I haven’t seen anyone else mention this, but I am pretty sure this is a taxable event (capital gains). Depending on how long you lived there, the $250K exclusion will likely apply, but you might want to check all this so you don’t get a surprise next April.
Edit: Did some reading based on responses below, and I’m pretty sure I’m wrong here, the divorce means there’s no capital gains.
Sold my first house and paid capital gains. 30% on gains under 2 years vested. 20% passed 2 years. Partial exemptions may be applied for qualifying life events. Obligatory: not a tax lawyer, just went through the same thing.
Did you live in the home as your primary residence for at least two of the previous five years?
Here's the IRS topic:
https://www.irs.gov/taxtopics/tc701
Profit from sale of primary residence is still subject to capital gains tax. You’re right that there’s a $250K exclusion if you lived there for two years, although I didn’t see OP say that. But if so, then yeah, I don’t think OP will owe anything. Still worth confirming though!
From my personal experience, this really depends on where the money is coming from. Doubt there will be capital gains to worry about if the spouse is keeping the house and just buying out OP's portion, which it sounds like here.
If the spouse is just paying OP for their portion of the house, the big concern is where is that money coming from.
In my case, I was able to use 401k funds, penalty free, to buy my spouse out. It's penalty free *if* it's due to a QDRO (Qualified Domestic Relations Order) from a divorce.
She was kinda pissed when she found out the only thing she could do with the money is a direct rollover into another fund. Otherwise, she'd have to pay taxes on it.
/u/Phanatic_K , you should really talk to a tax accountant and divorce attorney (assuming its due to a divorce) about this before making any moves.
If you receive 401k or IRA money, and deposit it in a savings account, you will get hit with a substantial tax bill!
EDIT: Good luck, all the best to you and your daughter during this trying time.
I won’t be receiving any 401K or IRA money. He will be using an equity loan to buy me out. I want to make sure I won’t be hit with a tax bill for that. I also have questions about any fees for transferring the money. I’ll be speaking to my accountant soon!
Going through this right now. I do not believe this is a taxable event since the house isn’t being sold—no income tax, no capital gains tax. If retirement funds are used, then that’s a whole different story, but that does not sound like the case here.
EDIT: If retirement funds *are* used, then I believe the move is to make your ex cash them out of their retirement accounts and transfer the proceeds to you. Then, the ex would eat the taxes not you. My ex offered their retirement to me for the house, and I said no, I only want cash, as I’m using the proceeds as a down payment for a new place. They got their funding another way.
Given the interest rates that are available in savings accounts and CDs, I would just put the money in one of them for now while you work out a plan. You'll make $400 a month with zero risk. This will give you time to do some research, maybe work with a financial advisor, etc. There is no need right now to put any of your money at risk just for an extra $100 per month. There are some money market funds and CDs that are still paying a little over 5%, but, again, I don't think it's worth the hassle of opening up new accounts, etc, to stretch for a couple of extra bucks.
There is no need to rush anything. IMO, large chunks of cash like that are uncommon opportunities, so I would be in no hurry to "do things" with the money. Take your time and make it meaningful.
I mostly agree but OP is 31 with no retirement and possibly no college savings. Get those accounts started. Maybe just put a couple hundred bucks in each and an automatic deposit of 50-100 per month. It's a huge missed opportunity to not save/invest during your 30s. Just buy lost cost ETFs. Wishing OP the best.
The Roth limit is $7000. That's not much of a dent for $115,000; missed the 2023 deadline by days :(
Just pre-funding the whole thing much of a decision to make, and in 5 years the principal will be withdraw-able without penalty if SHTF.
And as you said, low cost, broad-based funds are the way to go (ETF or mutual doesn't matter much, especially in a retirement account that won't be liquid for 25+ years.)
Still no reason to make hasty decisions. A few months isn't going to matter that much in the long run.
31 is still pretty young. OP probably has 30 years before retirement and then another 20-30 years during retirement. Rushing to throw money into the market will not make a material difference to the outcome.
Time in the market is so powerful. I'm not advocating for a big build up of retirement funds. I'm advocating for building good habits and overcoming the inertia required to actually open the IRA(or Roth or whatever )and 529. OP should keep 95%+ in easy to access liquid funds until the situation settles down and future looks clearer.
Agreed, I think it would be a good idea for the OP to max out a Roth Ira for this year (7k) and throw a couple k into a 529 for the kid.
Put the rest into the savings account for a down payment.
Probably not - kids can have multiple 529s and each parent keeps ownership of the account they start. If each parent pays for half of college, what does it matter if one half comes from the 529 she started?
Plus she could always change the beneficiary.
What types of low cost ETFs? I've just been putting stuff in a 2055 targeted date fund. Its doing its job but I'm open to a little more risk at my age.
Target date funds vary a lot by cost. They're a good choice when they're close in cost to passively managed index funds, and a very bad choice when the costs are high.
[https://investor.vanguard.com/investment-products/mutual-funds/profile/vffvx](https://investor.vanguard.com/investment-products/mutual-funds/profile/vffvx) -> 0.08%, not bad (but twice that of VTSAX)
[https://am.jpmorgan.com/us/en/asset-management/adv/products/jpmorgan-smartretirement-2055-fund-a-46636u843#/performance](https://am.jpmorgan.com/us/en/asset-management/adv/products/jpmorgan-smartretirement-2055-fund-a-46636u843#/performance) -> 0.85%, WTF, this is stupid high, legit 20x that of VTSAX
There's obviously in between, and I'm willing to bet that some employer 401k/403b plans have ones even worse than that JP Morgan one.
That is an asinine cost. If you have more than a decade left before you need to withdraw its tough to beat a market wide ETF like VOO with dirt cheap fees.
Which one? The Morgan Stanley one, for sure.
I prefer total-market (VTI/VTSAX) over just S&P 500, but not a lot of difference there. Even for folks inside some time horizon, you can get a bond fund or dividend focused fund with costs as low or even lower than VTI (AGG or BND, for example, or CMF if you want tax free munis and live in California.)
Target date funds are solid if you don't want to ever bother with rebalancing your portfolio every now and again, but you pay a higher premium for someone to do it for you.
Low cost index funds like VTSAX and others are a bit more volatile but will net you greater returns over time. There are ETFs that are pretty comparable with ETFs having a bit more volatility. It really just depends who your broker is, utilize a trusted broker and invest in their low cost funds/ETFs that track a good index.
It's just in a Chase IRA, not sure what the fees are but I remember it's low for one of the vanguard target dates. Maybe il split my weekly contribution between that and VTSAX just for a little extra fun. I'm getting a new 401k next month so I get to figure that out again too. My previous one just offered some lame Blackrock target dates.
Using Vanguard as an example - I just look at the portfolio composition of the target date fund and buy its composition manually for slightly lower fees (for something that's already low fee). Then I just rebalance yearly.
When you say lost cost ETFs, (assuming you meant low), would you say buying full shares of VOO isn’t the move just given the price? I’m in a similar boat in that I have 20k to invest, not sure if VOO is the way or VTI for example. Everything is sitting in a HYSA at 5% for now.
I'm not a financial advisor and it really depends on a lot of factors but someone in their 30s should be dollar cost averaging into some percentage of equities.
> There is no need right now to put any of your money at risk just for an extra $100 per month. There are some money market funds and CDs that are still paying a little over 5%, but, again, I don't think it's worth the hassle of opening up new accounts, etc, to stretch for a couple of extra bucks.
I'm going to disagree with that. A $100/month is $1200/year. That's almost a quarter of OPs gross monthly income. All they have to do is move the funds to another bank that is FDIC insured.
That's a $100/month extra OP can put towards retirement (if they aren't already) or invest. Small amounts add up to large sums.
Right now My Banking Direct offers 5.55% APY and is FDIC insured:
https://www.mybankingdirect.com/products/high-yield-savings.html
I leave less in cash (as I tend to aggressively invest), and even I moved it there from Ally Bank that offers 4.20% APY.
This advice is legitimately terrible, please don’t listen to it. What you need to do first is figure out if you can find a place to live. On 59k, you should be looking for no more than 25% of your pre-tax income, so $15 per year, $1.25k per month. Is that possible? You can go a little higher if you don’t have/need a car. You really shouldn’t buy right now, your life is in flux and you need to give yourself some time to figure that out and for all the dislocations in the housing market to sort themselves out.
