Question:

Should I just hold $ in an account before putting it down on home?

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I want advice on 2 financial issues:

#1.I just found out that my grandfather (who recently passed away) bought a variable life insurance policy on me many years ago. I have completed the process to have it transferred to my ownership. I want to cash it out and use it as money down when I buy my first home this year (and buy term life).

#2. Sometime before the end of this year, I will also be inheriting some money from my grandfather. I would also like to use this money as a downpayment on my first home purchase at the end of this year.

So should I just save the money in a savings account or should I hold the money in an IRA until I use the money as a downpayment on the home (or should I do something else)?

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3 ANSWERS


  1. You can't just put the money into an IRA unless you are eligible to open an IRA. Also, consider that there are maximum contribution limits based on your earned income and filing status.

    Even if you do put the money into an IRA why would you want to tie up your money until age 59 1/2. You can withdraw upto $10,000. for a first time home purchase but if this is not your first home you cannot make a withdrawal without paying a 10% penalty on the early withdrawal in addition to any income taxes due.

    Instead, put the money in a CD with a term that is going to match up with when you will need the money for your down payment. Unfortunately rates are quite low for CD's but they are higher money market rates.


  2. I'd put it in a money market account.

  3. