All Forum Posts by: Daniel Murphy

 Ah, I totally missed in your first paragraph the details of your current situation.  I'm sorry to hear, but I'm doubly impressed by your desire and commitment to all of this! 

I'll be honest, I don't fully know if there are any restrictions for your investments or taxes given your situation.  It's worth looking into further.  But, assuming you are (and will be) in this low tax bracket for the next 6 years, that actually provides you with a handful of opportunities.  

I would continue to learn about the tax loss harvesting and other tax situations, but moreso for future knowledge.  For your current situation, if you are in a low enough tax bracket to utilize all of the low tax incentives.  
Honestly, if your timeframe is 4-6 years, I would not look at CD's. I think it's too conservative for your timeframe. I think you could easily invest that money in the market and see some gains in that timeframe.  Then like you said, sell prior to your tax situation changing.  

I admire your desire to learn all of this. I also acknowledge that our prison system doesn't really set you up for rehabilitation or success.  

Your situation & questions are a bit more complicated and nuanced than a forum post can cover.  Feel free to message me. I'll give you my contact info and we can keep in touch as much as you're able. 
I'd be happy to help however I can. I'd love to see you walk out in 6 years with your head held high. Making your family and the person who left you this inheritance proud... 

That's a great situation to be in! Sorry for your loss by the way... I lost my dad a year ago and went through a similar situation.  

I think first, it's always best to define your goal & timeline as best as possible.  You said you want to use this for seed money "when you get home".  When is that?  And how old are you? What is your income currently?  
If you want safety of principal, it's hard to push yourself past a CD or high yield savings.  All other things can sound sexy, but risk your principal in one way or another.  If your timeline is short, like a year or two this is what I would do. CD or high yield savings.   Yes, you may "lose" to inflation but you're keeping your money safe and you'll have peace of mind.  Based on your post, you seem cautious and thoughtful so my guess is that you may feel more upset with yourself if this money decreased in value, over any "lost" money to inflation.  Hopefully that makes sense... 

Next, if your timeline is a little longer (2+ years), you could invest your funds into something diversified like others have suggested.  Diversified low cost ETF's.  If this decreased in value, you could try to also factor in your other investments mentally.  As in, If your $100k went down to $90k, mentally try to factor in the gains in the other investments you stated.  How we think about money is important... 

Depending on your age & income, you may be in a low enough tax bracket to "realize" (sell) some of the investment portfolio and pay little to no taxes on it.  Think of it this way... If this $100k decreased in value by 10%, but you had the opportunity to sell some of your investments & pay 0% taxes as opposed to 15% taxes, it can mentally "offset" the 10% loss.  

I fully realize that all of what I said may sound like gobbledygook! ha! Reach out if you want any clarification or have any questions.  It's awesome to see people who put their inheritances to good use and who are so diligent in wanting to do the right thing... 

Hey Jacob, I echo Josh's comments. I would steer more towards VTI than VFMO.  
If you're going to be investing this money into a taxable account, you ideally want an investment with high tax efficiency.  
VTI has a 1.25% dividend yield, 0.03% expense ratio and a 2% annual turnover 

VFMO has a .72% dividend yield, 0.13% expense ratio and a 77% annual turnover. 

Typically, I lean towards a lower cost investment (VTI) as I believe the evidence shows this gives you better long term results. But the biggest difference between these two is that turnover ratio.  
Basically if VFMO owns 100 stocks, they sell & replace 77 of them per year. This generates capital gains for you that you may owe taxes on.  Whereas VTI only sells 2.  Ultimately, this is cleaner & easier for your taxes & puts you a bit more "in control" of your tax bill.  

As suggested by Josh also, you'd probably want to add a bit more diversification with some international stocks & some other asset classes.  

If you plan to invest like this in a taxable account, I would highly suggest doing a bit of research on "tax loss harvesting" and understanding the differences between long term and short term capital gains.  
I love taxable account investing.  Once you understand some of the tax related nuances with them, they can be incredibly powerful places to invest your money... 

I like your thoughts Paul. No matter what people say, there are rarely black & white answers. Only Grey.  
I'm a firm believer in having a goal for every dollar. And if there is no specific goal (& timeframe), invest it.  Investing your funds does create risk, but if you have the ability to absorb the risk, or access funds from other areas (heloc, loan etc), you can choose not to withdraw from the investment if it happens to be negative when you need it.  

The Real Estate vs. stock market debate is an interesting one.  As RE investors, we all love it. But it's not passive, at all...  There are the known costs like insurance, commissions, accounting software etc.  There are also the unseen costs like worry, stress, hours at a computer... 

I know in my current life situation, I'll be selling my current home when that opportunity arises.  The cash will likely be invested into the market and I'll kick my feet up not thinking about a thing afterwards :) 

I'd love to take a look at your spreadsheet if you don't mind... 

