Windfall help

[Miss Bonnie MD]

I have (in my mind) figured out what to do with an upcoming windfall - but wanted some "expert opinions" as well. Can't hurt to get more perspectives! Windfall will be from sale of a condo. We are going to rent going forward in a new city (we are leaving NYC! Post to follow ).

Current general finances:

• Only debt are my 2 student loans - 1st is $75K at 3.7% variable (and rising), 2nd is $79K @ 2.25% fixed (5 yr term ending in 2021, if I repay the amount by 2020, I get 2% of the interest refunded, so it's basically almost interest free - First Republic Bank is awesome!).


• We are good on retirement savings (we both max our 403b + employer match, Backdoor Roth IRAs, my 457b, and currently putting in some Gs in prep for Mega Backdoor Roth IRA)


• Small efund in favor of paying off my loans


• Stepson with minimally funded 529, age 11


• Baby due next week (!), already has a 529

Windfall options:

• Pay off variable loan in full $75K (def doing this)


• $50K into stepson's 529 (goal is to fund half of state school equiv, we'll be able to cash flow a good amount too if we need to)


• We may need to buy a car unfortunately (already have one that is fully paid off). Looking at getting a Subaru Outback, ok with certified pre-owned. Probably need ~$30K for this.


• New Furniture $15K (we have old peeling IKEA furniture, it's time for an upgrade)


• $20K addition for efund


• ?? Pay off 2nd loan (2.25% fixed) - leaning towards not in favor of funding a taxable account instead

If we do all of the above (minus paying off 2.25% loan), we will still have a good amount that can just go into a taxable account. We do not plan to buy a home for at least 2 years, possibly more.

Would anyone just pay off that 2.25% loan? The money that would've gone towards paying that can just go back into taxable account to "re-fund" that for an upcoming downpayment. I will also be making significantly more in my next job so will have no problems pouring $$ into this taxable account.

What say you?

[Kamban]

If your next job is going to pay you more and you will have less expenses, it does not matter much whether you pay the 2nd loan this year or the next.

With a baby due, having a good emergency fund matters more than paying off loans or putting money in 529.

[Miss Bonnie MD]

Kamban wrote:

If your next job is going to pay you more and you will have less expenses, it does not matter much whether you pay the 2nd loan this year or the next.

With a baby due, having a good emergency fund matters more than paying off loans or putting money in 529.

Click to expand...

True. It'll mainly just be awesome to say we are debt free!

[Craigy]

Pretty easy decision to just payoff loans and buy a car.

If you're moving into a rental it would seem a little counter intuitive to spend a lot on furniture.  But hey, you can swing it.

Nice of you to fund stepson's 529.

Not sure what an efund is but presumably it's some sort of investment.

None of those sound like bad ideas, most of them seem to be storing the wealth rather than spending it.  Depends on how crazy you go on the car and the furniture I guess.

[Hatton]

Hopefully your cola will be lower!  Depending on windfall amount I would just pay off the loans, buy the second car, fund the 529.  Once you pay the loans off you are really net worth positive.

[Miss Bonnie MD]

Craigy wrote:

Nice of you to fund stepson’s 529.

Click to expand...

It's my fiance's windfall, not mine. NICE OF HIM to pay off my loans!  

[Miss Bonnie MD]

hatton1 wrote:

Hopefully your cola will be lower!  Depending on windfall amount I would just pay off the loans, buy the second car, fund the 529.  Once you pay the loans off you are really net worth positive.

Click to expand...

Only way to increase COL from NYC is if we moved to the Bay Area. We are moving to Philadelphia. Not a LCOL, more like MCOL, but to us New Yorkers, it is a LCOL.

[MPMD]

a) congrats on doing so well

b) don't do anything until that baby is here, healthy, and you're on track to go back to work!

c) with your discipline, a move, and 2 kids i wouldn't touch the 2.25%. you're on a 5 year term. the impetus to pay it back is to hit a noble but mathematically shaky goal (being debt free). esp when you think about how aggressive you could be in a 529 and the fact that you have option for mega-backdoor Roth. i wouldn't pay it off right now.

[Miss Bonnie MD]

MPMD wrote:

b) don’t do anything until that baby is here, healthy, and you’re on track to go back to work!

Click to expand...

Very good point.

[Hatton]

I personally think this is great.  You are going to be able to start accumulating real funds by getting out of NYC and getting a higher paying job to boot.

[nachos31]

You have lots of flexibility here which is always the ideal position to be in. How debt averse are you?

If having the 2.25% loan sitting there doesn't bother you then I'd put the money in taxable/towards other things. Moving is always more expensive than expected.

If that loan nags at your soul, then pay it off wth this windfall

Good luck with the baby...and the move...and the new job...and the new rental...and the new car...and everything else! Exciting times!

[djohnflatfeecfp]

All great advice, however, what is it that you have already figured out you want to do with it?  And what is stopping you from just doing that?

 

Good luck as the new one comes next week!  Get some extra sleep this weekend.

[Zaphod]

I think your plan is good, and congrats.

I would wait until you're truly settled and have things in order before paying off the second low rate loan. Moving always has so many surprise expenses, as do babies. If after a couple months you have things set and the job is great and you cant stand it, pay it off then. Otherwise, if youre having to build up a down payment fund, might as well get started.

[VagabondMD]

I would pay off the loan. To me, it's a no-brainer.

The fact that the money is come from HIS windfall might add some emotional strings to the money, and despite what he might say, he might not be all-in on the idea.

As the one who paid off my wife's law school loans, I know of what I speak.

[treesrock]

Random thought on the Subaru Outback.  CPO for Subarus can be outrageously priced, at least in my shopping experience.  I recently purchased a 2018 Outback Limited with Eyesight and all additional safety features for $34K OTD (obviously this varies with location, this was in Virginia), so if you're already looking to spend $30K I would look into what deals you can get for a new 2017/2018 model.

Its a great choice of car though, I love mine.