare costs until September 2019 and then start maxing my 403b at that point.

I lean towards #1 simply for the psychological impact of getting used to a substantially smaller paycheck coming home for me since thatís going to happen eventually anyway.

Thoughts?
__________________

Letsdoit is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-25-2018, 08:57 PM   #2
Full time employment: Posting here.
Luck_Club's Avatar
 
Join Date: Dec 2016
Posts: 717
I'm not a big fan of 529 plans.

Schools may set their own rules on how to award need-based aid, so the reduction in aid for 529 plans varies, but could be as much as 25 percent of the value of the asset.

Others prefer this method of paying for their child's education.
__________________

__________________
2017 dry run spending: 2018 accelerate debt elimination: 2019 RV procurement & 1MY begins: 6/19 DW last month went early: 9/19 start cross country loop: 1/20 first reinforcements arrive. 6/20 sell business or shut doors. 9/20 begin globe trot: 4/26 401K reinforcement.
Luck_Club is offline   Reply With Quote
Old 01-25-2018, 09:50 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 3,215
Quote:
Originally Posted by Luck_Club View Post
I'm not a big fan of 529 plans.

Schools may set their own rules on how to award need-based aid, so the reduction in aid for 529 plans varies, but could be as much as 25 percent of the value of the asset.

Others prefer this method of paying for their child's education.
Given that giving money directly to the child affects financial aid just as much or more plus the possibility if Investments do very well of high tax rates on unearned income from the portfolio (37% above 12,800 a year due to the new version of the Kiddie Tax) It is not clear what alternative you would recommend.
meierlde is offline   Reply With Quote
Old 01-25-2018, 09:58 PM   #4
Thinks s/he gets paid by the post
RobbieB's Avatar
 
Join Date: Mar 2016
Location: Central CA
Posts: 4,899
Prepay for daycare sounds like a bad idea. What if they become not viable?

Stash the cash (emergency fund) or invest it, or 50-50 would be my choice.

Well not, who am I kidding? I'd just put it in checking and blow that dough!
__________________
Retired at 59 in 2014. Should have done it sooner but I worried too much.
RobbieB is online now   Reply With Quote
Old 01-25-2018, 10:59 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 8,115
Pre-paying the daycare could mean you lose the money so why risk it.

Money is fungible
So whatever you pay the daycare monthly, pay them from the sudden cash pile per month. And with the increase in pay you now feel, put that into the 403b.

With the cash pile, put the estimate of 10K into Vanguard index, and put the rest into Ally bank or some other online bank that pays about 1.4% interest, (some of it could even go into Ally's 11 month no penalty CD earning 1.6%). That is the money that will pay the daycare.

You don't mention the amount of IRA/401K/etc you have and don't mention Roths, be aware that Roths are nice to have once you have already built up a bunch of IRA/401K.
Sunset is online now   Reply With Quote
Old 01-25-2018, 11:05 PM   #6
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
Are you paying for your day care with a credit card now? And collecting any credit card cash back?
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 01-26-2018, 04:53 AM   #7
Dryer sheet wannabe
 
Join Date: Jan 2018
Posts: 15
Quote:
Originally Posted by Sunset View Post
With the cash pile, put the estimate of 10K into Vanguard index, and put the rest into Ally bank or some other online bank that pays about 1.4% interest, (some of it could even go into Ally's 11 month no penalty CD.

You don't mention the amount of IRA/401K/etc you have and don't mention Roths, be aware that Roths are nice to have once you have already built up a bunch of IRA/401K.
I wasnít aware that Ally offered interest rates like that. That would probably make me feel better than just leaving that much money in our savings account making .1%.

