Financial issue? In a good way

[fnfarms1]

So we came into a decent sum of money over the weekend unexpectedly. It's enough to pay off the family farm which we did not expect for at least 10-12yrs from now. I'm 39 so that's pretty good and this is not a complaint. However it is not enough to pay it off and pay the taxes. CPAs advice is wait until Feb at our tax appointment, invest it in a CD at 4.5%[was 5% but changed due to markets right now in an hour]. Make what little we can for "free", see what taxes look like in Feb. said taxes will depend how our year plays out, hard to say due to what may happen farm wise over next 5mths. we went to our Edward Jones guy to do the CD, he advised to also increase our TSP/401k[my wife and I are both Fed employees] to hold onto as much as possible by lowering our income.

We could spend some by building hay barn etc. CPA says yes you can but it's not dollar for dollar, going to be writing off roughly 40% of the barn or whatever expense. Barns not a good example, it's a 20yr write off. Stock trailer or replacement heifers be better expense, I'm guessing since it could likely be 100% wrote off. Thoughts? Every situation is very different but our farm being paid off is pretty dang important to me. since it could mean the farm being self sufficient if no mortgage

 

[Twisted]

I know the feeling of wanting to pay the farm off. If I lost everything but the farm, I would still be happy and could recover.

What are the interest rates on the loan, would the interest gained by the CD cover the interest on the farm loan?

 

[fnfarms1]

I know the feeling of wanting to pay the farm off. If I lost everything but the farm, I would still be happy and could recover.

What are the interest rates on the loan, would the interest gained by the CD cover the interest on the farm loan?

That is exactly where I'm at. Besides I am currently at a crossroads job wise, got the opportunity to "apply" for a new job that's perfect. But no guarantees it happens yet. Either way in 2 more years I have 20 in carrying mail(currently 18yrs) for Postal service. I have to get out, wear and tear on your body walking 10-15miles a day makes it rough. Alot of retired guys with 30yrs+ I see not getting quality of retirement life I want. Always surgeries etc to fix what years of walking did. Plus it's changing a lot. I got in trouble for being in a business for 3mins the other day on my route. When I started we were encourage to develop the relationships, now it's all knit picky etc. So may go be firefighter in 2 yrs etc if other gig don't happen. Firefighting is big pay cut but 24 hrs on /48 hrs off appeals, plus wife has really good job now. Plus firefighting is whole new retirement, so be another income in retired life. If farms self sufficient, it's a game changer.

That's why we did the CD already. Mortgage interest is 2.875(we refi'd in '21 when rates were stupid low). Cd rate is 4.5% and matures in Feb around our tax time so we can revisit plans then.

 

[Brute 23]

CD until the taxes are paid off is a good idea but I would not go through Edward Jones for any thing. They have had tons and tons of lawsuits for pushing people to certain funds. Just go down to your bank and get one.

I would not build barns and things with that money. I would especially not buy them for write offs as that is always a looser.

Both the 401K, barns, etc can all be bought or done with the free cash flow opened up from not having to pay a farm loan.

As some one who is debt free it is an awesome feeling and the free cash flow that it opens up is great. I agree with what some one else said, if all I owned in life was a paid for property and house I would be happy as can be.

The second thing I could maybe be talked in to is, if it was a large enough sum of money, that it could be invested and generate a decent sum of money, with out ever having to touch the principal, and my farm loan was sub 4%, I might go that route. You would have to be very disciplined not to touch the lump sum and do some home work on the types of investments.

Did I mention getting rid of Edward Jones?

 

[Brute 23]

When in doubt, put it in cds, pay your taxes, and sit on it. There is no rush. Better to work slow and have it than fast and lose it.

 

[rocfarm]

I'd advise you analyze the rates. Is your farm loan COVID-era low? My friend's house has a mortgage rate of 3.8%. He can get 4.5 to 5 on a CD. Why would you pay off the loan, unless taxes erased the benefits?

And if stocks dropped 30%, you could probably safely invest at low point and still be pretty confident, especially if you are not worried about your job. So the fungibility of not needing to ask the bank for a loan later is worth keeping it in cash/bonds.

