a serious Q: what to do with a million dollars?

OK, let's say you invented something, and you found a manufacturer who wanted to buy your intellectual property and was willing to pay an acquisition fee plus royalties for a fixed number of years. let's also say that the acquisition fee was about a million dollars pre-tax. let's also say that you owe $250k on your house, and you've got a wife and two young children.

does all the after-tax money go to hookers and blow, or just some portion? if it's only a portion, where do you put the rest? pay off the house after maxing out IRAs and 529s? build 125 challenge cars? establish trusts for the kids?

i'm really looking for intelligent tax-favored ideas, for this hypothetical situation.

I have given this alot of though as I am an occasional supporter of the Mega Millions lottery. i don't really trust the stock market, and i don't think the old advice of put it away and live off interest really works for $1 million. I would pay of my house, then I know if everything else goes wrong I've atleast got a roof. I'd probably pick up a toy for me and the wife, and put aside what you will need for the kids schooling. Once that's taken care of finish it off on hookers and blow. No sense saving too much if inflation is going to make it worthless in a couple years anyway.

My usual disposition of "found money" (bonuses, etc.) is to approximately evenly divide the after-tax portion between (1) eliminating debt, (2) investing (retirement and kids' college), (3) charity, and (4) toys.

Sometimes I may have a specific goal that causes me to alter that. For example, if I had debt other than a mortgage, I'd wipe that out before toys.

Incidentally, I have no problem spending a fair chunk of such windfalls on toys because I think it's just as foolish not to live a little today as it is to not prepare anything for tomorrow.

Once you have paid my "What to do with a Million Dollars Advisor Fee" I will be glad to help you spend the remaining money.

Well, since I am now paid to run a Community Financial Center, I can tell you my advice that may actually be worth 2 whole cents.

Look at debts first, and always pay off in reverse-interest-rate order. That bedroom set that finally comes due at 15%? Pay it off. Credit card at 12%? Pay it off. Make yourself as absolutely debt-free as you can get (and with the after-tax of a million that shouldn't be too hard). Once all of the "extra" debt is gone take a good, hard look at the rest of your bills. You mentioned a house but I'm assuming their might be a HELOC as well. Pay it off. Just do it. You were absolutely on the right track of "having a roof" and also your homeowner's insurance should go down. As an aside though, setup an escrow to use for property taxes and the like if it's not already separated from your mortgage.

Once all of that is done it's time to look at savings. With a high enough amount (and I assume you will continue to work as well) it's better to play it safe. Some nice, high yield CD's will be good. Also a high-interest savings account for the kiddies college and another for your retirement. I absolutely do not recommend stocks or any other unsecured investment, not even mutual funds. If you truly want to look at alternative investments I would recommend Treasury Bonds and physical assets. Buy a rental property, a classic car that maintains value (you can even drive that investment!), or even invest in a small business (I like family-style ones like gokart tracks).

Now whatever you have left throw some cash in a safe for a rainy day and treat you and the misses since you are now living debt-free with a secure retirement. Grab a vacation and do some things you always wanted to do. Then keep working and retire early so you can be a slightly nutty retired guy who builds Challenge cars.

billy3esq wrote: Incidentally, I have no problem spending a fair chunk of such windfalls on toys because I think it's just as foolish not to live a little today as it is to not prepare anything for tomorrow.

This is a solid piece of wisdom. I've been a major league cheapass all my life, and only recently realized this. I can't give any tax advice, as I don know the American system, but lets say hypotetically that I might be familiar with your situation. I am balancing my desire to retire early, with my desire to have fun. It really depends on your long term goals, but pay off debt first. Now is a good time to invest in real estate, either for speculation, or as long term income (rentals). A large amount of money sitting in the bank is a squandered opportunity. Put it to work.

Buy a V8 Miata

I'd find a tax lawyer, since protecting the windfall from getting eaten up is a pretty high priority. Fairly obvious, really, and you're thinking that way already.

As for what to do after that, I'd pay off the mortgage and then buy a bunch of real estate. Taking care of rental properties can be work, but if you choose well it isn't a whole lot of work and the timing is good right now.

I think Billy has the right mindset here.

