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What Would You Do With $10,000?
By JLP | July 13, 2007
I saw this question posted over the Gerri’s Top Tips:
I am a 26-year-old professional. My parents just generously gave me $10,000. I want to use this money to begin saving for my retirement. I will contribute $4,000 to my Roth IRA. Any advice on what to do with the remaining $6,000?
- Meghan, California
I think it is great that she wants to start saving for retirement as long as she doesn’t currently have credit card debt or other expensive debt. The question is short on specifics, so we’ll assume that her finances are in order. Something tells me that they aren’t since she’s 26 and hasn’t yet started saving for retirement. However, we’ll assume that she does.
Her idea got me to thinking. If she used her parent’s gift as a springboard to her retirement plan and stuck to it, she could amass over $1.9 million (or $593,000 after inflation) by the time she was 65 if the money were able to grow at 10% per year and she was diligent in adding $4,000 each year (you can see for yourself by downloading the Roth IRA Spreadsheet I created for this post). Granted, $593,000 isn’t exactly a posh retirement, but it’s better than nothing and I’m sure she’ll be able to save more as she gets older and earns more money. Anyhow, that $10,000 turns out to be a very generous gift if it’s used properly.
What would YOU do with $10,000?
Topics: Retirement Planning |
July 13th, 2007 at 4:54 pm
$4000 for this year’s Roth and put the rest in a 6 month CD for next year’s? Use that extra $1000 for an emergency fund or to reach company match at work or, an always overlooked option, give to a cause you care about.
July 13th, 2007 at 6:11 pm
this is easy. same as ryan. money mkt till jan 2, 2008’s roth ira contribution. leftover balance into roth 2009.
July 13th, 2007 at 10:06 pm
Put it in the Vanguard 500 Index Fund and you can pretty much forget about it and watch it grow…
July 13th, 2007 at 10:09 pm
i recently wrote about a similiar situation. definitely would do the ROTH IRA. I’d also set some aside for next year (if it’s not build into her budget already). Next I’d help fund an emergency fund with one of the online banks (HSBC has a high rate).
Of course, I would have to take some of the money and get a gift - new outfit, ipod, favorite movie, concert tickets. No sense in not having any fun (unless she has CC debt and then it would go to pay it down).
July 13th, 2007 at 10:49 pm
I would put $10,000 straight toward our last debt, my husband’s student loan, and it would be paid off totally by the middle of August. Than we would start saving up for an emergency fund and a down payment.
July 14th, 2007 at 10:42 am
I’d buy a plasma tv $10k-$4k=$6k; I’d then buy an iPhone $6k-$600=$5400; I’d then i’d buy 21,600 gum balls from the quarter gumball machine 25cents*21600=$5400-$5400=$0.
failing that, i’d put $4k in RIRA, put $2k into emergency fund, put $4k in some kind of index fund.
July 14th, 2007 at 11:16 am
For the short term (
July 14th, 2007 at 11:38 am
Timely post, JLP. A colleague just sent me a link to Money Magizine’s “Where to put $5,000 now.” It is a list of 43 items by Asa Fitch and George Mannes. So for $10,000, you could pick two from the list. Here is the link:
http://money.cnn.com/galleries/2007/moneymag/0705/gallery.5000_dollars.moneymag/index.html
Some of the tips are a bit lame, but I thought most were pretty sound.
July 14th, 2007 at 11:57 am
For the short term (
July 14th, 2007 at 12:19 pm
Great post! I am sure there are lots of young folks (I am just on the verge of 27, so I am not much different that the person of interest) that get a sum of money every once in a while. The Roth IRA is simply the way to go; $4K right now.
Like the others, I would suggest a high-yield money market account. I would also suggest that she start having at least a small amount directly deposited into the savings account today, to add to the balance. With the maximum contribution raising to $5K, next year, $192/bi-weekly will kit that amount. She could start that now, or something a little less. I would say a minimum of $25/pay, though.
As soon as the 1st of the year hits, dump the other $5K into the Roth IRA, keep the balance in the high-yield MMA, and keep depositing money bi-weekly (or each pay period). When December 2009 hits, she should have enough for another maximum contribution of $5K, if she adds about $150 each month. She will have contributed $14K by the time she is 29. If she gets 10% on that each year until she is 65, she should have over $520K!
She definitely needs to look into her options related to employer sponsored plans with matching, too!
July 14th, 2007 at 3:08 pm
Is Meghan contributing to her 401k or does her employer offer one?
If so, what do you think of the idea of budgeting & living off the $10,000. By using that $10,000 for every day budgets she could enroll in her 401k and start getting the company match.
Let’s say she has a $52,000 a year salary as a 26 year old in California. If she contributed 6% of her salary to get a company match of 3% that would be:
Annual: $3120 in contributions & $1560 in free company match
Of the $3120 she contributed, that would likely be around $2500 after taxes. If she could keep the $10,000 in a high yield savings account and use that as the $2500 after-tax shortfall from her 401k contributions in 4 years she would have:
$18,720 in her 401k without any growth ($12480 contributions + $6240 employer match) off her $10,000 after tax gift.
A couple things to consider:
1) If she is already doing her 401k, this idea blows up.
2) If there is no employer match, the Roth IRA is better.
What do you all think?
July 14th, 2007 at 6:03 pm
I would do:
$4000 in Roth in Vanguard Total International
$6000 in Vanguard Total Stock Market fund/etf
July 14th, 2007 at 10:16 pm
Similar to Andy, however I will choose slightly different investment:
$4000 in Roth in Vanguard Retirement 2045 or 2050
$6000 in Vanguard Retirement 2045 or 2050
July 16th, 2007 at 10:11 pm
I think about stuff like this all the time. I would pay off my credit card debt (3800), max out the Roth IRA (4000), add 2000 to my emergency fund and spend the remaining 200 on something frivolous.
October 3rd, 2007 at 9:07 am
My parents want to give me a $10K gift this year. I am presently a full time PhD student making less than $19K this year. Do I have to pay taxes on the $10K gift? Do my parents have to pay a tax for giving me $10K?