Interesting, but I find the categories oddly broad.  Years ago, I read a book called the Ivy Portfolio largely about the Harvard endowment & other large endowments.  
My quick & easy summary was that the lions share of their investments were broad based low cost index funds. But where the real returns came from was private equity & private placement opportunities.  
As you move up the food chain (higher income, more connected network etc) you have opportunities for more niche investing.  Private equity, hedge funds that have access to alternatives etc.  

@Taylor Dasch, thanks! The long term goal is to be a REInvestor. But right now, just to get a job in the industry to slowly deepen her knowledge.  
I'll reach out to a few agents near me and start asking.  Right now I'm just looking for a list of ideas since I'm sure there's a ton of opportunities that I don't know of! 

Hey all, I'd like to look into options to get into the RE world for my 19 year old daughter. 

She's a hustler and has been working hard since her 1st job at 16. Shortly after she started, they wanted to promote her to a position that was only for 18+. Shes a hard worker and really smart.  Her plan was to buy her 1st house at 18. She has the money, but not the income.  We're currently looking for a 1st purchase. But more importantly... 

I'd like to hear what your thoughts are to get into the RE industry for a 19 year old that is more of a W2 job, not a commission based.  For a number of reasons, she's just looking for stability & a good job in the industry right now. 

Thanks in advance! 

Thanks for this Matthew. The info helps.  I guess my main thought is that the MBD is more complicated and that ultimately you can only withdraw contributions.  

With the taxable account, you can withdraw everything at any point. Subject to tax liability on the gains of course, but it gives you more flexibility.  

I've been a financial planner for 17+ years and one of the main umbrella theories I've learned is that often times, the simpler things are the better they are.  The mega backdoor roth sounds great in practice, but in real life situations I've never actually recommended it to anyone.  The closest I've come to it is doing partial Roth conversions post retirement. 

I liken it to the "cash value life insurance for retirement success" or "invest in crypto to become a quick easy millionaire" ideas.  They sound great in a vacuum, but when you run the numbers in real life scenarios they mostly don't work...

This is a complicated subject, and I'm not 100% sure I'm following all of your points.  But let me say a few things from someone who has processed a lot of partial Roth conversions post retirement.  

1) When & how you contribute to Roth assets is primarily driven on your current tax state.  IE - when you're young and poor (low tax bracket), contribute as much as you can to a Roth.  When you're older and higher income (higher tax bracket) you'll want to contribute to pre-tax savings (generally).  This is to get your tax deduction at a higher tax rate.  
Presumably, if you retire before you take Social Security, you will have a handful of low income years when you could then do Partial Roth conversions and convert those assets you presumably saved at a 22% or higher tax rate, and convert them in a lower income situation (12% or less).  You've essentially "saved" that tax difference.  
To do this, you'll need other sources of income that are tax "preferred". This is where the taxable account comes in.  

2) LONG TERM - If you have kids. And presumably if you're on Bigger Pockets and talking financial stuff, you'll hopefully be in a position to pass wealth onto your kids.  If this is the case, you want as much money as possible in taxable and Roth assets so that you don't pass assets on that create tax burdens for your kids.  

All of this points to what I said earlier, Roth assets are good long term.  

To hit on a few points from your post - You can withdraw contributions from your Roth, and yes you can withdraw gains after 5 years. But you still need to be 59.5 in order to forgo the 10% early withdrawal penalty, even from a Roth.  
Inherited IRA's are still taxable to you, unless they are an inherited Roth IRA.

I'm not a fan of mega back door roth contributions, unless potentially if you're in the 22% tax bracket or lower. But... If you're in a position to contribute the 401k max, plus HSA max, plus even more I would assume you're in the 22% tax bracket or higher.  

I could spew more details, but it would help to know more about your age. Your income. Your goals and what you're trying to accomplish.  

I spent my first 6 years in the financial planning industry working for a firm that had previously sold a lot of privately held REITS that went south. Often in very bad ways.  

Like others have said, you cannot claim the tax losses until the funds are sold and "realized". You'd want to work with the REIT sponsor and your CPA to understand the expected timeline for this a bit more.

On the REIT side - When these investments go underwater, often the sponsor company will freeze or drastically reduce redemptions. This is in an effort to let the investment play out and try to minimize their loss. I would suggest calling them and asking for their redemption process, and take DETAILED NOTES. You'll want to get your name on their distribution list. It's possible that they may only allow 10% of the overall assets to be redeemed at any regular interval. Usually quarterly.
You'll also want to ask them... When you get your name on the distribution list, are you then "in line" for a distribution every quarter, or will you need to call and request a distribution every quarter.  
I'm sorry to say but these can be a major time suck.  Take detailed notes and don't be afraid to ask any and all questions until you feel like you understand the process 100%.