Q: I am in a good place, but not sure what to do next.
I have no debt other than my home. My wife’s 401(k) account at work is maxed out. We both have Roth IRA’s that are maxed out.
I have $48,000 sitting in the bank doing nothing for me, and I am looking to buy a new home. The one I have now has about $71,000 in equity in it.
The only thing I have not done is open up a 401(k). I own my own business so I could take that $48,000 and put it in my Solo 401(k) or I could add it to the down payment for the new house, or perhaps you have a better investment suggestion.
What do you think I should do with the cash?
A: There’s no contest: Put the cash into a solo 401(k) account and diversify your investments.
You have already have a lot of equity that you’ll be able to use once you sell your home. If you decide to buy before you sell, you’ll have to have enough cash for at least a down payment of 5 percent (unless you’re getting an FHA loan) or 20 percent if you want to get better loan terms and avoid paying a fee for private mortgage insurance premiums.
Since the market for sellers has been very slow, I’d recommend trying to sell before you buy, even if that means making an interim move to a rental unit while you’re trying to coordinate the buy and sell.
The good news is that it sounds like you’re in reasonably good financial shape – no small matter given the recent state of the economy. Congratulations.
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