I'd kill off all the debts first, including paying off the house. Sure, mortgage interest is tax deductible, but paying a $3,000 to save $1,000 on taxes is a lousy deal. I'd put much of what's left towards retirement and a kid's college fund. Roth IRAs are nice for their tax benefits, but you can only put $5,000 into one, which kind of sucks for that size chunk of change. A grand or so spent on a good financial planner will pay off pretty well for figuring out how to invest that. Real estate might be a good place to invest some of the money if you're up for it, given how the bottom has fallen out of the market at this time.

I'll take my portion in small unmarked bills. Really though high interest savings account is what I'd do and make that money grow.

wow...AC has "intellectual property" of value?

(I kid because I care)

Give 10% to the Church, 5% to JDRF, pay off Mortgage and Bills.

Set aside Money for the kids College...but I'm only basing this amount on State College tuition rates.

Buy a cool project car.

Go to Disney World.

The rest in small unmarked bills secured in a fire proof lock box located somewhere on my property.

damn i just skimmed through all this and wrote up what i would do but then i looked back and read P71's post again and he nailed it.

+1 to the keep working and pretending you dont have all that money and living the rest of your life knowing you dont have much to worry about.

Yup. Wipe out the debt.

Donate the rest to my non-profit charity, "Hong Norr Enterprises."

That would be "COOL." wink wink nod nod nudge nudge.

On a serious note, IMO, now would be a killer time to be a slum lord. You can set up a corporation for this purpose, buy slightly distressed foreclosures, spend a few grand fixing them up, and let someone else pay the mortgage for you. As additional incentive to the buyer, you can offer a "rent to own" program, where, after 3 years, the renter has the option to apply a percentage of the rent paid as a credit toward a downpayment.

Clark Howard has a pretty good book on rules of real estate investment.

wherethefmi wrote: Really though high interest savings account

You find one of those, let me know, please! Same with the CD's

My bank's 7 year CD is 3.35%. I'm in no real position to give financial advice, but I can do math (I think). 3.35% is treading water.

Oster,

Credit Union

Datsun1500 wrote: That means taxes take up $376,000 leaving you with $624,000. If you pay off the house you are left with $374,000. I don't know if that is enough to do what everyone here is suggesting, buying a bunch of Real Estate, many toys, investing, etc. Not enough to live a long time on either, at least not around here....

It's enough to get you into the rental business. Say, use it for 50% of what you're buying and borrow the rest. Over $700,000 could set you up nicely, especially in this market. The rental income will easily cover any mortgage payments, of course, and then your interest payments become a tax deductible expense against your rental income. The rest of the rent can go to supporting you, and if you work it well you can reinvest the money into more property. When I moved to the US, I managed to keep my house in Canada and rent it out to friends. It worked out very well.

The question is what sort of real estate to buy. Apartments? Lots of turnover. Single family home? That tends to be a bit more stable. Commercial? Might take a little while for that to rebound right now.

YES!

P71 wrote: Oster, *Credit Union*

Color me an ignoramus, but in a quick googling, I can't find anything for any length of time (10 year Jumbo CD!? Mad!) breaking much over 4%.

I figure one has to break at least 5% over those 10 years to make it worthwhile, what with taxes and inflation going on.

Pay your taxes, pay off the mortgage, but some property out in the boonies far away from a major metro area and stock it with food, guns, ammo, and other stuff you could live on when society falls apart.

Nowadays $1 million not much. Maybe 10-20 years ago. But yeah I would pay off the house, or maybe sell our house to get something a tad bigger (we have 1800 sq/ft - would like maybe 2400?) without a fricking hill to mow, and of course an Aerial Atom. I'd put like $50k into a college fund for each of my 3 kids and maybe some towards a house for each of them. Some CDs, find a good investor (if there any nowadays).

If I had a million dollars, I'd buy an exotic pet. Like a llama. Or an emu.

I'd pay off debt and then invest the rest in a well managed money market account. The market is at about the bottom right now, Return on investment could be HUGE 10 yrs from now.

Yeah, P71 has it, in my opinion. 1. Pay off ALL debt. 2. Max out IRA/ Roth. 3. Invest the vast majority of the rest. Look for something that interests you. I'm not big on rental property, but some are. As I mentioned in one of the GM threads: TIPS. Look-it-up. Oh yeah, and an Day-Glow Orange or Yellow Lotus Exige SC.

Hey I think angrycovair is my long lost father, so don't forget me when you make it big.

Seriously there's so many ways to make that money grow, not all of them are going to turn the remainder of a million in to a billion over night. Invest where you're comfortable. Tax lawyer ftmfw!!!!