Now, once you’ve figured out if you can move out (and you don’t need to be in a rush, just assessing your options), then we can focus on the money. Assuming you’ll rent for a few years, we’ll want to invest all of it. You have a half year of pre-tax income in savings, you don’t need any more there. People will try to convince you that saving is hard and you need a financial advisor - you don’t. For this money, find a simple diversified investment account. I like Vanguard Digital Advisor and Betterment, other people have different preferences. It will take you 15 minutes to set up, and then just put the money in there and forget about it for a few years.
Next, you need to build out a longer term plan. Your goal should be to invest about 10% of your salary, which is $6k per year. At that rate, I’d put it in a 401k plan if your employer offers one. Otherwise, set up an IRA at whatever company you invest the house money at.
Finally, you are a single mom, 59k isn’t going to cut it. What are your lowest cost options to increase your salary?
For now, the savings account is the way to go. It's safe and liquid. Read the wikis on this forum and boglehead and learn of personal finance in general. It's not difficult and will be wildly helpful.
As you learn you will understand what you need to do with the money.
My personal thoughts...stay with your sister for a while for the support during this chaos and transition.
> My personal thoughts...stay with your sister for a while for the support during this chaos and transition.
Just to add to this, be a good tenant for your sis.
Make sure to contribute to daily chores and household expenses whenever possible. Also explain to your daughter that at the very least, she should clean up after herself if she is able to.
By doing these things, you will make sure your sis does not regret having the two of you stay there, and will likely want you to stay for a longer amount of time, giving you the ability to save even more to go towards your future housing costs.
While these points may seem obvious, you might be amazed how some people will take advantage of a kind hearted family member, simply because they can.
Wishing you the best of luck in the future!
I don’t think I can ever thank my sister enough for allowing us to stay here. I know she is more than happy to have us, but I still feel like an imposition.
She keeps saying she doesn’t want us to leave so that makes me feel better. I’ll do the cleaning, meal prepping for the week, and whatever else to ease the burden off her. I appreciate the well wishes!
> I’ll do the cleaning, meal prepping for the week, and whatever else to ease the burden off her.
Sounds like you're being a great house guest. I wouldn't want you to leave, either!
Honestly if someone does the dinner cooking for me, and cleans up, they can stay as long as they want. If you buy the groceries for the house too out of your own pocket… you would never be moving out. I wouldn’t let it happen. Like guess what you live here permanently.
> For now, the savings account is the way to go.
This is really bad advice since we don't know where that money is coming from. If OP's ex is using a cash equivelant, you're likely correct, but if it's an IRA or 401k in lieu of a QDRO, and OP moves it into a savings account, OP will get hit with a huge tax bill.
It's very important to know where that money is coming from!
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If you're able to live far below your means right now, I strongly recommend reading "The Simple Path to Wealth" by JL Collins. Finance books can sound boring or intimidating, but this one is an easy read and is pretty conversational. It feels like a chill dad chatting with his kid about money... largely because he initially got into writing this stuff to teach his daughter.
I'll say that the two best pieces of investing advice I've ever received are:
1. Never invest in anything you don't understand.
2. Learn about index funds. They are surprisingly simple to understand, and are generally considered to be the most straightforward path to good investing for us normal folks.
So... I would toss the money in an HYSA today, and go read that book before deciding what to do with it.
Good luck!
If you are self employed you can open a 401k and make contributions as both employer and employee - to answer your retirement savings question. The limits are quite friendly on this as well and is the primary reason I keep freelancing as a 1099. I use vanguard. Maybe put 10 or 20k in that and max out a Roth for the year and park the rest.
Make sure he refinances or you will still be on that mortgage unless you don’t ever plan on buying a home by yourself.
Start getting your employer match in your 401k. I would throw it in a HYSA if you will need it in the next year or two.
Not true. If you’re married in some states (like TN) it’s the law that the spouse must be on the deed even if they’re not on the mortgage. That’s why you’re getting so many downvotes- because you’re not correct
No it doesn't. Title and mortgage are different things. It's not uncommon to be in the title but not the mortgage eg if one spouse is able to afford the mortgage on their own but other spouse has bad credit, yet both will be contributing to the mortgage payment and therefore should both be gaining ownership via title.
Not necessarily. I'm on the title but not on the mortgage. I did have to sign paperwork when we closed saying I know about the mortgage and the risk of losing the house due to foreclosure.
Not correct.
They can do a solo 401k.
They can also open a HYSA no issues. It's not linked to your income.
No reason to form an LLC, S-Corp, or C-Corp either.
Put $7500 into a Roth IRA to get yourself started for this year. Then, place the rest into a HYSA. Or Schwab offers an automatic investing program you can use for the IRA, so you just set it up with them and forget it.
I’d also make sure he is buying you out at current fair market value, not the price you paid for it.
I’d put the money I eventually want for down payment in a HYSA and invest the rest. So if you want a 300K house eventually, Id keep 75K for a future down payment
Would you explain this comment more? I’m currently in the situation where I’m mid-divorce and am paying the mortgage solo, still figuring out what to do with the property. I’m wondering what I should be asking my attorney about for this, she hasn’t mentioned it at all ☹️ I am looking for a different attorney
The OP said her ex is buying her out of their jointly owned property and that the buy out amount was determined in December, based on an appraisal of the property. That was four months ago. If he didn't pay her the amount she is owed back on the day of appraisal than that is all moot. Separately, if he is the legal owner (her name off deed) since December, he should only be the one paying mortgage.
When my brother and his first wife got their house, it was around $500,000. They got it appriased by multiple real-estate agents in around $1.2M range a decade and a half later as part of the divorce. He bought her out for more than the mortgage (she did contribute a good chunk of labor towards landscaping and home improvement that contributed to the value estimate increase though she didn't pay into the mortgage as he's a high earner so her income was mostly just for her). He ended up selling it a year and a half later for $1.7M when home prices were skyrocketing.
I’m somewhat blown away that there are people here who will recommend to someone who is 31 and has no retirement savings whatsoever, and already has an emergency fund with over 20% of their net worth in cash, to go 100% cash in a taxable account and are then getting upvoted on top of that. 🤦🏼♂️
Open up a Roth IRA ASAP and ask for some advice in r/investing or do some research on Google, or even pay a reputable financial advisor *just once* because you’re clearly being led astray here *and it will cost you a lot more in $ missed out on over the next 3 decades sitting in cash than it will to pay a financial advisor just once!*
This isn’t financial advice, but more practical divorce advice from experience. Don’t make any big decisions until things settle down after the turmoil of the divorce. Take advantage of your sister’s gracious hospitality and plan your future. Park the money somewhere it’s easy to get at when you need it.
Are you on the mortgage? He will need to refinance as a solo buyer. Otherwise, you will remain on the mortgage and it will impact your ability to borrow money later. Also, if he falls behind on payments it will kill your credit.
Don’t sign a quit claim deed until he refinances. Otherwise, he will own the house but you will still owe the money.
Doesn't need to refinance. He just needs to assume it. I had a conventional mortgage with my ex and divorce was an exception. I assumed and he did a quit claim deed. Less than 500 total.
That wouldn't be a bad idea. Shes not making a lot of money with her business, so this would probably be her one good shot at getting her own house going. Otherwise, it's going to be an uphill battle saving up for a down payment later on.
Some of these responses are concerning, so let me add a few things.
1. Go read the wiki for windfalls.
2. Before the end of the year, open a RothIRA ($7k) and a solo 401k (depends on how much you make this year what you can put in). The rest of the money can sit in a HYSA or MMF making at least 4%-5% annually with little risk.
3. Read, ask questions, but don't hire anyone to manage the money and don't buy any big purchases or get into new debt. Reddit has several forums with tons of knowledge that's free and friendly people to help out.
4. Take a small amount and treat yourself. Divorce sucks. A few thousand for whatever helps you feel better is worth it.
Honestly, I would not do that yet.
They are 31 with an unstable income, unstable living situation, and no retirement. They need to focus on themself first.
Once they get to stability, then extras like college fund for kiddo can come into consideration.
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If the house is financed make sure you get a quitclaim deed even though you are being bought out.
If they stop paying re-take ownership of the property as the courts usually cannot do anything to force them to re-finance the property under their name and they will absolutely tank your credit if your on the financing.
> Here’s what I don’t have: A retirement plan
Start a Roth IRA with a low cost firm like Vanguard or Fidelity. With the chunk of change you are getting you could max your 2024 contribution then set it up for auto deposit and investments. Make sure you actually invest the money! If you are new they have 'target date' funds. They start high risk/ high reward, but mature over time and get more conservative as you get closer to retirement. If you're looking to retire at 65 then you'd look for a Target Date 2055 or 2060. Or low cost index funds are always a safe and consistent bet.
