PDQ - My dad passed away unexpectedly last summer. His estate was a hot mess, was in debt, hadn't filed taxes in 10 years, etc. The estate should close within a month or two, and I am so relieved to be done with it. It turns out I am getting an unexpected inheritance What should I do with it?
25k in an inherited IRA, I'm going to leave it there and take the minimum mandatory deductions and treat it as retirements or EF 78k inheritance
I'm going to put 4k in each of our two young kids college funds, and earmark 6k for a trip to Disney (we went every year with Dad as kids, it was his favorite place)
64k left
We currently have 13k in EF (1.5 months expenses), way too small I know 4k in investments 1.7x our salaries in retirement (35/36 yo)
Student loans: 25k at 1.9% consolidated over 25 years, 15 years left, don't usually qualify for deduction Car loan: 19k left, 1.8% 5 years left, paying extra Personal loan from FIL to avoid PMI: 54k, 8.5 years left 4.5% Mortgage
Car 2 has 130k miles on it, may last another year or two - two car payments would be a bit tight with daycare.
I'm thinking to bump up our EF to 6 months. Should I keep all 6 months in our Capitalone360 account? I'm thinking of putting half in basic savings and half in an index fund. That leaves 29k. I know it would make more sense to put it toward the personal loan because of interest rates, but the loan would likely be flexible if an emergency occurs, FIL is quite wealthy (though tight with his money). WWMMD? I feel like we are finally in a position to start having our money work better for us, especially one out of daycare.
I don't like to owe anyone anything (banks excluded) so I would bump your emergency fund to 6 months and then pay the other 29k to FIL. It's your highest rate and it would annoy me.
I am so sorry for your loss. I love the Disney trip idea.
Here is the thing with family loans, IME: if you get money and can pay them off or more aggressively and don't, it can lead to resentment.
Why is your FIL charging such a high interest rate? Even if he is tight with his money, this doesn't seem like a "friendly" family loan.
Given that you have the inherited IRA as a back up emergency fund, I would see if you can work with FIL to give him a big chunk and essentially refi your loan to a lower interest rate of you decide not to pay the whole thing off. That will save you money and hopefully avoid catastrophe.
The interest rate annoys me too. Honestly, thats just how he works. Nothing is free, he analyzes everything, he'll research something to death to save $5. But will then give generous stock to each of his kids for Christmas.
Post by delawarejen on Jun 28, 2015 10:43:56 GMT -5
I'm sorry for your loss.
I would pay off FIL, regardless of the interest rates. I wouldn't want the negative reaction to taking a Disney vacation while still in debt to a family member, so I'd want that paid off before even mentioning the trip.
I would pay off FIL, regardless of the interest rates. I wouldn't want the negative reaction to taking a Disney vacation while still in debt to a family member, so I'd want that paid off before even mentioning the trip.
I think they really need to do Disney. It was their thing with her Dad and this is something happy and fun to do with a very small portion of the money. FIL is going to get a huge lump sum regardless. I think something from any inheritance should go towards something the deceased would want for you that's not debt.
She's doing both - paying off debt and going to Disneyland.
I would pay off FIL, regardless of the interest rates. I wouldn't want the negative reaction to taking a Disney vacation while still in debt to a family member, so I'd want that paid off before even mentioning the trip.
I think they really need to do Disney. It was their thing with her Dad and this is something happy and fun to do with a very small portion of the money. FIL is going to get a huge lump sum regardless. I think something from any inheritance should go towards something the deceased would want for you that's not debt.
I didn't suggest that they not do both. I only suggested making the first priority the FIL debt, and then the vacation second, and not announcing the vacation plans until after the family debt payoff. There's enough money to do both. It isn't exactly what I would choose for myself, but it seemed a reasonable plan to avoid the risk of family conflict. I'd only suggest differently if I thought the FIL was really counting on that interest and would be unhappy to have the loan paid back early, but there was no indication of that from the post.
Post by mainelyfoolish on Jun 28, 2015 12:47:16 GMT -5
I don't think there is a moral imperative to pay off the loan from FIL any sooner than scheduled unless you know he is in need of the money. He's making more money off the loan to you than he would by keeping the money in the bank; you're paying less in interest to him than you would be paying in PMI.
