Best use of bonus

[saildawg]

I am due to get about 20K quarterly bonus, and I wanted some opinions on what to do with it.  I believe there are some good options, and probably can do a combination.

1) Student loans have 99K outstanding at 3.5% fixed (down from 250K 2 years ago), could do an interest only payment

2)Front load 529, we just had our first child 4 days ago.  I expect to use it to pay for state public university, unless she earns more on her own.  It would be nice to have tax free earnings over 18 years.

3) Extra payment to mortage (15 yr @ 3.1% fixed)

4)Taxable account as tax privledged maxed out

Thanks for any advice

[PhysicianOnFIRE]

#1 definitely tops #3 as student loans are not tax deductible at our income levels, and mortgage payments are.

If you're going to get a quarterly bonus like that, you should be able to do a combination of 1, 2, and 4 every 9 months. I don't know that you need to choose one option from them.

Congrats on your newborn baby! They are tons of fun, despite the crying and peeing whenever.

Best,

-PoF

[saildawg]

Thanks for the advice POF. I agree mortgage extra payment would be the least attractive option. I am really deciding between paying student loans down or front loading a 529. Probably should just do both. As any bonus in the future will be treated the same way (like money we never had).

[Hatton]

If you use your bonus with extra loan payments that student loan will be gone when the baby is less than 1.25 years old.

[jfoxcpacfp]

saildawg wrote:

I am due to get about 20K quarterly bonus, and I wanted some opinions on what to do with it.  I believe there are some good options, and probably can do a combination.

1) Student loans have 99K outstanding at 3.5% fixed (down from 250K 2 years ago), could do an interest only payment

2)Front load 529, we just had our first child 4 days ago.  I expect to use it to pay for state public university, unless she earns more on her own.  It would be nice to have tax free earnings over 18 years.

3) Extra payment to mortage (15 yr @ 3.1% fixed)

4)Taxable account as tax privledged maxed out

Thanks for any advice

Click to expand...

What is your target date for student loan payoff? My preference w/probably be to pay those off asap and then use the extra cash flow to begin contributing to 529 and taxable account. Taxable account trumps 529 for me but it really depends upon your plan and your other goals and how well you're moving along to accomplishing them.

[adventure]

jfoxcpacfp wrote:

saildawg wrote:

I am due to get about 20K quarterly bonus, and I wanted some opinions on what to do with it.  I believe there are some good options, and probably can do a combination.

1) Student loans have 99K outstanding at 3.5% fixed (down from 250K 2 years ago), could do an interest only payment

2)Front load 529, we just had our first child 4 days ago.  I expect to use it to pay for state public university, unless she earns more on her own.  It would be nice to have tax free earnings over 18 years.

3) Extra payment to mortage (15 yr @ 3.1% fixed)

4)Taxable account as tax privledged maxed out

Thanks for any advice

Click to expand…

What is your target date for student loan payoff? My preference w/probably be to pay those off asap and then use the extra cash flow to begin contributing to 529 and taxable account. Taxable account trumps 529 for me but it really depends upon your plan and your other goals and how well you’re moving along to accomplishing them.

Click to expand...

Agreed. Student loans first with most of it.

Also, something nice for yourselves - you did just have a big event, so congrats on the kiddo!

[DMFA]

saildawg wrote:

I am due to get about 20K quarterly bonus, and I wanted some opinions on what to do with it.  I believe there are some good options, and probably can do a combination.

1) Student loans have 99K outstanding at 3.5% fixed (down from 250K 2 years ago), could do an interest only payment

2)Front load 529, we just had our first child 4 days ago.  I expect to use it to pay for state public university, unless she earns more on her own.  It would be nice to have tax free earnings over 18 years.

3) Extra payment to mortage (15 yr @ 3.1% fixed)

4)Taxable account as tax privledged maxed out

Thanks for any advice

Click to expand...

Anything but mortgage imo.  If your tax-advantaged accounts are maxed out, chances are you're in the 33% bracket, meaning your actual interest rate on your mortgage is prob like 2% after deduction.

I would say prob your student loans.  At your current rate ($150,000 of principal paid off over last two years) means that in just over a year, you'll be done, and that time you can pump the 529 and taxable.  1.5 years lag on getting the 529 started should not cost you too much, esp since you probably don't want to pump it too high anyway.

[jhwkr542]

Any of those choices except #3.  Splitting hairs among of the other choices for this amount of money (even if the 20k is post-tax).

[pulmdoc]

#1 is my vote. #2 is not bad if you get a hefty state tax deduction. Vanguard has a handy 529 calculator showing the cost of all universities, you can play around with assumptions (I have used 4% inflation rate since that has been the ballpark for the past 25 years) to figure out how much savings would pay for the target college without needing cashflow. That can help you figure out how agressive you want to be in college savings.

[saildawg]

Target date for payoff of student loans would be July 2018. That would be 3 years to pay off the 250k. Have always put bonuses and extra toward it. I just never had option of using 529 before and since it can grow tax free I thought it would make some sense to frontliad it. I plan to put at least 4K per year toward the 529 as that is tax deductible in our state. I imagine I will need between 125k-200k but who knows.

[DMFA]

saildawg wrote:

Target date for payoff of student loans would be July 2018. That would be 3 years to pay off the 250k. Have always put bonuses and extra toward it. I just never had option of using 529 before and since it can grow tax free I thought it would make some sense to frontliad it. I plan to put at least 4K per year toward the 529 as that is tax deductible in our state. I imagine I will need between 125k-200k but who knows.

Click to expand...

Yeah, that's good, too.  You can do a little of one and a little of another.  The tax deduction helps as well.  You don't have to put it all in one bucket.

[saildawg]

Thanks everone for input, I am going to put 4k to 529 to get tax deduction, and put the rest to student loans.  Cant wait to get them behind me!