What to do with inheritance?

[bwk4sbwk4s]

I've been following WCI for a while now. Hoping to get some advice instead of paying for a CPA but I understand that may be necessary. I've gotten to this point by myself but now I feel like I know just enough to do something stupid if I'm not careful. Below is my situation. Please let me know what you all think I should do.

I recently inherited my half of my parents' estate. We took a large hit on the sale of the house so I imagine there will be positive tax implications but that's too complicated for me to worry about at the moment.

I just graduated medical school and started a 3 year EM residency. I have $169k in principal and $186k in total student loans with rates between 5.2-6.8%. I just signed up for REPAYE in case.

The first thing I did was pay off my credit cards. I then put $30k into an emergency savings account and $16.5k into an account so I can use that to fund 3 years of a Roth during residency. I have some upcoming expenses of a few thousand from moving and paying veterinary bills (they're family, it's not negotiable haha).

I have a mortgage on my house I bought for medical school with a principal of $155k remaining at 4% 30 yr that I'm renting out with projected cash flow of $350-400 monthly.

I have investments of around $80k in mutual funds, 60k in TSP, and 20k in a Roth from my investing during my military service, and $50k in individual stocks from other relative inheritances.

I will be receiving $2800 monthly after taxes in residency salary assuming no deductions and $1550 tax free in VA disability.

I'll have around $180k left. What do I do? I want to pay most of my student loans but am worried that may not be the best. Just seeing the interest capitalize from medical school really scared me about putting it off.

Thank you all

[jfoxcpacfp]

I'm sorry for the loss of your parents - sad that they've both passed while you're so young.

A financial planner would be more helpful than a CPA at this point. However, you've covered your bases for the Roth for 3 years, which was a good move. Without knowing more and if you're not planning to qualify for PSLF, I'd probably advise paying off your student loans, which just so happen to be close to the exact amount of your remaining inheritance. It would be a great benefit to begin life as an attending w/o them and I bet your parents would have liked that for you, also.

Another thought is to spend a little of it on OO disability insurance while you're in residency.

[MichaelB]

I would absolutely pay off the student loans. Also, I would sell all (or at least most) of your individual stocks and buy index funds. A large portion of your investments are in individual stocks now. You could also use $6k of this money to finish off the student loans.

Being debt free (except mortgage) with $4300 in after tax income, not counting the rental, is a great place to be as a resident. Depending on monthly expenses, you could even start saving for a nice down payment for a house for when you finish residency.

If you're worried about "doing something stupid" it would be worth paying a fee only planner a flat fee to go over your situation. I would think a few hundred dollars would be all it would cost, but not sure. Best of luck to you.

[adventure]

I'm sorry for your loss.

 

bwk4sbwk4s wrote:

We took a large hit on the sale of the house so I imagine there will be positive tax implications but that’s too complicated for me to worry about at the moment.

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No, you need to know this, waiting until April to find out you owe 50k, or you'll get 50k isn't wise nor prudent. Hire a financial planner. Many listed here on WCI.

bwk4sbwk4s wrote:

The first thing I did was pay off my credit cards.

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This is concerning to me - because it means you owed something on the credit cards. If this was due to moving to residency, I can sort of understand still - don't fall into that again. (good call to pay it off though!)

Things to learn about:

bwk4sbwk4s wrote:

$16.5k into an account so I can use that to fund 3 years of a Roth during residency.

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1. This doesn't seem prudent. Plan to fill the Roth with money from earnings during those years, don't bury cash in the ground today to use for Roth in 2 years. Fill the Roth for this year today. Use the rest of the 16.5k to pay off student loans today.

2. Find out if any, of the multiple, inheritances cause you to not quality for Roth contributions.

 

bwk4sbwk4s wrote:

I have investments of around $80k in mutual funds, 60k in TSP, and 20k in a Roth from my investing during my military service, and $50k in individual stocks from other relative inheritances.

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In each bucket, move to low cost index funds. Dump every individual stock you have. Great new post this morning on how to learn about mutual funds. Is the 50k taxable?

3. Start a taxable account (with $1000), if this isn't already.

4. How much of residency salary, etc goes to retirement? Do you have a match? 401k/403b? Feel free to comment if you'd folks thoughts here.

5. Pay off the vet Bills.

6. Make a budget. See if you can afford to: (fill Roth each year (from earnings, not savings) - $5500/year. Fill 401k (~17k/year). Get work match too!. Add 1k to taxable account/year. Add 1-2k to emergency fund/year. Go on reasonable vacations. Plan for more vet/pet costs. renting/bills/gas/etc. How much is left?

7. From the savings, add 5-10k to the emergency fund (read: high interest savings account) for when your house water heater, roof, etc etc breaks.

8. Refinance the rental house on a 15 year (read: at a lower rate). If this takes some cash to do so, that's probably okay. You likely don't earn enough to itemize, so the mortgage interest deduction isn't going to help you (but the student loan will). This would help you (the renters) build (your) equity faster, and you'll be earning enough to afford the payments.

9. Consider selling the house instead. This is a longer conversation.

10. Use the rest to pay off the student loans today.

11. Pay off the rest of the student loans by end of year 2017.

 

Good luck with residency. Congrats on finishing school too!

 

[adventure]

Also, consider giving some of it away.

[CordMcNally]

I'm sorry for your loss.

 

adventure gave you some good advice above. I would also recommend looking at taking a chunk off your student loans but not before maxing out several retirement accounts such as Roth IRA, HSA (if available), residency retirement account (at least up to the match, if any, although whether or not you should max it out at a lower tax rate before paying debt in the 5-7% range would be a little longer conversation).

[bwk4sbwk4s]

Thank you all very much for the replies.
I think I definitely need to speak with a planner.
On the plus side, there seems to be broad consensus on paying off debt and then building savings.
I really like adventure's approach. Seems aggressive which I'm all for.
I definitely need to rebudget to try to save more though. It was difficult going to school after I had been making close to 90k/year to suddenly borrowing money to live. There's also an issue with a relationship but we're not married and I think it's time I put my red lines up financially before things worsen/progress.
My mentality is more buy/hold so I need to be pushed to sell assets which is why I'm glad I'm getting advice. The house may be a bridge too far at this point though.
Thank you all again.