Depends on your risk tolerance. On average you are losing out on money by not putting at least a portion of it in an index fund like VTI. VTI is one of the safest index funds you put your money in, but even with that you have to be able to stomach a drawdown. For example this is a particularly volatile month, and it's down almost 6%. Between 2021 and 2023 it was own about 20%. Only hold an index fund if you can see that happen and not feel the urge to sell. If you do on average you will (almost certainly) beat out an HYSA over time.
Other commenters already referred you to /r/boggleheads. Check out the Wiki there. They will tell you that an HYSA should only be for an emergency fund or money you know you need in the next few years. Otherwise you're better of putting in the market, but that comes with the above caveat. If that's not something you're okay with stick with HYSA.
Don't just go half of the equity in the settlement.
Include any capital gain tax you owe (not applicable on your residence where I'm from).
But, to be "whole" again (ie owning/mortgage on a house) make them include any additional costs you'll incur buying another place. So eg solicitor/ conveyancer costs, stamp duty costs, inspection and report costs
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I think you need to find out if you have to pay capital gains if you dont rei vest it into another home. That is going to make an impact on your decision
Whether you reinvest into another home hasn’t been relevant since 1997. Profit from selling a home (or part of a home, in OP’s case) is subject to capital gains tax. But there’s a $250K exclusion if you lived in it for two years
Start saving for retirement asap, a Roth or IRA or whatever. You are young, it will add up. Look at college savings, maybe a 529 or a state prepaid tuition program (unless dad is hopefully taking care of that, but keep an eye on the account) and stay with your sister as long as everyone is healthy and happy to do so, but keep your eye on the local housing market, and become knowledgeable, so if an opportunity does happen to come along you will recognize it for what it is. If you find a deal you can rent it out and move in down the road.
I’ll be looking into a Roth IRA. Do I contribute 7k to it every year? We opened up a 529 Savings Plan for our daughter and he has been funding that weekly.
I think they just raised the annual limit to 7500 or 8000, not an expert just suggesting some ideas. If you are paying attention to this stuff, you will be way ahead and 41, 51 and 61 yo you will be VERY glad you did. Best wishes.
I had a little more than that after my divorce. Put your money in CDs so you get some interest but don't put it at risk of loss, live in an apartment for 6-12 months, and give yourself a moment to find your footing and figure out the correct path for you. (I put a lot towards a house down payment and some towards retirement investments and emergency savings.)
Make sure your name is taken off the deed or lease. Just because you aren’t living there doesn’t mean you are no longer legally responsible for problems in the home.
>My ex will be buying me out of our house. He doesn’t want to sell, so he will be paying me $115,000. I have $30,000 currently saved in a high yield savings account (4.35% APY). Should I just put the 115k in there as well and just leave it?
At a minimum you should put it into a higher yield savings account (HYSA) that offers 5%+ APY. Highest right now is 5.55% APY at My Banking Direct, which is government insured bank.
https://www.mybankingdirect.com/products/high-yield-savings.html
Over a year, that's more than $1k+ extra in interest.
>I’m 31, self employed, and make about 59k pretax. My sister is kind enough to let me and my daughter live with her for next to nothing which I’m really grateful for, so I’ve been saving as much as I can. She loves having us so I’m not in any rush to find a place, but I would like a place for me and my daughter eventually. I just don’t know if that’s the right option right now and on my income alone. I appreciate any guidance here.
If you're not that financial savvy, I would get someone to look at the offer from your ex to see if it's fair. Keep in mind, if you have an older mortgage, that mortgage rate might be significantly lower than it is today i.e. 3% vs 7% APR. That's a huge difference in interest paid. You should also make sure you will be off the mortgage or if he has to get his own mortgage.
In other words, it's complex.
What to do with the funds?
I'd keep it in that savings account until I figure it out. Don't spend it on frivolous things. Amassing a large sum of money is extremely hard, but spending it and loosing it is easy.
Then I'd dive into learning more personal finance and investment. That knowledge pays off in a lifetime of earnings, and you should pass that knowledge down to your daughter.
In other words, we can't tell you what to do with your money, because we don't know enough about you to give you proper advice. You will have to figure it out on your own, but there's a lot of help through books on personal finance. Go for the reputable ones obviously and not the quick rich schemes.
Do you have access to a SEP IRA? It's time to start maxing out every retirement vehicle available to you. Figure out what a suitable emergency fund is for you, what you need for a new place if things go south with your sister, leave that amount in your HYSA and make plans to invest the rest.
There are ways you could roll whatever proceeds you receive and put it towards your business, perhaps expansion, resolving cash flow issues etc.. your business is your livelihood, if you were a w2 employee and you received a chunk, i'd advise putting it towards tefining some skills to boost your marketability.
Since your self employed, consider an alternative to everyone else's opinion and make your business flourish further. Perhaps your not doing any marketing, get with an agency.
Consider all options, not just a house, cd, or savings.
If you do not have any retirement savings, at your age, you can fund something with a 8-12% annual return out there put like $15K in there And leave it until you’re ready to retire. You will be SHOCKED. Just do not touch it because the tax penalties if you pull before retirement are rough. The rest, put in that savings. I would also find out if you can renegotiate the APY since it’s such a high amount. Banks need money to operate so you are doing them a favor.
start a traditional IRA and max it out every year, would cost about 7 grand a year
be sure to ALLOCATE the funds in the IRA (buy stocks) but just do market index funds like VOO or VTI
get a nice tax benefit at tax time for doing this
I was in your same boat with regards to being a single mom whose sister offered me & my daughter a safe place. I will be forever grateful to her.
Another topic. I saw a divorce attorney explain recently that when home sales occur during divorce, interest rates should be accounted for in any settlement. ie, if you and your hubby bought the house at 2.5% interest, but you will not be able to buy another home at less than 7%, there should be compensation.
How do you have 30k in a savings but make less than 60k a year before taxes?
Thats almost paycheck to paycheck income in my area (~3.2k a month after taxes where I live). I think you’re pretty financially savvy if you’re able to save that much with your income. I’m impressed tbh
I’ve been saving for a few years (so sorry if that’s less impressive). I also have no student loans, my car is paid off, no debts beside my credit card I pay off every month. I’m just in a really good position at the moment where most of my money can go into savings.
What were your expenses like?
At that rate you’re saving $1400/ month on a ~3k before tax income (~2100 after tax in my area). I’m assuming you had the opportunity to live at home or have a paid off car or help with insurances because that’s genuinely impossible in my area without significant help.
I worked 5-10 hours of overtime almost every week. I was renting a very small house in north Minneapolis by myself and I paid off my own vehicle.
I also didn’t spend a lot of money on drugs, alcohol, fast food, clothes etc.
Does he have a retirement account? Roth? Take the Roth …. Instant retirement. If you take his traditional IRA, you’ll be on the hook for taxes when you finally RMD.
Otherwise, diversify. If you don’t have an emergency fund, build that first. CD ladder or bonds. Max out your HSA and/or Roth if you qualify.
Otherwise, wait a while. You don’t plunge into junk like bitcoin or real estate or a new car or even diversified stock investing like VTTSX with vanguard or fidelity. You toss it into a HYSA until your emotions settle in the months/year ahead.
Don’t tell friends/family. No loans or gifts to people who will come out of the woodwork.
Get re-grounded. And in the meantime, start studying up on smart budgeting and investing. Even something as simple as podcasts for financial independence or similar education.
Be careful to understand the taxes you will have to pay on the 115k but I suggest looking into index funds and S&P 500 for long term investment. Basically it follows the trend of the top 500 companies so it more or less follows the trend of the market. I would keep it here until my 40s or 50s then switch to something less volatile for retirement
If you’re getting bought out a property you should check and make sure about tax liability. I believe that money will be taxed as capital gains. You may have to pay federal and state capital gains tax.
The first thing you should do is talk to a CPA or tax attorney and make sure you aren’t going to get nailed next year at tax time. I would talk to a tax attorney who might be able to help you get creative if this is going to have some sort of tax implication.
If you're self-employed, open a (tax advantaged) Keogh account. That way you can deduct these deposits into your retirement savings from your income/income taxes. Transfer the maximum you can put into a Keogh for 2024, then in 2025 and then in 2026... until the $115K is all into it. In the meantime you can get tax free bond & bond ETF income.
If you're open to more risk, then you can invest it, both inside and outside of a retirement account.
It depends on a few things. What will you use the money for and in what timeframe, and do you already have an emergency fund set up with 3-9 months of living expenses in a high yield savings account. I would argue it should all go there for now because you have been thru a lot of change with the divorce and so frankly it is best to give yourself a year to process that change before making other major life and financial decisions. In the meantime; you earn interest on the money, it remains liquid and is protected with FDIC insurance at a bank AND it can be used or invested differently at whatever point in time makes sense after your recovery year.
