How to spend a windfall?

[isabel]

DH and I are receiving a decent financial windfall next week. H’s grandmother passed away a couple of months ago and left a trust to be split between DH, his brother, and a cousin. We are to receive $118k, less taxes (roughly 4% for Colorado and 25% federal, though I expect we’ll get some of that back at the end of tax season). It is my understanding that this money will be treated as income since it is coming from a trust, rather than being treated as a gift. If anyone has any thoughts on whether this is accurate or not, I would love to hear them! Bottom line, we expect to receive a check for approximately $83,000.

We are a little behind where we would like to be for retirement. We are contributing 10% each with small matches from our respective companies. We are also looking for a house and would love to be able to put down a larger percentage toward that. So far, we are in complete agreement that we should use part of the money to fully fund Roth IRAs for both of us. That would be $11,000. The remaining money would go toward the house down payment. We already have a good amount of money in savings, which we had intended to use as a down payment, but will now keep to pad our emergency fund, make house updates, buy furniture, etc.

Does anyone have any differing thoughts about how the money should be used? Are there other investments we should be considering? We want to make sure we make the best use of these funds, but our two largest priorities are retirement and buying a house. Any advice is much appreciated!

[Deleted]

How far behind are you in retirement and how much do you hope to save for a down payment?

If you are only a little behind on retirement then I would agree with the IRA contribution. If you need more then fund one for 2013 and have some set aside to fully find 2014 as well. This might be a good idea regardless of how far behind you are.

Do you have any other debt over, say, 3% or 4% interest? If so, I would want to get rid of that if possible before worrying about the down payment.

[alleinesein]

I would set aside 50% for a new house (down payment and enough to fund a house saving account for repairs/remodel/etc), 25% for retirement savings and 25% for something fun (vacation, new car, splurge item for the new home (kick ass entertainment center/hot tub/etc).

[isabel]

Sept 19, 2013 16:54:29 GMT -5 @forcuatro said:

How far behind are you in retirement and how much do you hope to save for a down payment?

If you are only a little behind on retirement then I would agree with the IRA contribution. If you need more then fund one for 2013 and have some set aside to fully find 2014 as well. This might be a good idea regardless of how far behind you are.

Do you have any other debt over, say, 3% or 4% interest? If so, I would want to get rid of that if possible before worrying about the down payment.

We have no additional debt besides student loans, which we are not going to pay off early. We are comfortable with the interest rates and they are set to be paid off in about 7 years.

Setting aside some to fund a roth for next year is a good idea as well. I'm not super concerned about being behind as we are 25 and 26. We are contributing to our 401k, so I don't think I need to be too hung up on it. I just want to make sure we have a good base going into our 30s.

As far as the down payment, we had planned on purchasing something in the $300-350 range. $350 is honestly outside our comfort zone, but if we can put down a sizable down payment, that number suddenly become pretty easy since the actual mortgage would be less than $300.

[delawarejen]

I would consider using the money to get your down payment high enough to get you into a 15 year mortgage instead of a 30 year, even if it means scaling down on the size of the house. (Unless you were going on a 15 year anyway, but I didn't think so from those numbers). Completely debt free by your early 40's would be wonderful

[aspentosh]

I like the idea of fully funding a 2013 Roth IRA for both of you, AS WELL AS a 2014 Roth for both of you. You are young, and having that money in a retirement account to grow will be awesome.

I'd also take some (5-10% maybe?) for something fun (or use it for something extravagant when you buy your house).

[Deleted]

Sept 20, 2013 6:14:09 GMT -5 delawarejen said:

I would consider using the money to get your down payment high enough to get you into a 15 year mortgage instead of a 30 year, even if it means scaling down on the size of the house. (Unless you were going on a 15 year anyway, but I didn't think so from those numbers). Completely debt free by your early 40's would be wonderful

Ooooo I like this idea!

[Deleted]

I think doing a 15 year loan would be great too.

What general range are thinking of for your home purchase? If you're in lower cost of living, you should have plenty of money incoming to make a 15 year loan affordable.

[Deleted]

Smart ideas on the above!!!

Absolutely get into a 15-year, that will be a huge financial windfall for you when you are done with your mortgage payments earlier in life.

And, I recommend what was mentioned above, using some money to pay for both 2013 and 2014 retirement contributions.

Personally, I would pretend I never even got the money, and invest the balance left over from the above two items. Maybe take a few grand for a vacation, but you can never have too much money set aside to grow.

Im so sorry about the passing of your Hs grandma, but I do think it is really lovely that she had so much set aside for her grandkids. You guys are so smart to be really cautious about what you do with the money, and not, say buy a Mercedes or something,