I don't think there is a moral imperative to pay off the loan from FIL any sooner than scheduled unless you know he is in need of the money. He's making more money off the loan to you than he would by keeping the money in the bank; you're paying less in interest to him than you would be paying in PMI.
I agree. I'd be inclined to pay him off quickly only because it's the highest interest rate and because one of our parents charging us the highest interest rate we have would leave a bad taste in my mouth. Those are the only reasons I'd be anxious to repay him.
I don't think there is a moral imperative to pay off the loan from FIL any sooner than scheduled unless you know he is in need of the money. He's making more money off the loan to you than he would by keeping the money in the bank; you're paying less in interest to him than you would be paying in PMI.
I would imagine that it's not the moral imperative, but the knowledge that he can use this loan for leverage. Also, it's the most expensive debt that they have.
Unless the laws have changed "25k in an inherited IRA, I'm going to leave it there and take the minimum mandatory deductions and treat it as retirements or EF 78k inheritance "
You'll have 2 choices, lump sum payout or payout over 12 years. This is taxable so be sure you are prepared to include it and pay it when you pay taxes. For example on 36k a year the taxes are about 12k of the 36k. Speaking from experience here, did the 5 year payout rather than lump sum.
Unless the laws have changed "25k in an inherited IRA, I'm going to leave it there and take the minimum mandatory deductions and treat it as retirements or EF 78k inheritance "
You'll have 2 choices, lump sum payout or payout over 12 years. This is taxable so be sure you are prepared to include it and pay it when you pay taxes. For example on 36k a year the taxes are about 12k of the 36k. Speaking from experience here, did the 5 year payout rather than lump sum.
Like several have said, I would also pay off FIL completely and put the remainder in your e-fund, followed by putting the $ from your regular payments to FIL into further building up your e-fund. My reasoning is similar to others:
-since it sounds like the loan from FIL already has some sensitivities, and since owing $ to family/friends has been known to end poorly in a lot of cases, it wouldn't be worth it to me to risk his reaction to going on a vacation while not paying him off. (Note: I am not saying to skip Disney at all, just that I could see him reacting poorly.) -that will leave you with ~2.5 months in your true e-fund, but worst case, you'll have the $ from the IRA plus the $4k in investments as an additional e-fund -your other loans are at low rate
I would also stop paying extra on the car and contribute more to retirement with that amount. As your e-fund grows, it can serve as a backup car down payment if your 130k mile car *needs* replacing ASAP (as in, a totaling accident or similar; otherwise, drive it for as long as you can).
I think they really need to do Disney. It was their thing with her Dad and this is something happy and fun to do with a very small portion of the money. FIL is going to get a huge lump sum regardless. I think something from any inheritance should go towards something the deceased would want for you that's not debt.
She's doing both - paying off debt and going to Disneyland.
Pay off FIL, but do NOT worry about paying down your student loans or car. These interests rates and both lower than the rate of inflation, so you're essentially making money by lengthening that payment for as long as possible. If you are not maxing out your tax-advantaged retirement vehicles, that is going to get you WAY more bang for your buck than paying down low-interest loans. Honestly, even investing in index funds, where you'd have to pay capital gains, is still a much better option.
Unless the laws have changed "25k in an inherited IRA, I'm going to leave it there and take the minimum mandatory deductions and treat it as retirements or EF 78k inheritance "
You'll have 2 choices, lump sum payout or payout over 12 years. This is taxable so be sure you are prepared to include it and pay it when you pay taxes. For example on 36k a year the taxes are about 12k of the 36k. Speaking from experience here, did the 5 year payout rather than lump sum.
We are doing this too/ 5 year payout, after meeting with our accountant.
Thanks for all of the responses. I think we're going to pay of FIL, build up the efund to 3 months, and do disney/college funds as planned. We've had a loan from FIL since we got married. It started off as "student loans" for DH and morphed from there. He's always charged us market rates. I didn't want to look ungrateful, but always thought it was a bit weird. Hopefully my car hangs on for a while. We are paying FIL $650/month, so we should be able to save up fairly quickly. Freedom!