[USER]

My sibling recently passed and we are being gifted an approx 650k inheritance. In addition, she left a 50k Trust Fund to each of my children.

We feel so blessed as we will have no other inheritance on either side of our families. I am unsure where to start regarding the inheritance.

– Own our home, approx 250k remaining at 3% interest

– Own 1 of our cars, the other has less than 2 years left, 0% interest loan

– Own my mother’s home, approx 75k left on mortgage at around 5% (she still lives there, we purchased it for her to live in and care for her)

– No CC Debt or School Loans

– No savings, we wiped through that this past year with the birth of my youngest/maternity leave (small business owner here) & caring for my sister at the end of her life
– No investments/IRAs

– Husband has a 401k through his employer

– My husband’s salary is 100k a year, and mine varies between 75 and 175k a year depending on economy/how much I am choosing to work.

– We are both in our 40’s with 2 children, potentially having a third in the next few years.

– We are planning on putting an extension on our home which would be approx 250k (this is a must, or we need to move which makes no sense).

Clearly goal #1 is having savings. Aside from that – where do we go?

We will not be saving to pay our children’s weddings or college.

Thank you for your thoughts!

[Erin]

You say this is your sibling not your husband’s, correct? If you inherited this money yourself you need to keep it separate.

This is money for you and hopefully later for your children.

This isn’t your husband’s money.

[Shatel]

I’d pay off moms and yours house and bank the rest! Also add a little extra to the kids college fund.

I’d mix the 250k home edition especially since your savings is low.

[Elena]

Without more info like goals and desired end state in retirement, I’d say

1) fund retirement accounts for both of you and

2) pay off the houses

[Arielle]

I’d pay off mom’s house, complete the addition, do at least one thing fun or relaxing for yourselves… maybe a nice vacation internationally- take that time to unwind, decompress, grieve.

And invest the rest of it

[Wendy]

Your sister clearly loved you and wanted to help you and your family some ideas that come to mind for me – It depends on if you wish to retire early or you enjoy working?

It sounds like renovations are something you might enjoy now if you’re not in a rush to retire early.

Interest rate on mortgage is low, you could keep mortgage if you’re ok with the debt remaining over time. Or you could use debt recycling.

You could put the additional in Vanguard or a retirement account to secure financial independence sooner rather than later and/or help your mother if that is part of your goal as well.

It can be tricky financially supporting parents as they age.

Take care as you recover from your loss and look after your young family – take some time to decide what is important for you and have that guide your decision.

I have been in a similar position and it can be exhausting managing a young family, grief and work

[Stacey]

I see you don’t *want* to save for college but borrowing rules for college have changed.

As parents you either need to pay, borrow yourselves or co-sign. Students are no longer allowed to borrow more than

$5500(fr)/$6500(so)/$7500(jr)/$7500(sr).

Spend some time on the college sites because right now as admits are rolling, parents are all coming to sites asking how

Food for thought….

[Marcia]

I am so sorry for your loss. I’d set aside 25k for an emergency fund and maybe take a trip or something to recharge after all you’ve been through and keep the rest in your name only in index funds in an investment account.

Let that grow and you will be set down the line.

[Sam]

What a wonderful gift! I think you are behind on retirement savings and this could be your opportunity to make it up. I would invest it – all of it- in an account in your name only.

It protects the inheritance in case you get divorced (hopefully not) and if that never ends up being the case, it accelerates both your paths to retirement.

I would not pay off a mortgage with 3% interest. And I would definitely not use it for a home addition.

[Paul]

Sorry for your loss. Truthfully, I’d be careful on how you handle the inheritance. You and your husband have a solid income and for there not to be any savings except for your husband’s 401k, I’d take a step back to see why that might be.

This is a FIRE group, so my advice is based on approaching it from the angle.

Pay off the house your Mom is living in, max out all possible retirement accounts, and DCA into index funds over the next year or two.

In other words, use the inheritance to get caught up and hopefully a little ahead on having liquid assets so that pushes you towards FIRE.

Too much of your net worth up to this point is tied up in real estate.

If you don’t feel comfortable about the stock market at the moment, you could always park the inheritance in a HYSA or some other accessible place until you figure out the best options for you.

Good luck.

[Mimi]

Your children will not be able to afford college with out your help. Even before this inheritance they would not have qualified for a Pell grant based on your income.

I know they’re still little but I’d suggest rethinking your last statement and consider their future, as well.

Aside from that- I’d suggest start with paying off mom’s house, replenishing your emergency fund, and maxing your IRA’s.

[Ginny]

I think Erin is smart- the unthinkable happens – of course spend it together and on your children but money should be held in your name if it was left to you specifically.

Always pays to be cautious and protect yourself.