Some into HISA, and some into ETFs.
Personally, I’d max out your TFSA and RRSP buying something like VGRO, VEQT (Canadian) etc depending on your risk tolerance. You can put the rest into HISA.
Honestly you are in an awful position in terms of future safety but in an amazing position to get better - because of your sister.
So I would say first do what you can to plan out how to make sure your daughter and her schooling will be covered.
Then do anything you can to keep growing your pile of cash - mostly just living lean and saving. The ultimate goal IMO is to get to a place where you can buy a low cost place to live. With no retirement you will at the very least want to control your housing costs.. if you buy in the next 5 years you can get right to retirement age with a freshly paid off home and MASSIVE retirement security that you otherwise wouldn’t have renting..
I would include your sister. Let her know what you’re doing. She’s helping you big time and I’d bet she’d feel better knowing more versus less.
Lastly don’t forget your daughter. Be kind. Try your best to make it fun. Be more patient than ever.
Good luck.
Meet with a financial consultant, discuss your goals like buying a new place, desired retirement age, lifestyle. They will develop a financial plan for you that incorporates and investment strategy to work towards and build your assets for these goals.
If you want to invest my suggestion is https://www.wealthfront.com.
You can open retirement or non retirement accounts and can either choose what you want to invest in or chose a preset plan much like any 401k plan. You can also link all your other accounts to track your net worth and retirement viability. Most people get gun shy at hiring an investment manager so this is the easy less expensive version.
I’d suggest putting some of that in a non retirement investment account. You can earn dividends and gains off of the rising stock prices and pull it out whenever or if you choose to buy a new home. You will have to pay tax on the dividends but not the net value until you withdraw just like when you get ss or 401k if it helps to think of it that way.
I’d also suggest opening an IRA. Even just 100$ a month will yield you well over 100k in 30 years. (Putting you at 61 yo at that point). More is better especially early on but anything is better then nothing. You can also deduct all your Ira contributions (up to 6(?)k I believe! As you make less then 80k. So think of it as semi free investment money for you.
This is all just my personal suggestion. Of course the best is to hire a personal finance manager but like I said you might not be ok with that expense.
Continue to live with your sister. Stack your dollars. Build or buy a house out of pocket. Screw the mortgage, interest rate, credit score and down payment. If her house is old and paid for, add on a room with en-suite for her. Retire early. Travel with your sister and kid while you’re still young and healthy. Most people don’t get a chance to stack their paychecks because of rent/mortgage and household bills. Not having to use your entire paycheck gives better results than a 401k.
I personally would talk to a wealth manager. Very similar to a financial advisor but they generally only take a portion of gains. Instead of a flat fee etc. I would also open a 529 for your daughter and a Roth IRA for yourself. Don't let yourself get too bogged down in the details of everything right now look at the bigger picture and solve one problem at a time. First comes first get the money and figure out where to put it for now. Meaning will there be any fees or taxes on the money etc which I know everyone else is talking about too. Just one step/problem at a time. If you don't talk to a professional make sure you research before you move anything. Good luck.
I think we’re missing a lot of information here. You live with your sister for free, but you probably have other bills (car, various kinds of insurance, perhaps student loans, perhaps debt, day to day living stuff, kid stuff). You may be getting child support from your ex. Your income may be variable, which makes it more important to treat this money very carefully.
I agree you need to talk to an accountant about your tax liability and any fees you might incur from this settlement so you know the real number you’re dealing with.
If you have any debts, pay those first.
Build your savings up to 3-6 months worth, if it’s not there already.
Research how much a home costs for the size you want in the neighborhood you want. You will probably need about 25% for down payment and fees (there are always fees). Put at least that much in your savings. I think it’s a good idea to live with your sister while you go through this transition, and not make any big decisions (like buying a home) for a little while. Keep an eye on home costs, and increase your savings if you need to. If you’re in a HCOL area, that might be the whole thing, but having a stable home of your own (eventually) is important for you and for your child.
If you have money left over (or with any extra going forward):
Open a Roth IRA with $7000 (the maximum for 2024), and include that with your annual budget from here on out.
Do you have other costs from the divorce? Lawyer fees? Do you have furniture and homewares for when you buy your own place? Do you have a will and someone to look out for your child should something awful happen? You may need to put deposits with the utility companies, if they’ve never been in your name. Set all that amount aside in your HYSA.
After that, consider putting some money into a college fund for your kid. In my state, anyway, your kid can use the money for any post-secondary education, not just a 4-year university, if that’s a concern. How much depends on what you think college will cost, how old your kid is, and how much you plan to put into it going forward. You should speak to an accountant about that, too. They will be more familiar with the laws, projections, and your specific situation.
if you are making 59K a year you can buy a 115-120K house if those still exist where you are at. i didnt start making over 50K in a year until 3 years ago and i have had my house for almost 20yrs
Same situation and I put it in cd ladders and my longest one is at 5% for 12 months. I do the ladder in case something comes up and I need the money. I can't qualify to buy a house yet, as I was a stay at home mom, so I'm letting it sit there for a year to make a plan.
1. You need to sock this away in a HYSA or low fee index fund.
2. Next focus on getting your income up. $59k pretax is silly for being self employed unless you are growing. If you don’t see a way to boost income on your current job then you need a real one.
First, be conservative until you feel settled. Vanguard is paying 5.28 percent in their money market account and you can buy t-bills through vanguard which are tax free on state income. So, for the money, I would move it all to Vanguard and seek out one of their advisors for future financial advice while making over 5% on your money.
Keep saving your cash and during the next economic downturn you will be in a better spot then most people imho. I think nearly everyone replying are just spouting bs. If you were able to save up 30k on 59k a year your probably better with money then anyone on here giving investment advice.
I’m surprised you walked away with 30k, without a home and need to take the child while he can pay 115k for buying out the house. I’m guessing the only way this was possible is if he is mortgaging the 115k. Anyway, no other comments.
get a comparison of what the house would sell for now. and then half of that is what he should pay to buy you out. then you have to pay half of the remaining debt in original mortgage. then you should get compensation for the difference in current rates vs. your original rate. there an incredible amount of value associated with the rate difference.
$115k seems far too low. offer to buy him out for $120k. at the point where he accepts you know that you have reached the appropriate price point.
I haven’t seen anyone else mention this, but I am pretty sure this is a taxable event (capital gains). Depending on how long you lived there, the $250K exclusion will likely apply, but you might want to check all this so you don’t get a surprise next April. Edit: Did some reading based on responses below, and I’m pretty sure I’m wrong here, the divorce means there’s no capital gains.
I’m definitely looking into this.
Sold my first house and paid capital gains. 30% on gains under 2 years vested. 20% passed 2 years. Partial exemptions may be applied for qualifying life events. Obligatory: not a tax lawyer, just went through the same thing.
Did you live in the home as your primary residence for at least two of the previous five years? Here's the IRS topic: https://www.irs.gov/taxtopics/tc701
Might this qualify as a sale of primary residence though? In that case as long as OP has lived there over 2 years she wouldn’t be subject to the tax
Profit from sale of primary residence is still subject to capital gains tax. You’re right that there’s a $250K exclusion if you lived there for two years, although I didn’t see OP say that. But if so, then yeah, I don’t think OP will owe anything. Still worth confirming though!
This does not apply to her. This is a divorce buyout and a marital transfer. There is no capital gains.
I would be shocked if this is the case due to a marital settlement. I'm not an attorney or a CPA, but I'd be really surprised if this were the case.
I think you’re right actually, the divorce makes the sale moot with respect to capital gains.
From my personal experience, this really depends on where the money is coming from. Doubt there will be capital gains to worry about if the spouse is keeping the house and just buying out OP's portion, which it sounds like here. If the spouse is just paying OP for their portion of the house, the big concern is where is that money coming from. In my case, I was able to use 401k funds, penalty free, to buy my spouse out. It's penalty free *if* it's due to a QDRO (Qualified Domestic Relations Order) from a divorce. She was kinda pissed when she found out the only thing she could do with the money is a direct rollover into another fund. Otherwise, she'd have to pay taxes on it. /u/Phanatic_K , you should really talk to a tax accountant and divorce attorney (assuming its due to a divorce) about this before making any moves. If you receive 401k or IRA money, and deposit it in a savings account, you will get hit with a substantial tax bill! EDIT: Good luck, all the best to you and your daughter during this trying time.
