Many people who are blessed with financial security and receive a $100,000 windfall would look for a hot stock to buy. But there are lots of smart ways to put the money to use to improve your life that have nothing to do with investing.
Of course, people with high-interest-rate debt or insufficient retirement savings should use an unexpected windfall to address those issues first. But assuming you’ve got the foundational stuff covered, here’s what financial-planning experts recommend:
Smart Giving
Individuals should take “a step back and think about how to impact the organizations and people you care about,” UBS Private Wealth advisor Aileen Farrell Schruth suggests. That may lead you to give to charity. While writing a $100,000 check is nice, there are smarter ways to give, Schruth says. For example, you could consider using a windfall to set up a donor-advised fund, or DAF, which has multiple benefits.
First, contributing $100,000 to a DAF enables you to get an immediate tax benefit, a perk that can be especially valuable if you are currently in your high-earning years. This can also be a smart move if you know you want to make regular charitable donations well into retirement, when the income-tax deductions from your charitable giving might be less potent, says Schruth, who is based in New York.
Investors can contribute other assets, such as stocks, to a DAF, not just cash. Plus, money invested in the DAF grows tax free, which means you can take your time deciding which charities you want to support and when.
College Help
Given how pricey tuition is, some investors may want to help children and grandchildren pay for college. A 529 plan is an ideal solution, and this savings vehicle will soon come with new benefits thanks to recent changes enacted by Congress.
Here’s why: Historically, some investors have shied away from putting too much money in 529 plans for fear of ending up with unspent funds; money taken from a 529 plan and used for nonqualified education expenses can be subject to a 10% penalty plus federal, state, and local taxes. But starting Jan. 1, 529-plan holders can roll over up to $35,000 of money held in long-term qualified tuition programs into a Roth IRA.
“For folks who are afraid of overfunding a 529 plan, this makes that less concerning to them,” says David Peterson, head of wealth planning at Fidelity Investments.
There are a few caveats. The 529 plan has to have been in place for 15 years before it is eligible for a rollover, and contributions and earnings from the five years leading up to the conversion are ineligible. Still, it’s a great way to put a $100,000 windfall to good use. You can help the grandkids get an education and jump-start their retirement savings.
Wedding Bells and Bonds
Some investors may want to set aside their windfall for big-ticket items they know they’ll have to shell out for in a few years, such as replacing a roof, renovating a kitchen, or paying for a wedding. As every homeowner knows, renovation work can add up quickly. And weddings, well, the sky’s the limit.
With today’s high interest rates, investors could put that money in a high-yield savings account. Online bank
SoFi Technologies
(ticker: SOFI), to pick one example, currently offers a savings account with a 4.5% annual percentage yield, or APY. Investors could also consider government bonds, says Majdah alQuhtani, an advisor at Altus Wealth Management and affiliated with Cetera Advisor Networks.
“If you have something very short term, I’d say buy a one- or two-year T-bill,” says alQuhtani, who is based in Doylestown, Pa. The yield on a one-year Treasury bill recently topped 5.5%, while the 10-year Treasury note reached 4.801%, its highest yield since August 2007. Investors may want to lock in these rates now; they could even see some appreciation if rates fall, notes alQuhtani.
Time to Splurge
If you’ve funded all the goals on your financial plan, then you could treat yourself. For example, you could take a trans-Atlantic cruise on the Queen Mary 2. This 1,132-foot ship regularly sails between New York and Southampton, England. Sports aficionados may want to attend the World Cup final match in 2026. Yes, it’s three years away, and tickets aren’t on sale yet, but it’s never too early to make plans. Or you could take your favorite Taylor Swift fan to see the music sensation as she takes her Eras tour abroad.
Really, the list of potential indulgences is endless. And it’s more than just fun daydreaming. “Oftentimes people can become so obsessed with planning for the future that they forget about living in the present,” says Adam Fuller, a principal at Homrich Berg, an Atlanta-based wealth management firm.
Thinking about how you would put $100,000 to use is an opportunity to identify what’s truly important to you. And that’s an exercise well worth undertaking.
Write to Andrew Welsch at [email protected]
Read the full article here