I remember during COVID asking my father if I should just borrow a bunch of money and invest, because it seemed like it was free money. We came to the conclusion that we don't borrow if we don't have to. But in this world, where the US, California, New York, Japan, UK, Italy, student borrowers, etc are not going to pay back all that debt, it seems like the ones who have consistently been short changed are the ones without any debt.

My guess is that within the next few years we'll see inflation surpass again what you can get for your money in short-term bonds or CDs. That means you're going to be getting paid to borrow again.

 

[fnfarms1]

I'd advise you analyze the rates. Is your farm loan COVID-era low? My friend's house has a mortgage rate of 3.8%. He can get 4.5 to 5 on a CD. Why would you pay off the loan, unless taxes erased the benefits?

And if stocks dropped 30%, you could probably safely invest at low point and still be pretty confident, especially if you are not worried about your job. So the fungibility of not needing to ask the bank for a loan later is worth keeping it in cash/bonds.

I remember during COVID asking my father if I should just borrow a bunch of money and invest, because it seemed like it was free money. We came to the conclusion that we don't borrow if we don't have to. But in this world, where the US, California, New York, Japan, UK, Italy, student borrowers, etc are not going to pay back all that debt, it seems like the ones who have consistently been short changed are the ones without any debt.

My guess is that within the next few years we'll see inflation surpass again what you can get for your money in short-term bonds or CDs. That means you're going to be getting paid to borrow again.

Replied to Twisted regarding rates. Mines alittle better yet at 2.875%. It is good deal in rate terms. We have 6mths to figure it out and weigh options. Just still in a bit of shock yet little frustrated regarding taxes jacking up such an awesome thing, it's not enough to both pay the taxes and pay off farm or I would likely have done it today.

 

[farmerjan]

I agree on the paying off the taxes etc, when they need to be paid, with the money on short term investment for now...
I would NOT pay off the mtg with that interest rate. If things continue to go "south", you will be money ahead to keep it invested in something that might pay a return that will more than pay the interest on the farm loan and give you something equal in return... If things do get bad, you are looking at investments.... safe kinds like CD's or other things...... in the much higher amounts than 5%.... which will pay the mtg interest and still not hurt the capital you have. I remember CD's and other investments making over 10% not that many years ago.... if the economy gets bad, we will see high interest bearing offerings again.....
My house mtg is 2.875% also... I will have it until I die of old age.... because I can much better use the money from my parents estate, for some improvements paid in cash at the house, than to borrow that money at a higher interest rate.... my inherited money will not pay off the mtg but would pay it way down... BUT.... with our credit union, I am getting over 5% on my checking account balance ; allowed up to 25,000 a month avg daily balance, for that rate.... so I have some in there and my son put some in there that he also got out of their estate, besides having his own account with the same deal..... and I have paid off all other loans except for my new riding mower that was 18 months no interest and a cc with transfer balances that was no interest for 18 months.... pay payments every month and use that "lump sum" money for other projects.
I wanted to be mtg free, but as long as I can figure out a way to make the payments, and have the principal "safely invested" , it does not pay to pay it off at this time...

 

[hurleyjd]

Where did this wind fall come from. Gift inheritance or otherwise. Makes a difference on taxes.

 

[Little Joe]

If it were me, I would leave the money in Cds as long as they are paying more than the 2.85% that you are paying on your loan. That will work well as long as you're a disciplined person and don't ever touch that money. And I wouldn't be afraid of dealing with Edward Jones if they had the best rates on cds. 4.5% sounds low, I purchased one through Edward Jones within the last month at 5.25 and I talked to a local bank yesterday where I had another that matures today and they offered me 5.26 to roll it into another 7 month cd.

 

[Brute 23]

If you have any other misc consumer debt I would pay it off. The interest rates are likely higher and they are likely smaller chunks. Between the interest saved and cash flow from the payment it will be one of the best returns on that money you will get.

 

[Dave]

Back late winter I got a big settlement from the power company on a right of way. After talking to my accountant I put more than enough to pay taxes in a CD. Paid off some smaller things. And paid off more than half the mortgage. Whatever is left from the CD after taxes are paid will go against the mortgage. I wont have the ranch paid off but the balance do is going to be much much smaller.

 

[Mrcopier]

I have money in the money market at 5.2%. Money can come and go just like a saving account no penalties

 

[greybeard]

Where did this wind fall come from. Gift inheritance or otherwise. Makes a difference on taxes.

