Learn me: house proceeds

So my mom is selling our old house.she's writing me and Dana checks, and keeping the rest. So let's start with her.

She is 67 in July, now living in a county owned old people apartment. Not a nursing home or care home. According to them, proceeds from the sale of the house don't count against her income. She is receiving payments from an annuity IRA, was my dad's IRA, but changed into am annuity at his death, this does count as income. Apparently that means she can't just put the house sale money into it. Her idea is a bunch of CDs for 10k each. I think there are much better places to put the money than that, but I don't know what they are. Let's call it $60k.

Vanguard fund? Gold coins? Dogecoin? 

She has no debt, car is paid off, but doesn't want the money locked down in case she needs it for something down the road. If it could transfer to me after she passes with minimal taxation, that would be even better.

On the other side is us. We're looking at 15k immediately, and another 15 when we get married in August. I'm replacing the Ranger with something more useable for a family of four, and we're doing some house repairs, but that should leave us with $10-12k after all is said and done. My first thought was paying towards the principle on the house. We have 29 years left on the mortgage at 3.125%, and we're paying an average of $4200/year towards principle right now. But if we put the money in there, it won't be there if we need it, but would knock 2 years off the end. We don't really have an emergency fund, even after I replace the ranger our only debt will be the mortgage. I just feel we could do a lot better return wise on 10k outside of a savings account earning fractions of a percent interest.

Dana has a 401k at work(with a 117% match), she's not vested yet though. I have nothing in the way of savings or accounts anymore. 

What would the smart, yet accessible, play be on our end with such a small amount? Mutual fund? Savings account earning 0.1% just to keep access to it as emergency money? More house repairs/upgrades?

My dad put his house money into a low interest "TOD" account with his 5 kids on the account (transfer upon death).  This was when he got sick and only lived 2 years after the sale of his house so the lack of interest wasn't a big deal to him. 

You have to hit high numbers to see inheritance taxes.  I believe she has to be careful giving it away and living in tax sponsored housing - you need to find a tax guy.  

In reply to Datsun310Guy :

We've got 2 tax guys. Gift cap is 15/year, which is why the 30k were getting is before and after the wedding. Once we're married, mom can write a gift check to Dana instead of just me.

Fairly clear on the tax part, I just don't have an investment guy, but I know the forum is full of them. 

I'd keep at least half of that liquid, either in a savings account or cash secured in a fireproof safe, with the location and combo known only to you, your wife, and maybe 1 very trusted friend/family member. The rest I'd stick in a CD or Mutual Fund. I'm not a fan of paying off house early, unless your retirement accounts are maxed and you have at least a years worth of living expenses saved up, but that's just my non-professional, non-attorney, non-financial advisor opinion. I would suggest talking with a fee-only Certified Financial Planner/Advisor with fiduciary duty to you.

Depending on the type of housing, interest earned off of investments can be counted as income. I work in HUD housing, and the rent at some of our sites is based on flat 30% of income. I would check with the site manager or county department of housing or lawyer, etc for exact particulars of what your mom is allowed to do both with gifting and investing, without jeopardizing her housing or possibly increasing her rent liability.

Do not put the money into your mortgage. I'd only consider two things with that money: emergency fund, and/ or invest it. Paying down principal on a 3.1% mortgage is the worst of both worlds, where it locks the money away and you can't access it in an emergency, while also not earning very much at all. 

You need some kind of emergency fund. How much depends on personal preference (6 months expenses is common), but you've got a wife and two kids now that need to be considered. If a sudden medical expense or house repair comes up you don't want to be in a position where finances stress you out even more than the situation already does.

I'd setup a Roth IRA in your name with Vanguard today. Then do the same for your wife. Before April 15, you can still contribute up to $6k for the 2020 year for each of you. I'd max each one out for 2020 ($12k total), and then keep the remaining $3k from your first payment as an emergency fund. When the second payment comes around, I'd do the same thing but for 2021 instead of 2020, again putting the remainder into your Emergency fund. That would give each of you $12k in tax advantaged accounts that can be invested however you choose ( a basic, boring S&P500 fund like VTSAX is what I'd probably do), and you'd have $6k liquid emergency fund. The Roth eventually gives you flexibility to pull any money that you have contributed without penalty, but it has to be in the account for at least 5 years before it's available. So, after the 5 year mark,  if you wanted to, you could invest the emergency fund cash into one or both of your IRAs and from that point on use your Roth IRAs as your emergency fund. Each of you having a Roth gives you two great places to stash any unexpected windfalls, tax returns, etc for future years too.

RevRico said:

In reply to Datsun310Guy :

We've got 2 tax guys. Gift cap is 15/year, which is why the 30k were getting is before and after the wedding. Once we're married, mom can write a gift check to Dana instead of just me.

Fairly clear on the tax part, I just don't have an investment guy, but I know the forum is full of them. 

I believe she could do it before the marriage anyhow. At least that's what I've been doing. You gotta trust her tho. 

In reply to 90BuickCentury :

She's one of a handful of the top paying people in the building, paying 60% of the rent price. There was some trickery involved to get her in because combined social security and annuity income last year had her flirting with the top of the income acceptance limit.  With the house sale not counting, and not needing to pull as much from the annuity because she doesn't have to pay for the house, her income will drop, and there may be an issue where she has to take money out just to keep her income high enough. That E36 M3 is weird. 

A citizens access account pays fairly well for a savings account. They were 2.5% a couple years ago, down to about .5 now. Hoping to see it go back up someday. Still better than the corner bank and easily accessible when needed.

In reply to RevRico :

Gifts can be given to anyone, not just family.  The annual limit is $15k per recipient per calendar year.