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What should I do with $100,000 in tax-free cash?

My wife and I make about $120,000 combined. We are both in our early 40s. No children. We have no debt other than our home. We owe $114,000 on a 15 year fixed. We have about $200,000 in investments (IRAs, Taxable accounts) and about $50,000 cash ($10,000 in a normal checking account. $35,000 emergency fund in a higher interest rate savings account). We both contribute the maximum per year to our IRAs. My wife will have a pension of about $2400 per month in retirement.

My thought is to put the whole amount of $100,000 into our taxable investment account. All of our accounts have a good mix of stocks and bonds. Currently, all investment accounts are at 90% stocks and 10% bonds. Additionally, I thought I would reduce our cash holdings to a more realistic $15,000 emergency fund, and invest the remaining $35,000 into our taxable investment account.

Financial Planning, Personal Finance, Retirement Savings, Investing
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April 2016

The plan of putting it into taxable investments is a solid one - here's why...when you retire, most tax sheltered plans will taxable when you withdraw the money. They're tax deferred, not tax free. When you withdraw from a taxable account, the withdrawals are tax free, since the tax has already been paid on them. Roth IRAs are the exception - they're tax deferred during accumulation, then tax free at withdrawal, creating a best of all worlds investment vehicle (hint: start one if you can!).

We can think of this as a form of retirement tax diversification, in which you have a mix of both taxable and tax free retirement income sources. This is doubly important since Social Security benefits can become partially taxable if you pass certain income thresholds.

April 2016