JD!!!! Where (and how) the heck have you been? I came thru Yantis in June and tried to find you and couldn't.
PM your phone # to me if you can.

 

[cowman82]

lots of savings accounts at 5 - 5.5%

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Compare today’s best high-yield savings account rates with our ranking of over 100 national banks and credit unions. Today's top APY is 5.50% from Poppy Bank.

www.investopedia.com

 

[hurleyjd]

JD!!!! Where (and how) the heck have you been? I came thru Yantis in June and tried to find you and couldn't.
PM your phone # to me if you can.

903-920-6105

 

[hurleyjd]

My wife and I were in a similar when my mother left us an inheritance we paid the mortgage on the farm and each month we deposited the same amount into a savings account. We would at the end of the year find a place to invest the amount be it stock, CDs, cows, or whatever need to be something that grew in value.

So we came into a decent sum of money over the weekend unexpectedly. It's enough to pay off the family farm which we did not expect for at least 10-12yrs from now. I'm 39 so that's pretty good and this is not a complaint. However it is not enough to pay it off and pay the taxes. CPAs advice is wait until Feb at our tax appointment, invest it in a CD at 4.5%[was 5% but changed due to markets right now in an hour]. Make what little we can for "free", see what taxes look like in Feb. said taxes will depend how our year plays out, hard to say due to what may happen farm wise over next 5mths. we went to our Edward Jones guy to do the CD, he advised to also increase our TSP/401k[my wife and I are both Fed employees] to hold onto as much as possible by lowering our income.

We could spend some by building hay barn etc. CPA says yes you can but it's not dollar for dollar, going to be writing off roughly 40% of the barn or whatever expense. Barns not a good example, it's a 20yr write off. Stock trailer or replacement heifers be better expense, I'm guessing since it could likely be 100% wrote off. Thoughts? Every situation is very different but our farm being paid off is pretty dang important to me. since it could mean the farm being self sufficient if no mortgage

 

[chaded]

We paid off our mortgage several months back. 30 year mortgage in 7 years and we are 37 years old. We paid off vehicles several years back and vowed to never go in debt again. So, I will tell you that paying off that mortgage would be my first priority and I don't care what the interest rate is. You will not regret it. There is a peace of mind that you can't put a price on to being debt free.

Whatever you do, don't go spending that money for write offs or any other risky games.

 

[wobbie1775]

I am 39 too and in my opinion... Do NOT pay off your farm and I would only use CDs in the short term if you are waiting to see what to invest in. Your primary home mortgage is the cheapest money you can borrow. Pay minimums and find something else to do with the money. Expand the farm, buy a rental property (or 10? Depending on the size of this windfall) that will cash flow, buy cows that 'might' cash flow. You are way too young to be playing it safe in CDs for any real length of time. Also, I, generally, would not put any more money in your TSP than what you get matched. Again it might depend on the size of this windfall.... But locking that money up in a TSP just means you can't use it until you are an old man getting the surgeries etc. Real estate is my jam, so I highly encourage that route. I have 3 rental properties that have not really ever cash flowed more that 20$ a month or so... But they each have 6 figures of equity that SOMEONE ELSE PAID!!! There are many tax benefits for rental properties that would prove to be fruitful for you in the years to come as your income increases. Rental properties are real "assets"...your primary home, in some circles, is a liability. I know for normal accounting that is not true...but it makes sense to think about it in that manner sometimes. With your windfall, I would;
1. Keep your primary home mortgage
2. Find investment properties to buy and rent that will cash flow. If you had 300k windfall you could put 100k into 3 houses or 50k into 6 houses and finance the rest. Lots of ways to skin the cat.
3. Use short term CDs only as a bridge until you have properties ID'D.

 

[wobbie1775]

We paid off our mortgage several months back. 30 year mortgage in 7 years and we are 37 years old. We paid off vehicles several years back and vowed to never go in debt again. So, I will tell you that paying off that mortgage would be my first priority and I don't care what the interest rate is. You will not regret it. There is a peace of mind that you can't put a price on to being debt free.

Whatever you do, don't go spending that money for write offs or any other risky games.

We may not totally agree in paragraph 1....but I love paragraph 2!!