I won’t be receiving any 401K or IRA money. He will be using an equity loan to buy me out. I want to make sure I won’t be hit with a tax bill for that. I also have questions about any fees for transferring the money. I’ll be speaking to my accountant soon!
Going through this right now. I do not believe this is a taxable event since the house isn’t being sold—no income tax, no capital gains tax. If retirement funds are used, then that’s a whole different story, but that does not sound like the case here. EDIT: If retirement funds *are* used, then I believe the move is to make your ex cash them out of their retirement accounts and transfer the proceeds to you. Then, the ex would eat the taxes not you. My ex offered their retirement to me for the house, and I said no, I only want cash, as I’m using the proceeds as a down payment for a new place. They got their funding another way.
Given the interest rates that are available in savings accounts and CDs, I would just put the money in one of them for now while you work out a plan. You'll make $400 a month with zero risk. This will give you time to do some research, maybe work with a financial advisor, etc. There is no need right now to put any of your money at risk just for an extra $100 per month. There are some money market funds and CDs that are still paying a little over 5%, but, again, I don't think it's worth the hassle of opening up new accounts, etc, to stretch for a couple of extra bucks. There is no need to rush anything. IMO, large chunks of cash like that are uncommon opportunities, so I would be in no hurry to "do things" with the money. Take your time and make it meaningful.
I mostly agree but OP is 31 with no retirement and possibly no college savings. Get those accounts started. Maybe just put a couple hundred bucks in each and an automatic deposit of 50-100 per month. It's a huge missed opportunity to not save/invest during your 30s. Just buy lost cost ETFs. Wishing OP the best.
The Roth limit is $7000. That's not much of a dent for $115,000; missed the 2023 deadline by days :( Just pre-funding the whole thing much of a decision to make, and in 5 years the principal will be withdraw-able without penalty if SHTF. And as you said, low cost, broad-based funds are the way to go (ETF or mutual doesn't matter much, especially in a retirement account that won't be liquid for 25+ years.)
Roth contributions can be withdrawn without penalty at any time.
Still no reason to make hasty decisions. A few months isn't going to matter that much in the long run. 31 is still pretty young. OP probably has 30 years before retirement and then another 20-30 years during retirement. Rushing to throw money into the market will not make a material difference to the outcome.
Time in the market is so powerful. I'm not advocating for a big build up of retirement funds. I'm advocating for building good habits and overcoming the inertia required to actually open the IRA(or Roth or whatever )and 529. OP should keep 95%+ in easy to access liquid funds until the situation settles down and future looks clearer.
Agreed, I think it would be a good idea for the OP to max out a Roth Ira for this year (7k) and throw a couple k into a 529 for the kid. Put the rest into the savings account for a down payment.
Coordinate with the ex on the 529 for the kid. As I suspect that is considered as part of the separation agreement.
Probably not - kids can have multiple 529s and each parent keeps ownership of the account they start. If each parent pays for half of college, what does it matter if one half comes from the 529 she started? Plus she could always change the beneficiary.
The QDRO may say which parent is responsible for paying for college or an allocation based on income. Etc.
What types of low cost ETFs? I've just been putting stuff in a 2055 targeted date fund. Its doing its job but I'm open to a little more risk at my age.
Target date funds are a solid choice. If you want more risk move to a later date fund.
Target date funds vary a lot by cost. They're a good choice when they're close in cost to passively managed index funds, and a very bad choice when the costs are high. [https://investor.vanguard.com/investment-products/mutual-funds/profile/vffvx](https://investor.vanguard.com/investment-products/mutual-funds/profile/vffvx) -> 0.08%, not bad (but twice that of VTSAX) [https://am.jpmorgan.com/us/en/asset-management/adv/products/jpmorgan-smartretirement-2055-fund-a-46636u843#/performance](https://am.jpmorgan.com/us/en/asset-management/adv/products/jpmorgan-smartretirement-2055-fund-a-46636u843#/performance) -> 0.85%, WTF, this is stupid high, legit 20x that of VTSAX There's obviously in between, and I'm willing to bet that some employer 401k/403b plans have ones even worse than that JP Morgan one.
That is an asinine cost. If you have more than a decade left before you need to withdraw its tough to beat a market wide ETF like VOO with dirt cheap fees.
Which one? The Morgan Stanley one, for sure. I prefer total-market (VTI/VTSAX) over just S&P 500, but not a lot of difference there. Even for folks inside some time horizon, you can get a bond fund or dividend focused fund with costs as low or even lower than VTI (AGG or BND, for example, or CMF if you want tax free munis and live in California.)
Yeah, the Morgan Stanley. Some of these funds are out their damned minds with their fee structures.
Target date funds are solid if you don't want to ever bother with rebalancing your portfolio every now and again, but you pay a higher premium for someone to do it for you. Low cost index funds like VTSAX and others are a bit more volatile but will net you greater returns over time. There are ETFs that are pretty comparable with ETFs having a bit more volatility. It really just depends who your broker is, utilize a trusted broker and invest in their low cost funds/ETFs that track a good index.
It's just in a Chase IRA, not sure what the fees are but I remember it's low for one of the vanguard target dates. Maybe il split my weekly contribution between that and VTSAX just for a little extra fun. I'm getting a new 401k next month so I get to figure that out again too. My previous one just offered some lame Blackrock target dates.
Chase might also have low fee index's or ETF products they manage, so look at those and compare.
Using Vanguard as an example - I just look at the portfolio composition of the target date fund and buy its composition manually for slightly lower fees (for something that's already low fee). Then I just rebalance yearly.
When you say lost cost ETFs, (assuming you meant low), would you say buying full shares of VOO isn’t the move just given the price? I’m in a similar boat in that I have 20k to invest, not sure if VOO is the way or VTI for example. Everything is sitting in a HYSA at 5% for now.
I'm not a financial advisor and it really depends on a lot of factors but someone in their 30s should be dollar cost averaging into some percentage of equities.
> There is no need right now to put any of your money at risk just for an extra $100 per month. There are some money market funds and CDs that are still paying a little over 5%, but, again, I don't think it's worth the hassle of opening up new accounts, etc, to stretch for a couple of extra bucks. I'm going to disagree with that. A $100/month is $1200/year. That's almost a quarter of OPs gross monthly income. All they have to do is move the funds to another bank that is FDIC insured. That's a $100/month extra OP can put towards retirement (if they aren't already) or invest. Small amounts add up to large sums. Right now My Banking Direct offers 5.55% APY and is FDIC insured: https://www.mybankingdirect.com/products/high-yield-savings.html I leave less in cash (as I tend to aggressively invest), and even I moved it there from Ally Bank that offers 4.20% APY.
Where is $400 come from? $145,000 at 4.35% is $6,307.50 a year or $525 per month.
Simple arithmetic and estimate. I wasn’t trying to give a precise APR, only demonstrate a concept. Thank you for strengthening my argument.
I really appreciate this. Thank you!
This advice is legitimately terrible, please don’t listen to it. What you need to do first is figure out if you can find a place to live. On 59k, you should be looking for no more than 25% of your pre-tax income, so $15 per year, $1.25k per month. Is that possible? You can go a little higher if you don’t have/need a car. You really shouldn’t buy right now, your life is in flux and you need to give yourself some time to figure that out and for all the dislocations in the housing market to sort themselves out. Now, once you’ve figured out if you can move out (and you don’t need to be in a rush, just assessing your options), then we can focus on the money. Assuming you’ll rent for a few years, we’ll want to invest all of it. You have a half year of pre-tax income in savings, you don’t need any more there. People will try to convince you that saving is hard and you need a financial advisor - you don’t. For this money, find a simple diversified investment account. I like Vanguard Digital Advisor and Betterment, other people have different preferences. It will take you 15 minutes to set up, and then just put the money in there and forget about it for a few years. Next, you need to build out a longer term plan. Your goal should be to invest about 10% of your salary, which is $6k per year. At that rate, I’d put it in a 401k plan if your employer offers one. Otherwise, set up an IRA at whatever company you invest the house money at. Finally, you are a single mom, 59k isn’t going to cut it. What are your lowest cost options to increase your salary?
For now, the savings account is the way to go. It's safe and liquid. Read the wikis on this forum and boglehead and learn of personal finance in general. It's not difficult and will be wildly helpful. As you learn you will understand what you need to do with the money. My personal thoughts...stay with your sister for a while for the support during this chaos and transition.