[Beth]

If children are young hopefully 50K may turn into 100-200K in 20 years, if well invested.

[Lori]

I’d pay off Mom’s house. Then fund 2024 and 2025 Roth IRAs for you both, and max out both your workplace plans and HSAs if you can.

Then regular IRAs. Save some for an emergency fund.

Then 529 accounts.

[Katrina]

Since OP states they are in their 40s with no savings & they don’t list any retirement accts in their name only (just the husband’s 401k), I would suggest not paying off a jointly-owned home/mortgage with inheritance funds (basically commingling assets & losing separate acct protection of funds if divorce happens in future), nor would I convert basically liquid inheritance funds (cash/investments) into more illiquid assets/home equity by paying off low-interest rate mortgages or doing renovations.

Keep the inheritance in a separate retirement/investment accts in OP’s name only & name spouse (or spouse & kids/kids trust) as an acct beneficiary.

The money is still there for emergencies/expenses & it’s easy to change acct beneficiaries quickly if needed in the future.

Would recommend funding your own savings/retirement accts before funding kids’ college/savings, weddings, etc (agree that they can use/invest their new $50k trust funds for that).

Very sorry for your loss

[Eva]

Make sure to earmark $50k for potential 3rd child so they have money in a trust too.

I would pay off the car loan or anything with an interest rate beyond 5%

I would put the rest in investments, you dong have enough savings at your age to justify the addition.

Maybe if you get your financial ducks in better order or your income increases you’ll be able to add that on, but if FI is important to you I would make do until you’re in a better position.

For perspective. We have a lot of similarities in demographics with earnings children etc.

I have same finances live in VHCOL city travel 2-3x a year as a family and we hit FI before 40. Look at your big ticket items in spending there’s likely some shifts you can make if FI is truly important.

Basically don’t make any moves beyond investing the lump sum until you understand your finances more and can make this decision without pooling the group.

Read books listen to podcasts etc. Afford anything is my top rec.

[Rachel]

Invest and pretend it’s not there.
Get moving on retirement, emergency savings and sinking fund for the addition.

[Rachael]

If it were me, I would pay off both houses and dump the rest into savings and/or VTSAX.

I know, mathematically it might not make sense to pay off a 3% mortgage when you could earn more in the market, however, I cannot describe to you the feeling of not having a mortgage payment. It’s freedom.

I’m so sorry for the loss of your sister.

sending so much love to your entire family.

[Jillian]

This reads as if retirement is an afterthought and adding to the house is your top priority. That may not be the case, but that what it sounds like.

You have high incomes but very little put away for retirement.

That’s alarming. I’d throw at least $600k into retirement and contributing the maximum amount towards retirement to catch up.

You said you have no debt…where is the money going?

[Austin]

If the addition to your house is needed to accommodate your growing family and necessary for space, do it first. If it’s just a want to add luxury, I would hold off on it and get some other things squared away first.

After the addition (if necessary), I would start with a short term savings account for a liquid emergency fund such as a money market account.

Next I would pay off Mom’s house to ensure that you always have a paid off residence regardless of what happens in the world plus the higher interest makes a little more sense money wise.

Then I would invest the rest in IRA/index funds for you and spouse retirement.

This is a recommendation based on your last sentence. Personally, my goal is to always set my children up better than I was.

I would fund a 529 account for my children to have a better jump start in life and having school/training paid for.

[James]

Catch up on Roth IRA for both of you
Emergency fund refill 3-6 months expense

Pay off moms house and rent it out, use that income to pay off the car and your house

Put the rest in a HYSA you’ll accumulate more on it than paying off your house or car immediately.

Take a modest 2-3 week vacation

[Maria]

Meet with a flat fee advisor to get a better and more personalized response. Maybe try hello nectarine.

If it was me, pay off mom’s mortgage and put most of the money in a brokerage account.

That will give you $ to supplement your income when your growing business has slow revenue months and a flow of dividend to either reinvest or cash out.

Also, add a savings bucket for mom’s future needs in your name if her social security benefits are low.

I have mom living with us and navigating her health, benefits, etc is a part time job.

[Eric]

I know with my siblings I’ve made it known that If I pass before them I want my assets to go to pay off their homes and debts first.

Maybe having both homes cleared off would be such an amazing feeling. It was in our family

[Sheila]

I’d really evaluate if the addition is worth the squeeze. You owe 250k and you’re trying to put 250k into the property, which will end up being closer to 300k.

What was your housing plan before your sister passed?

Other than that I’d save 1 years worth of living expenses (entrepreneurship can be feast or famine).

Max out IRAs
Max out husband’s 401k
Pay off Mom’s house

And put the rest into a brokerage account.

[Author]

Posts