Inheritance and Loans

[NordicFroggy]

For a little background, I am single, 24 going on 25 in a few weeks, and will be starting medical school this coming Fall at an in state public medical school. I have no idea what I’ll be taking out in loans yet, but I know my cost of living will be covered by family. I will ONLY be taking loans only for school costs. I currently do not have any debt whatsoever. I will only be taking loans for tuition which will be about 41-42k

I recently inherited a ~70k portfolio (a brokerage account) of 13 investments (30k in stocks, 2k in ETFs, 28k in mutual funds) and some of it in cash (about 15k). I could use some guidance on what to do here in order to wipe out as much debt as possible in the end.

I’ve asked advice form a couple of CPA’s and attorneys who do estate planning. The two options ive received are either cash it all out to just straight up pay for school and lower the debt that way. Or I’ve also been told to hold on to it and see if it can grow into something that will wipe out a more significant portion of the debt later. I want to do as much research as I can and ask for advice from as many people as possible before I make a decision. So any advice is appreciated.

---

Members don't see this ad.

 

[Gorne]

For a little background, I am single, 24 going on 25 in a few weeks, and will be starting medical school this coming Fall at an in state public medical school. I have no idea what I’ll be taking out in loans yet, but I know my cost of living will be covered by family. I will ONLY be taking loans only for school costs. I currently do not have any debt whatsoever. I will only be taking loans for tuition which will be about 41-42k

I recently inherited a ~70k portfolio (a brokerage account) of 13 investments (30k in stocks, 2k in ETFs, 28k in mutual funds) and some of it in cash (about 15k). I could use some guidance on what to do here in order to wipe out as much debt as possible in the end.

I’ve asked advice form a couple of CPA’s and attorneys who do estate planning. The two options ive received are either use it to pay for school to lower the debt that way. Or I’ve also been told to hold on to it and see if it can grow into something that will wipe out a more significant portion of the debt later. I want to do as much research as I can and ask for advice from as many people as possible before I make a decision. So any advice is appreciated.

Very interesting situation. I’m curious to see what the more knowledgeable posters have to say. I’d imagine you’d need to look at the anticipated rate of return of the portfolio vs the interest rate of the tuition loans.

You’ll probably also want to consider what specialty your going into, whether you plan on utilizing PSLF, etc.

I’m no expert but loans for education from the government are probably in the select few kinds of debt you wouldn’t necessarily want to wipe out with funds from a portfolio. Curious to see what others have to say.

 

[Mman]

if you have no need for the money short term, the mathematically best decision is likely to just invest it in a low cost equity heavy portfolio for 30-40 years. While you will eventually pay tax on the gains, the compounding effects of the investment returns will likely far outpace any savings you would get from lowering the debt you take on.

But that all depends on your ability to stick with that plan and not make bad decisions if the market tanks.

 

[Stroganoff]

@NordicFroggy, obligatory link to the Bogleheads Wiki article: Managing a windfall - Bogleheads

Edited to add:

~70k portfolio (a brokerage account) of 13 investments (30k in stocks, 2k in ETFs, 28k in mutual funds) and some of it in cash (about 15k)

First, sorry for your loss.

Second, it's likely this portfolio isn't aligned with your investment horizon, your risk tolerance, and your desired Asset Allocation, so one could assume you might want to make it geared towards your AA and long-term goals. I mean, you may want to park it in a good financial institution first, say the usual Vanguard, Fidelity, or Schwab have good low-cost index funds and taxable brokerage accounts, before deciding what assets to sell and buy as you research and learn over the next several months. Investing in individual stocks is usually not highly advised, so I read others recommending exchanging the individual stocks for index funds.

You also never mentioned your current cash situation. How big is your emergency fund? How big is your residency relocation fund? Do you have a separate fund for your next vehicle? Your future wedding? Your other short-term and medium-term goals? It may be prudent to divert some of the cash into those short- and medium-term cash accounts and the rest towards total market index funds according to your desired Asset Allocation (which is based on your tolerance for risk and your horizon).

