A nice problem to have
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Anonymous
Why don’t you not pay off the mortgage and instead use the windfall to fund the 529s? |
Anonymous
You still shouldn't pay off such a low mortgage. If you need to impose penalties on yourself, then: - Do a backdoor Roth for you and your husband (14k total per year) and open and fund Roth IRAs for your three teens if they have earned income (21k total per year). Those will have actual penalties for early withdrawal. - Max out your HSA. Penalties for non-healthcare withdrawals. - Get your 529s in shape for twelve years of college, if that is expected. Penalties for non-education withdrawals, except for the 35k Roth IRA transfer once the accounts have sufficiently aged. - INVEST the remainder in a brokerage account. Having to pay short-term gains versus capital gains is in essence a >10% "penalty" for withdrawing quickly/rashly. |
Anonymous
| I recently came into a windfall and since I haven’t had money, I met with a CFP who created a financial plan (and forecasts) for us based on our goals. It was so helpful in understanding how that money can really set up our whole family for success (comfortable retirement, college paid off, etc.) and maybe even our grandkids. I suggest meeting a fiduciary CFP to create a plan. Ours also manages our money because I knew I wouldn’t be as on top of it as I should. They’ve already helped us significantly. I wouldn’t pay off the mortgage, I’d invest in the 529s to get full tax benefits every year, open a backdoor Roth and put the rest into a mix of bonds, international and US stock index funds (research Bogle’s three fund portfolio) |
Anonymous
| Wouldn’t you already “spend it” once you pay off your mortgage by taking that money and spending it on short term things? Not wise to pay off mortgage at that rate. |
Anonymous
| How many years left on your mortgage? |
Anonymous
Totally agree. Paying off your mortgage is only for middle-class rubes. Smart people make sure to dump all their cash into the stock market when valuations are at historic highs, higher, especially, than in the pre-Depression 1929 period. You've heard of the famous saying, "Buy high and sell low," right?? |
Anonymous
That's not the only choice. OP could put the money into FDIC-insured vehicles like savings accounts and CDs that still pay more than her mortgage, and have the money available if she ever needs it to put towards the mortgage in the future. Also, having the kids get jobs and then contributing to their Roth IRAs is a fairly safe investment, given that the amounts are relatively low (max $21k/year and likely much less) and they have 50+ years to wait for retirement. |
Anonymous
And that is a VERY VALID reason for paying off the mortgage and then investing a portion of your mortgage payment. Because yes, while technically it's "best" to take a 3% mortgage and invest everything else, that only works if you make over 3% AND you invest it, not spend it. Fact is most people would tend to spend a part of it, that is why so many are in debt, hit retirement and cannot afford to retire, etc. Most people don't do what is ideal to do financially. Therefore, it is a guaranteed rate of return to pay off the house and no longer have a mortgage payment. Then you will hit retirement without a mortgage (and can possibly downsize if desired and have more $$$ to spend if needed) |
Anonymous
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Will you be applying for college financial aid? If so, many schools don’t count home equity but do count money/financial assets in non-retirement accounts.
If you payoff the home, you have both peace of mind and an increased chance of financial aid. You might want to run several net price calculators on college websites of schools that interest your kids and try various inputs to see if different approaches to allocating your windfall make any difference for financial aid. |
Anonymous
Yea I’ve heard that a lot in the decades and decades that I’ve invested and it hasn’t stopped me from becoming a millionaire several times over. It’s about the long term, bozo. Nobody is suggesting you become a day trader. |
Anonymous
| No one is taking into account the peace of mind and psychological impact of having a paid off mortgage and owning your house outright. Yes it doesn’t make practical, logical sense to pay off a 3% mortgage. But the feeling you get can’t be discounted and has some intangible value. |
Anonymous
I feel like if I paid off my mortgage id be in constant fear that my house burns down and insurance refuses to pay for it due to a technicality and all my money put in it is lost. |
Anonymous
We have way more than 6m and paid off our mortgages (2 houses) early. Don’t see a difference and glad we are done. 😁 |
Anonymous
This. Or they pay them off early and don’t care like we did. Why? Because we are well-off. |
Anonymous
Wow. You’ve made it very clear you don’t know anything about investing. You are exactly the type of rube who hyperventilates about debt and thinks mortgages are the devil and we are always on the precipice of a total economic meltdown. (As if the best thing to do in an economic meltdown is have a huge chunk of your net worth tied up in a house, which now has lost value and can’t be leveraged as much). cash is king and in this example cash invested in index funds are king. The way you maximize cash is through leverage. The lowest risk, highest LTV a leverage you can get is on real estate. If you are nervous about valuations, take out a few 3-18month CDs and invest them gradually in index funds as they mature. |