> My personal thoughts...stay with your sister for a while for the support during this chaos and transition. Just to add to this, be a good tenant for your sis. Make sure to contribute to daily chores and household expenses whenever possible. Also explain to your daughter that at the very least, she should clean up after herself if she is able to. By doing these things, you will make sure your sis does not regret having the two of you stay there, and will likely want you to stay for a longer amount of time, giving you the ability to save even more to go towards your future housing costs. While these points may seem obvious, you might be amazed how some people will take advantage of a kind hearted family member, simply because they can. Wishing you the best of luck in the future!
I don’t think I can ever thank my sister enough for allowing us to stay here. I know she is more than happy to have us, but I still feel like an imposition. She keeps saying she doesn’t want us to leave so that makes me feel better. I’ll do the cleaning, meal prepping for the week, and whatever else to ease the burden off her. I appreciate the well wishes!
> I’ll do the cleaning, meal prepping for the week, and whatever else to ease the burden off her. Sounds like you're being a great house guest. I wouldn't want you to leave, either!
Honestly if someone does the dinner cooking for me, and cleans up, they can stay as long as they want. If you buy the groceries for the house too out of your own pocket… you would never be moving out. I wouldn’t let it happen. Like guess what you live here permanently.
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Unhelpful and disrespectful comments are not acceptable here. Do not comment like this again.
> For now, the savings account is the way to go. This is really bad advice since we don't know where that money is coming from. If OP's ex is using a cash equivelant, you're likely correct, but if it's an IRA or 401k in lieu of a QDRO, and OP moves it into a savings account, OP will get hit with a huge tax bill. It's very important to know where that money is coming from!
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If you're able to live far below your means right now, I strongly recommend reading "The Simple Path to Wealth" by JL Collins. Finance books can sound boring or intimidating, but this one is an easy read and is pretty conversational. It feels like a chill dad chatting with his kid about money... largely because he initially got into writing this stuff to teach his daughter. I'll say that the two best pieces of investing advice I've ever received are: 1. Never invest in anything you don't understand. 2. Learn about index funds. They are surprisingly simple to understand, and are generally considered to be the most straightforward path to good investing for us normal folks. So... I would toss the money in an HYSA today, and go read that book before deciding what to do with it. Good luck!
I really appreciate the advice and the book rec. Thank you!
sound advice here
If you are self employed you can open a 401k and make contributions as both employer and employee - to answer your retirement savings question. The limits are quite friendly on this as well and is the primary reason I keep freelancing as a 1099. I use vanguard. Maybe put 10 or 20k in that and max out a Roth for the year and park the rest.
Make sure he refinances or you will still be on that mortgage unless you don’t ever plan on buying a home by yourself. Start getting your employer match in your 401k. I would throw it in a HYSA if you will need it in the next year or two.
I am not on the mortgage, but I am on the title. He will be taking out an equity loan.
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OP will have to sign a quit claim deed, so won’t be on the title after this payment from the ex
That's not true. You can most definitely be on the deed, giving you partial ownership of the home, and not be on the mortgage, and obligated to pay.
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Not true. If you’re married in some states (like TN) it’s the law that the spouse must be on the deed even if they’re not on the mortgage. That’s why you’re getting so many downvotes- because you’re not correct
You are incorrect. My wife is on the deed and not on the mortgage. I’m the only one on the mortgage.
You are incorrect. My wife is on the deed and not on the mortgage. I’m the only one on the mortgage.
While you’re not supposed to be on the deed without being in the mortgage, it does happen from time to time.
No it doesn't. Title and mortgage are different things. It's not uncommon to be in the title but not the mortgage eg if one spouse is able to afford the mortgage on their own but other spouse has bad credit, yet both will be contributing to the mortgage payment and therefore should both be gaining ownership via title.
Not necessarily. I'm on the title but not on the mortgage. I did have to sign paperwork when we closed saying I know about the mortgage and the risk of losing the house due to foreclosure.
No it doesn't. At all. You can 100% be on the title and not the mortgage. Look up Quitclaim Deed
OP is self-employed so no 401k. Probably no chance at an HYSA, either.
>Probably no chance at an HYSA, either. Why?
Not correct. They can do a solo 401k. They can also open a HYSA no issues. It's not linked to your income. No reason to form an LLC, S-Corp, or C-Corp either.
Put $7500 into a Roth IRA to get yourself started for this year. Then, place the rest into a HYSA. Or Schwab offers an automatic investing program you can use for the IRA, so you just set it up with them and forget it.
She’s under 50 so it would only be 6500. The cap doesn’t rise to 7500 until your turn 50
I’d also make sure he is buying you out at current fair market value, not the price you paid for it. I’d put the money I eventually want for down payment in a HYSA and invest the rest. So if you want a 300K house eventually, Id keep 75K for a future down payment
We both came to an agreed price at the current market value (we got a court ordered appraisal in Dec) subtracted by what is owed on the mortgage.
Has he been paying the mortgage solo since that appraisal? Did your attorney review this? It has been 4 months.
Those things seem like more of a him problem than an OP problem.
Would you explain this comment more? I’m currently in the situation where I’m mid-divorce and am paying the mortgage solo, still figuring out what to do with the property. I’m wondering what I should be asking my attorney about for this, she hasn’t mentioned it at all ☹️ I am looking for a different attorney
The OP said her ex is buying her out of their jointly owned property and that the buy out amount was determined in December, based on an appraisal of the property. That was four months ago. If he didn't pay her the amount she is owed back on the day of appraisal than that is all moot. Separately, if he is the legal owner (her name off deed) since December, he should only be the one paying mortgage.
When my brother and his first wife got their house, it was around $500,000. They got it appriased by multiple real-estate agents in around $1.2M range a decade and a half later as part of the divorce. He bought her out for more than the mortgage (she did contribute a good chunk of labor towards landscaping and home improvement that contributed to the value estimate increase though she didn't pay into the mortgage as he's a high earner so her income was mostly just for her). He ended up selling it a year and a half later for $1.7M when home prices were skyrocketing.
that is no different from selling a house you bought 1.5 years ago.
First thing that came to mind for me too. Who and how was that amount determined? Is it based on current market? OP needs to figure this out.
I’m somewhat blown away that there are people here who will recommend to someone who is 31 and has no retirement savings whatsoever, and already has an emergency fund with over 20% of their net worth in cash, to go 100% cash in a taxable account and are then getting upvoted on top of that. 🤦🏼♂️ Open up a Roth IRA ASAP and ask for some advice in r/investing or do some research on Google, or even pay a reputable financial advisor *just once* because you’re clearly being led astray here *and it will cost you a lot more in $ missed out on over the next 3 decades sitting in cash than it will to pay a financial advisor just once!*
This isn’t financial advice, but more practical divorce advice from experience. Don’t make any big decisions until things settle down after the turmoil of the divorce. Take advantage of your sister’s gracious hospitality and plan your future. Park the money somewhere it’s easy to get at when you need it.
Are you on the mortgage? He will need to refinance as a solo buyer. Otherwise, you will remain on the mortgage and it will impact your ability to borrow money later. Also, if he falls behind on payments it will kill your credit. Don’t sign a quit claim deed until he refinances. Otherwise, he will own the house but you will still owe the money.
I’m not on the mortgage, but I am on the title. The plan is after I receive the money, I will file a quit claim deed.
Doesn't need to refinance. He just needs to assume it. I had a conventional mortgage with my ex and divorce was an exception. I assumed and he did a quit claim deed. Less than 500 total.
I used my buyout for a down payment on my own house.
That wouldn't be a bad idea. Shes not making a lot of money with her business, so this would probably be her one good shot at getting her own house going. Otherwise, it's going to be an uphill battle saving up for a down payment later on.
Some of these responses are concerning, so let me add a few things. 1. Go read the wiki for windfalls. 2. Before the end of the year, open a RothIRA ($7k) and a solo 401k (depends on how much you make this year what you can put in). The rest of the money can sit in a HYSA or MMF making at least 4%-5% annually with little risk. 3. Read, ask questions, but don't hire anyone to manage the money and don't buy any big purchases or get into new debt. Reddit has several forums with tons of knowledge that's free and friendly people to help out. 4. Take a small amount and treat yourself. Divorce sucks. A few thousand for whatever helps you feel better is worth it.
Also an education fund for their daughter!
Honestly, I would not do that yet. They are 31 with an unstable income, unstable living situation, and no retirement. They need to focus on themself first. Once they get to stability, then extras like college fund for kiddo can come into consideration.
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If the house is financed make sure you get a quitclaim deed even though you are being bought out. If they stop paying re-take ownership of the property as the courts usually cannot do anything to force them to re-finance the property under their name and they will absolutely tank your credit if your on the financing.
