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Need Advice - should I pay off my house?

Posted by jockewing (My Page) on
Fri, Jul 15, 11 at 16:33

I just closed on the sale of the house that I inherited from my grandmother last year. Including the proceeds from the house and the investment account funds and cash I also inherited, the total is around $450,000. I have about $250,000 in an Edward Jones account which is mostly in bond funds. I have almost $200,000 in my checking account now after depositing the check from the closing today.

What should I do? I am 35 and single. I have no debts other than my own home, for which I owe about $75,000. The interest rate is about 6.1%. I just lost my job due to a takeover by another company, but I have a very solid prospect with another great company. In fact, I am expecting a call from them any day. I have already had 2 interviews and I got the distinct impression they really want to hire me. My pay will increase (hopefully) and I will be savings tons on gas since I will be working 5 miles from home instead of 45 miles!

Should I pay off my house? I want to spend about 10,000 on my current home to get some new wood floors and redo some things in the kitchen and bathroom. What should I do with the rest? I certainly don't want to keep $200 grand in my checking account. I also have about 13,000 in my 401K account that I will either have to rollover to an IRA or take the distribution from my old job. I am also unsure about what to do with my investment portfolio. The fund manager suggests I keep about 40% in bonds and then change everything else around to mutual funds accounts. But there would of course be about a 3% charge to do this, which would cost me about $3,000.


Follow-Up Postings:

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RE: Need Advice - should I pay off my house?

Save the $3000 and move your account to Vanguard or another super-low cost company that won't charge you for moving your funds. Seriously, that's step one, call Vanguard or Fidelity.

The only time we lost money in the market is when we tried an account with the brokerage house you mentioned.

Try the reading list at Bobbrinker.com for a good starting education.

As for paying off your house, why not wait until you have a new job and all is secure? And consider the income tax implications, if you itemize deductions and the home interest.

That's a small start. But the idea of spending $3000 to move your money just makes my blood boil. (Sorry, pet peeve time here....)

Here is a link that might be useful: best funds.


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RE: Need Advice - should I pay off my house?

sushi, I agree about the cost to move money. I went to meet with my Ed Jones guy a few months ago to see about moving some of my stuff out of bonds into mutual funds, and was quite surprised to find out that moving my money would cost me as well has having to pay a percent for every additional dollar I put into the account. I'm just not sure what to do. Will look at the brinker list. Thanks

Oh and of course, I will not pay off the house until I know I definitely have a new job. I would be shocked if this company did not make me an offer after the feedback I got at the interviews, but of course they take forever to get back to you while you sit on pins and needles for weeks on end wondering what is taking them so long.


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RE: Need Advice - should I pay off my house?

. I also have about 13,000 in my 401K account that I will either have to rollover to an IRA or take the distribution from my old job.
I 'think' it would be best that you roll it over, and totally avoid distribution.

From the link below:
"Your 401k withdrawal options are as follows if you are under 59 �

-Take a lump sum distribution, in which case your 401k plan provider will write you a check for the value of your account less a 20% withholding tax mandated by the IRS, and a 10% withdrawal penalty. The 20% tax that is withheld, but NOT the 10% penalty, will be counted against your income tax payable or will be counted towards any refund due for the tax year when you file your tax return. Some 401k penalty free withdrawal exceptions are here.

-You can do nothing and leave it with your previous employer as long as the amount is greater than $5,000. Amounts less than $5,000 will usually be distributed to you, less a 20% withholding tax, regardless of you age. (Check with your plan sponsor)

-Do 401k rollover into an IRA or a solo 401k (if you are planning to open your own one person business)

Here is a link that might be useful: 401k Withdrawal Options


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RE: Need Advice - should I pay off my house?

Yes, pay off your house, it isn't that much money. You have plenty of money after it is paid off if you need it. Paying off your house is giving you 6.1 return guaranteed. There is also something very satisficing in having a paid for house.


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RE: Need Advice - should I pay off my house?

Since you have enough money to live on I would roll your 401k into a Roth. Taxes will eat some of it but when you start drawing you would only pay taxes on the interest. You may wish to wait until you have a new job since that companies 401 could provide better choices.

In your field movement to another area is fairly common so paying off the house would gain you the interest you are currently paying. However before you do so I hope you have talked to a tax expert not just a doer of taxes. Although some states follow the federal guidelines for inheritance but others have both a inheritance and an estate tax. Hopefully the estate tax if any was paid before the estate was settled. If not it could still be owed.

Wait to do anything permanent until the rates start going up. Parking what you consider excess in a series of short term CD's is a suggestion.


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RE: Need Advice - should I pay off my house?

Maifleur, fortunately, there was not a cent of estate taxed owed. All of that has been filed months ago. I really do think I want to pay off my house once I get another job, which I think should be coming quite soon. It will be so nice not having that mortgage payment every month. I will only have my utilities and phone, cable, internet, etc. Talk about living!

What I need to do is figure out how I should start saving me money each month once I start the next job. I'm hoping to put away at least $400 or so a month, not including what will be going into my 401k. The company I hope to be working for soon I think contributes on up to 10% of your salary.


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RE: Need Advice - should I pay off my house?

Start by transferring/putting the house payment into savings.

What you need to do then is to sit down and figure out your expenses. Then decide what percentage of your projected income that you live on. Because I was always poor I did not have the money to start with the full amount that was possible. With your grandmother's gift of her estate you should have enough to reach the 10% quickly.

What every you finally decide you need to have a fund that you can use to do the things that your grandmother would have liked you to do but the rest tied up so you can not access it immediately. I also think you should look at some mutual funds as suggested by others while you study investments. As suggested for those that win a lottery do not do anything for a while other than placing funds where safe for a period of time.


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RE: Need Advice - should I pay off my house?

If it were me, I'd do the following:
1. Pay off my house. No need to wait until you have the new job; your cushion is huge.
2. Roll my 401k into an IRA. You can invest an IRA in anything, rather than be limited to the funds your employer offers. Plus the monthly/quarterly statements are a lot more transparent.
3. Keep about 6 months' salary in a money market for emergencies.
4. Cash out the bond funds at EJ and put them in some good stock index funds. Now is a horrible time to have bonds because interest rates are low. When interest rates go up, which is about the only way they can go from here, bond prices go down. Plus you're young and should be all in stocks. I split my investments between Vanguard 500 Index and Vanguard small cap. With the amount you've got, your shares will be Admiral shares, which means even lower annual fees.
5. Max out your 401k, and max out a Roth IRA every year.
6. Put all your extra beyond that into the mutual funds you start with your inheritance.


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