We currently having about $700,000 in IRAs and 401k. We max the 401k for my husband with an even investment into traditional and ROTH(about 14% of his income) with a 7% company match going into the traditional 401k and then contribute to ROTH IRAs for both of us. My 403b would also be traditional.
Letsdoit is offline   Reply With Quote
Old 01-26-2018, 04:54 AM   #8
Dryer sheet wannabe
 
Join Date: Jan 2018
Posts: 15
Quote:
Originally Posted by Senator View Post
Are you paying for your day care with a credit card now? And collecting any credit card cash back?
No, itís cash or check only so thatís not an option.
Letsdoit is offline   Reply With Quote
Old 01-26-2018, 08:02 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 24,786
By pre-pay for daycare do you mean that you would write the daycare provider a $18,000 check? If so, bad idea. Or did you mean that you would just keep the $18,000 in checking or savings and pay it out as services are provided? That makes more sense to me.


Also, what is your marginal tax bracket? If 15% or lower I don't see any advantage to the 403b. If higher then it may make sense.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...target 65/35/0 AA
pb4uski is offline   Reply With Quote
Old 01-26-2018, 08:12 AM   #10
Thinks s/he gets paid by the post
street's Avatar
 
Join Date: Nov 2016
Posts: 2,990
I would not pre-pay daycare you are losing on that deal. I would invest that 28K and keep paying as you go each month for daycare. Just the way I would handle that money.
street is offline   Reply With Quote
Old 01-26-2018, 08:54 AM   #11
Dryer sheet wannabe
 
Join Date: Jan 2018
Posts: 15
Quote:
Originally Posted by pb4uski View Post
By pre-pay for daycare do you mean that you would write the daycare provider a $18,000 check? If so, bad idea. Or did you mean that you would just keep the $18,000 in checking or savings and pay it out as services are provided? That makes more sense to me.


Also, what is your marginal tax bracket? If 15% or lower I don't see any advantage to the 403b. If higher then it may make sense.
Under the new tax code we will be at 22%.

Up until now we have opted to pay the school in monthly installments but they offer the option of paying per semester or annually. The annual payment does come with a small discount (maybe equaling a few hundred bucks). If we were to go with the option of "pre-paying" the school, wewould just opt for the annual lump sum payment when the initial deposit is due for next year rather than paying monthly.
Letsdoit is offline   Reply With Quote
Old 01-26-2018, 09:04 AM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 24,786
Then I guess it would depend on how attractive the discount is vs bank account interest rates and your confidence that they will be there for the term.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...target 65/35/0 AA
pb4uski is offline   Reply With Quote
Old 01-26-2018, 11:06 AM   #13
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Laurel, MD
Posts: 4,709
Not sure what the source of the lump sum is, but if it's tax free like an insurance payout, I always love the idea of putting it into a Roth so the principal and earnings are all tax free.
__________________
...with no reasonable expectation for ER, I'm just here auditing the AP class.Retired 8/1/15.
jazz4cash is offline   Reply With Quote
Old 01-26-2018, 01:11 PM   #14
Moderator
Aerides's Avatar
 
Join Date: Nov 2015
Posts: 4,283
Quote:
Originally Posted by Letsdoit View Post
That would probably make me feel better than just leaving that much money in our savings account making .1%.
Almost any online bank is offering 1%, so make that change for your savings regardless what you do with this new windfall (and yes, don't prepay the daycare - what if you want to bail on them in 6 months).
Aerides is offline   Reply With Quote
Old 01-26-2018, 10:40 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
travelover's Avatar
 
Join Date: Mar 2007
Posts: 12,078
Quote:
Originally Posted by Aerides View Post
Almost any online bank is offering 1%, so make that change for your savings regardless what you do with this new windfall (and yes, don't prepay the daycare - what if you want to bail on them in 6 months).


The Vanguard money market fund is paying 1.4% now.
__________________

__________________
You probably mean principal not principle. Judgment only has one "e".
travelover is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Lump sum to invest, DCA in or go lump? Olav23 FIRE and Money 4 03-03-2007 04:22 PM
Lump Sum or Not? *Should.... Tommy_Dolitte Young Dreamers 4 07-25-2004 04:53 PM
Lump sum investment Billy FIRE and Money 7 04-17-2004 05:13 PM
Annuity vs Lump Sum Pension moguls FIRE and Money 5 05-26-2003 03:09 PM

» Quick Links

 
All times are GMT -6. The time now is 12:22 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2020, vBulletin Solutions, Inc.
×