As far as whether to use any of the inheritance towards tuition and fees, I'm at a loss, sorry. I'm curious how an extra $70K in assets would affect your financial aid package and your Estimated Family Contribution (is that even a thing at the professional level vs. just undergrad?).

 

[NordicFroggy]

@NordicFroggy, obligatory link to the Bogleheads Wiki article: Managing a windfall - Bogleheads

Edited to add:


First, sorry for your loss.

Second, it's likely this portfolio isn't aligned with your investment horizon, your risk tolerance, and your desired Asset Allocation, so one could assume you might want to make it geared towards your AA and long-term goals. I mean, you may want to park it in a good financial institution first, say the usual Vanguard, Fidelity, or Schwab have good low-cost index funds and taxable brokerage accounts, before deciding what assets to sell and buy as you research and learn over the next several months. Investing in individual stocks is usually not highly advised, so I read others recommending exchanging the individual stocks for index funds.

You also never mentioned your current cash situation. How big is your emergency fund? How big is your residency relocation fund? Do you have a separate fund for your next vehicle? Your future wedding? Your other short-term and medium-term goals? It may be prudent to divert some of the cash into those short- and medium-term cash accounts and the rest towards total market index funds according to your desired Asset Allocation (which is based on your tolerance for risk and your horizon).

As far as whether to use any of the inheritance towards tuition and fees, I'm at a loss, sorry. I'm curious how an extra $70K in assets would affect your financial aid package and your Estimated Family Contribution (is that even a thing at the professional level vs. just undergrad?).

So I dont have a whole lot apart from this new asset. I have a savings account with about 12k, a checking account with about 6k, and about 10k in various stocks/funds/bonds that I had prior to this that probably all needs reallocated. I’m currently working while I wait to start school in July with no expenses because I’m living with my parents. And living expenses in school are being taken care of by my grandparents/parents.

 

[TMP-SMX]

Both congratulations and condolences for your loss. Remember that upon inheritance the gains on those accounts is 0 again. Make sure you liquidate 5500 for 2018 if you've made at least 5500 for last year and maximize your Roth contributions every year (if you have any income). Chances are you won't be eligible for need-based aid. Student loans at 6.8% or above are not a good bet and after emergency funds you probably are going to want to reduce the amounts of loans you take out and keep the remainder in broadly diversified mutual funds/ETFs with low expense ratios.

Edit: Corrected error

 

[TMP-SMX]

So I dont have a whole lot apart from this new asset. I have a savings account with about 12k, a checking account with about 6k, and about 10k in various stocks/funds/bonds that I had prior to this that probably all needs reallocated. I’m currently working while I wait to start school in July with no expenses because I’m living with my parents. And living expenses in school are being taken care of by my grandparents/parents.

I see. Roth contribution for 2018 at $5500 if you haven't already and $6000 for 2019 if you haven't already and will have that much earned income before July for this year.

(Edited error for 2019)

 

[mvenus929]

I see. Roth contribution $5500 for 2019 if you haven't already and will have that much earned income before July for this year.

Max Roth IRA contribution for 2019 is now $6000

 

[Raryn]

Both congratulations and condolences for your loss. Remember that upon inheritance your basis is 0 again. Make sure you liquidate 5500 for 2018 if you've made at least 5500 for last year and maximize your Roth contributions every year (if you have any income). Chances are you won't be eligible for need-based aid. Student loans at 6.8% or above are not a good bet and after emergency funds you probably are going to want to reduce the amounts of loans you take out and keep the remainder in broadly diversified mutual funds/ETFs with low expense ratios.

Your basis is equal to the amount you inherited on the day you inherited it - thus it's your *gains* that are zero (that day), not the basis. Just being pedantic but the words matter here.

 

[TMP-SMX]

Max Roth IRA contribution for 2019 is now $6000

Thanks not sure why I wrote 5500 for 2019 that's what I meant.

Your basis is equal to the amount you inherited on the day you inherited it - thus it's your *gains* that are zero (that day), not the basis. Just being pedantic but the words matter here.

Thanks. New basis upon inheritance (taxable gains are reset).

 

[redfish955]

I would put it towards fun during school and Roth ira during residency. Bump your living budget 10k a year. Make it so your not as miserable during school.