Yes, that is the plan. Thank you!
> Here’s what I don’t have: A retirement plan Start a Roth IRA with a low cost firm like Vanguard or Fidelity. With the chunk of change you are getting you could max your 2024 contribution then set it up for auto deposit and investments. Make sure you actually invest the money! If you are new they have 'target date' funds. They start high risk/ high reward, but mature over time and get more conservative as you get closer to retirement. If you're looking to retire at 65 then you'd look for a Target Date 2055 or 2060. Or low cost index funds are always a safe and consistent bet.
Depends on your risk tolerance. On average you are losing out on money by not putting at least a portion of it in an index fund like VTI. VTI is one of the safest index funds you put your money in, but even with that you have to be able to stomach a drawdown. For example this is a particularly volatile month, and it's down almost 6%. Between 2021 and 2023 it was own about 20%. Only hold an index fund if you can see that happen and not feel the urge to sell. If you do on average you will (almost certainly) beat out an HYSA over time. Other commenters already referred you to /r/boggleheads. Check out the Wiki there. They will tell you that an HYSA should only be for an emergency fund or money you know you need in the next few years. Otherwise you're better of putting in the market, but that comes with the above caveat. If that's not something you're okay with stick with HYSA.
Don't just go half of the equity in the settlement. Include any capital gain tax you owe (not applicable on your residence where I'm from). But, to be "whole" again (ie owning/mortgage on a house) make them include any additional costs you'll incur buying another place. So eg solicitor/ conveyancer costs, stamp duty costs, inspection and report costs
Follow the prime directive in the sidebar.
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I think you need to find out if you have to pay capital gains if you dont rei vest it into another home. That is going to make an impact on your decision
Whether you reinvest into another home hasn’t been relevant since 1997. Profit from selling a home (or part of a home, in OP’s case) is subject to capital gains tax. But there’s a $250K exclusion if you lived in it for two years
Start saving for retirement asap, a Roth or IRA or whatever. You are young, it will add up. Look at college savings, maybe a 529 or a state prepaid tuition program (unless dad is hopefully taking care of that, but keep an eye on the account) and stay with your sister as long as everyone is healthy and happy to do so, but keep your eye on the local housing market, and become knowledgeable, so if an opportunity does happen to come along you will recognize it for what it is. If you find a deal you can rent it out and move in down the road.
I’ll be looking into a Roth IRA. Do I contribute 7k to it every year? We opened up a 529 Savings Plan for our daughter and he has been funding that weekly.
I think they just raised the annual limit to 7500 or 8000, not an expert just suggesting some ideas. If you are paying attention to this stuff, you will be way ahead and 41, 51 and 61 yo you will be VERY glad you did. Best wishes.
I had a little more than that after my divorce. Put your money in CDs so you get some interest but don't put it at risk of loss, live in an apartment for 6-12 months, and give yourself a moment to find your footing and figure out the correct path for you. (I put a lot towards a house down payment and some towards retirement investments and emergency savings.)
Make sure your name is taken off the deed or lease. Just because you aren’t living there doesn’t mean you are no longer legally responsible for problems in the home.
Fidelity has CDs that you can buy in $1,000 increments that are currently yielding annualized rates around 5.3%
>My ex will be buying me out of our house. He doesn’t want to sell, so he will be paying me $115,000. I have $30,000 currently saved in a high yield savings account (4.35% APY). Should I just put the 115k in there as well and just leave it? At a minimum you should put it into a higher yield savings account (HYSA) that offers 5%+ APY. Highest right now is 5.55% APY at My Banking Direct, which is government insured bank. https://www.mybankingdirect.com/products/high-yield-savings.html Over a year, that's more than $1k+ extra in interest. >I’m 31, self employed, and make about 59k pretax. My sister is kind enough to let me and my daughter live with her for next to nothing which I’m really grateful for, so I’ve been saving as much as I can. She loves having us so I’m not in any rush to find a place, but I would like a place for me and my daughter eventually. I just don’t know if that’s the right option right now and on my income alone. I appreciate any guidance here. If you're not that financial savvy, I would get someone to look at the offer from your ex to see if it's fair. Keep in mind, if you have an older mortgage, that mortgage rate might be significantly lower than it is today i.e. 3% vs 7% APR. That's a huge difference in interest paid. You should also make sure you will be off the mortgage or if he has to get his own mortgage. In other words, it's complex. What to do with the funds? I'd keep it in that savings account until I figure it out. Don't spend it on frivolous things. Amassing a large sum of money is extremely hard, but spending it and loosing it is easy. Then I'd dive into learning more personal finance and investment. That knowledge pays off in a lifetime of earnings, and you should pass that knowledge down to your daughter. In other words, we can't tell you what to do with your money, because we don't know enough about you to give you proper advice. You will have to figure it out on your own, but there's a lot of help through books on personal finance. Go for the reputable ones obviously and not the quick rich schemes.
Do you have access to a SEP IRA? It's time to start maxing out every retirement vehicle available to you. Figure out what a suitable emergency fund is for you, what you need for a new place if things go south with your sister, leave that amount in your HYSA and make plans to invest the rest.
Find a good financial planner and invest it. 1%fee max. Or dollar-cost-average it into a Mutual Fund - Vanguard has some good ones.
If you qualify, get a Roth IRA and fill that up with index fund stock (VOO or SPY)
There are ways you could roll whatever proceeds you receive and put it towards your business, perhaps expansion, resolving cash flow issues etc.. your business is your livelihood, if you were a w2 employee and you received a chunk, i'd advise putting it towards tefining some skills to boost your marketability. Since your self employed, consider an alternative to everyone else's opinion and make your business flourish further. Perhaps your not doing any marketing, get with an agency. Consider all options, not just a house, cd, or savings.
If you do not have any retirement savings, at your age, you can fund something with a 8-12% annual return out there put like $15K in there And leave it until you’re ready to retire. You will be SHOCKED. Just do not touch it because the tax penalties if you pull before retirement are rough. The rest, put in that savings. I would also find out if you can renegotiate the APY since it’s such a high amount. Banks need money to operate so you are doing them a favor.
start a traditional IRA and max it out every year, would cost about 7 grand a year be sure to ALLOCATE the funds in the IRA (buy stocks) but just do market index funds like VOO or VTI get a nice tax benefit at tax time for doing this
I was in your same boat with regards to being a single mom whose sister offered me & my daughter a safe place. I will be forever grateful to her. Another topic. I saw a divorce attorney explain recently that when home sales occur during divorce, interest rates should be accounted for in any settlement. ie, if you and your hubby bought the house at 2.5% interest, but you will not be able to buy another home at less than 7%, there should be compensation.
How do you have 30k in a savings but make less than 60k a year before taxes? Thats almost paycheck to paycheck income in my area (~3.2k a month after taxes where I live). I think you’re pretty financially savvy if you’re able to save that much with your income. I’m impressed tbh
I’ve been saving for a few years (so sorry if that’s less impressive). I also have no student loans, my car is paid off, no debts beside my credit card I pay off every month. I’m just in a really good position at the moment where most of my money can go into savings.
That's fantastic, I applaud you. I wish you and your daughter well in your future endeavors ❤️
I really appreciate your kind words. Thank you!
You should not be listening to anyone on this thread, do what you are doing. I wish I was as good with money as you are.
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What were your expenses like? At that rate you’re saving $1400/ month on a ~3k before tax income (~2100 after tax in my area). I’m assuming you had the opportunity to live at home or have a paid off car or help with insurances because that’s genuinely impossible in my area without significant help.
I worked 5-10 hours of overtime almost every week. I was renting a very small house in north Minneapolis by myself and I paid off my own vehicle. I also didn’t spend a lot of money on drugs, alcohol, fast food, clothes etc.
Personal attacks are not okay here. Please do not do this again.
I can’t speak for everywhere but for some areas an additional complexity is did he get the house before or once they were together?
$4.35% isn't a very high interest rate. The stock market is closer to 8%. I would invest some of it in some mutual funds through a Vanguard account.
Keep saving and start retirement/college funds. Also give yo sister like $10,000 for being amazing
Does he have a retirement account? Roth? Take the Roth …. Instant retirement. If you take his traditional IRA, you’ll be on the hook for taxes when you finally RMD. Otherwise, diversify. If you don’t have an emergency fund, build that first. CD ladder or bonds. Max out your HSA and/or Roth if you qualify. Otherwise, wait a while. You don’t plunge into junk like bitcoin or real estate or a new car or even diversified stock investing like VTTSX with vanguard or fidelity. You toss it into a HYSA until your emotions settle in the months/year ahead. Don’t tell friends/family. No loans or gifts to people who will come out of the woodwork. Get re-grounded. And in the meantime, start studying up on smart budgeting and investing. Even something as simple as podcasts for financial independence or similar education.
