Lump sum 50k + how to save for kids

Age: 37
Spouse's age: 46

Number and age of children: 2 children, age 3 and age 5

Two questions:
1. What to do with lump sum 50k - thinking pay off mortgage best option?
2. Have been saving the kids child benefit into credit union accounts for them (earning no interest). Approx 9k (5yo) and 5k (3yo) accumulated to date. Would like to put their money to better use - I was looking into State Savings 10 year (22%) or a Bare Trust (invested some way I assume - don't know much about this yet?). Wondering if these are best options? I am thinking this money will be for things like first car, college money, house deposit maybe eventually?
I have seen some posts saying we would be better off overpaying our mortgage now and having more money available to us when kids are 21 (as lower mortgage etc). Should we be doing this instead of saving for kids?
I sort of like the idea of having amounts put aside for them. Also we are utilising the 3k tax free gift amount each year instead of gifting bigger amount down the road.


Income and expenditure
Annual gross income from employment or profession: 110k
Annual gross income of spouse/partner: 90k
(Both employed, have job stability)

Monthly take-home pay: 9000 ish I think (between us) + bonuses each March approx 15k after tax total.

In general are you:
(a) spending more than you earn, or
(b) saving?
Saving, but only really starting out again (after unpaid mat leave, house renovations etc, over last 5 years or so).

Summary of Assets and Liabilities
Family home value: 550k
Mortgage on family home: 260k
Net equity: 290k

Defined Contribution pension fund: Me - Employee 5% & Employer 12% / Spouse - Employee 5% & Employer 5% (not sure of current balances)

Company shares : 20k


Family home mortgage information
Lender - PTSB
Interest rate - 3%
Type of interest rate - FIXED - 5.5 years remaining
Remaining term: (Original term is not relevant) - 22 years
Monthly repayment: 1600

Other borrowings – car loans/personal loans etc
Do you pay off your full credit card balance each month? Yes
No other loans

Life insurance: - we have adequate life insurance / income protection etc

You could consider increasing your pension contributions to maximize the tax relief benefits and provide for your retirement. The advice on this board is nearly always pension first, then everything else including over paying a mortgage.

One option is to take the 50k and the 14k already saved and take out two 10-year NTMA bonds; one for each kid. 2.1% is not a terrible rate as its tax free and the money is not locked away if you need to access it. But if you don't have an adequate emergency fund tucked away in an instant access account, you might consider using some or all for the 50k for that.

Bank Of Ireland has a regular saving account paying 3% interest for the first year. Personally I would pay into that instead of the credit union.

Offload company shares and put it off the mortgage

I think you’re doing fine (although not sure without knowing pension balances).

A few pointers:
-sell company shares when vested, you don’t need the exposure
-maximise pension contributions to tax-relieved limits
-don’t save specifically for the kids. You are better stuffing your pensions now and funding college or whatever from current income or pension lump sum late. Don’t forget your spouse will be retiring when kids are in early 20s. There is no better investment vehicle than pension: tax relief on way in, no CGT on growth, and up to 25% tax-free drawdown on retirement

Why the advice to sell the company shares? I used to sell my vested shares to take advantage of the CGT allowance but I stopped as I only reinvested the money anyway.

Because you don't want to be over exposed by having all your eggs in one basket i.e salary and shares.

On the money for the kids, bare trusts are used to avail of the annual gift exemption of up to €3,000 per person to anybody else. The policy is set up in the child's name, under trust. You gift them €3,000 a year and it doesn't come out of future inheritance. The way you are doing it now, if you gave them €50,000 in the future, for example, they have to notify the Revenue and their future inheritance is reduced by that amount.

If you want to use the money you are saving for college, there is no need to have a trust, parents can pay for their children's education. Weddings are also exempt as they are seen as a family event. You'd be fine with a car too as it is probably a few grand and the Revenue aren't going spend the time and effort going after all the parents who bought their kids a cheap Suzuki Swift!

You are better off however, investing it in the markets so it will generate a decent return above inflation in the long term. Keeping it on deposit will most likely see the real value of the money fall over time.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

Niamh_S said:

1. What to do with lump sum 50k - thinking pay off mortgage best option?
2. Have been saving the kids child benefit into credit union accounts for them (earning no interest). Approx 9k (5yo) and 5k (3yo) accumulated to date.

Click to expand...

You have three jars
One has 50k in it
Another has €9k
The third has €3k

You have put your own labels on these "savings" "Johnny" and "Mary" but these labels make no sense at all.
They are not apples, oranges and pears. They all have the same content.

And it's important that you think like that about them.

At the very basic level, instead of getting 0% return on two of the jars, you can get 3% tax-free and risk-free by paying off your mortgage.

If you want, by all means keep a notepad with a record of how much child benefit you got from each child and give that to them when they are 18 or whatever.

But you get the best risk-free return by combining them and clearing your mortgage.


Brendan