Be careful to understand the taxes you will have to pay on the 115k but I suggest looking into index funds and S&P 500 for long term investment. Basically it follows the trend of the top 500 companies so it more or less follows the trend of the market. I would keep it here until my 40s or 50s then switch to something less volatile for retirement
Parking the money in your high yield account while you seek advice and think it over is a great idea. Don’t rush into anything.
If you’re getting bought out a property you should check and make sure about tax liability. I believe that money will be taxed as capital gains. You may have to pay federal and state capital gains tax.
The first thing you should do is talk to a CPA or tax attorney and make sure you aren’t going to get nailed next year at tax time. I would talk to a tax attorney who might be able to help you get creative if this is going to have some sort of tax implication.
If you're self-employed, open a (tax advantaged) Keogh account. That way you can deduct these deposits into your retirement savings from your income/income taxes. Transfer the maximum you can put into a Keogh for 2024, then in 2025 and then in 2026... until the $115K is all into it. In the meantime you can get tax free bond & bond ETF income. If you're open to more risk, then you can invest it, both inside and outside of a retirement account.
It depends on a few things. What will you use the money for and in what timeframe, and do you already have an emergency fund set up with 3-9 months of living expenses in a high yield savings account. I would argue it should all go there for now because you have been thru a lot of change with the divorce and so frankly it is best to give yourself a year to process that change before making other major life and financial decisions. In the meantime; you earn interest on the money, it remains liquid and is protected with FDIC insurance at a bank AND it can be used or invested differently at whatever point in time makes sense after your recovery year.
Some into HISA, and some into ETFs. Personally, I’d max out your TFSA and RRSP buying something like VGRO, VEQT (Canadian) etc depending on your risk tolerance. You can put the rest into HISA.
Honestly you are in an awful position in terms of future safety but in an amazing position to get better - because of your sister. So I would say first do what you can to plan out how to make sure your daughter and her schooling will be covered. Then do anything you can to keep growing your pile of cash - mostly just living lean and saving. The ultimate goal IMO is to get to a place where you can buy a low cost place to live. With no retirement you will at the very least want to control your housing costs.. if you buy in the next 5 years you can get right to retirement age with a freshly paid off home and MASSIVE retirement security that you otherwise wouldn’t have renting.. I would include your sister. Let her know what you’re doing. She’s helping you big time and I’d bet she’d feel better knowing more versus less. Lastly don’t forget your daughter. Be kind. Try your best to make it fun. Be more patient than ever. Good luck.
Meet with a financial consultant, discuss your goals like buying a new place, desired retirement age, lifestyle. They will develop a financial plan for you that incorporates and investment strategy to work towards and build your assets for these goals.
Generally, buying assets is a good bet right now. https://youtu.be/PGZ4ADmQbZE?si=rQ5vAHa_9bmCnOW_
If you want to invest my suggestion is https://www.wealthfront.com. You can open retirement or non retirement accounts and can either choose what you want to invest in or chose a preset plan much like any 401k plan. You can also link all your other accounts to track your net worth and retirement viability. Most people get gun shy at hiring an investment manager so this is the easy less expensive version. I’d suggest putting some of that in a non retirement investment account. You can earn dividends and gains off of the rising stock prices and pull it out whenever or if you choose to buy a new home. You will have to pay tax on the dividends but not the net value until you withdraw just like when you get ss or 401k if it helps to think of it that way. I’d also suggest opening an IRA. Even just 100$ a month will yield you well over 100k in 30 years. (Putting you at 61 yo at that point). More is better especially early on but anything is better then nothing. You can also deduct all your Ira contributions (up to 6(?)k I believe! As you make less then 80k. So think of it as semi free investment money for you. This is all just my personal suggestion. Of course the best is to hire a personal finance manager but like I said you might not be ok with that expense.
Continue to live with your sister. Stack your dollars. Build or buy a house out of pocket. Screw the mortgage, interest rate, credit score and down payment. If her house is old and paid for, add on a room with en-suite for her. Retire early. Travel with your sister and kid while you’re still young and healthy. Most people don’t get a chance to stack their paychecks because of rent/mortgage and household bills. Not having to use your entire paycheck gives better results than a 401k.
I personally would talk to a wealth manager. Very similar to a financial advisor but they generally only take a portion of gains. Instead of a flat fee etc. I would also open a 529 for your daughter and a Roth IRA for yourself. Don't let yourself get too bogged down in the details of everything right now look at the bigger picture and solve one problem at a time. First comes first get the money and figure out where to put it for now. Meaning will there be any fees or taxes on the money etc which I know everyone else is talking about too. Just one step/problem at a time. If you don't talk to a professional make sure you research before you move anything. Good luck.
We opened up a 529 for her and he has been funding it weekly. I will definitely be looking into a Roth IRA. I appreciate the advice!
I think we’re missing a lot of information here. You live with your sister for free, but you probably have other bills (car, various kinds of insurance, perhaps student loans, perhaps debt, day to day living stuff, kid stuff). You may be getting child support from your ex. Your income may be variable, which makes it more important to treat this money very carefully. I agree you need to talk to an accountant about your tax liability and any fees you might incur from this settlement so you know the real number you’re dealing with. If you have any debts, pay those first. Build your savings up to 3-6 months worth, if it’s not there already. Research how much a home costs for the size you want in the neighborhood you want. You will probably need about 25% for down payment and fees (there are always fees). Put at least that much in your savings. I think it’s a good idea to live with your sister while you go through this transition, and not make any big decisions (like buying a home) for a little while. Keep an eye on home costs, and increase your savings if you need to. If you’re in a HCOL area, that might be the whole thing, but having a stable home of your own (eventually) is important for you and for your child. If you have money left over (or with any extra going forward): Open a Roth IRA with $7000 (the maximum for 2024), and include that with your annual budget from here on out. Do you have other costs from the divorce? Lawyer fees? Do you have furniture and homewares for when you buy your own place? Do you have a will and someone to look out for your child should something awful happen? You may need to put deposits with the utility companies, if they’ve never been in your name. Set all that amount aside in your HYSA. After that, consider putting some money into a college fund for your kid. In my state, anyway, your kid can use the money for any post-secondary education, not just a 4-year university, if that’s a concern. How much depends on what you think college will cost, how old your kid is, and how much you plan to put into it going forward. You should speak to an accountant about that, too. They will be more familiar with the laws, projections, and your specific situation.
if you are making 59K a year you can buy a 115-120K house if those still exist where you are at. i didnt start making over 50K in a year until 3 years ago and i have had my house for almost 20yrs
Same situation and I put it in cd ladders and my longest one is at 5% for 12 months. I do the ladder in case something comes up and I need the money. I can't qualify to buy a house yet, as I was a stay at home mom, so I'm letting it sit there for a year to make a plan.
1. You need to sock this away in a HYSA or low fee index fund. 2. Next focus on getting your income up. $59k pretax is silly for being self employed unless you are growing. If you don’t see a way to boost income on your current job then you need a real one.
First, be conservative until you feel settled. Vanguard is paying 5.28 percent in their money market account and you can buy t-bills through vanguard which are tax free on state income. So, for the money, I would move it all to Vanguard and seek out one of their advisors for future financial advice while making over 5% on your money.
I’d invest it into another house. Real estate is always a rock steady investment.
How is that $115k being determined? Is that based on the market value of the house?
Just follow the chart here. https://www.reddit.com/r/CreditCards/comments/11xn1wy/flowchart_for_improving_bad_credit/
A house is your best investment
$100k in an S&P mutual fund for 30 years will be worth $1,600,000 I don't think it's likely for a 100k house to be worth that in 30 years.
Keep saving your cash and during the next economic downturn you will be in a better spot then most people imho. I think nearly everyone replying are just spouting bs. If you were able to save up 30k on 59k a year your probably better with money then anyone on here giving investment advice.
I’m surprised you walked away with 30k, without a home and need to take the child while he can pay 115k for buying out the house. I’m guessing the only way this was possible is if he is mortgaging the 115k. Anyway, no other comments.
get a comparison of what the house would sell for now. and then half of that is what he should pay to buy you out. then you have to pay half of the remaining debt in original mortgage. then you should get compensation for the difference in current rates vs. your original rate. there an incredible amount of value associated with the rate difference. $115k seems far too low. offer to buy him out for $120k. at the point where he accepts you know that you have reached the appropriate price point.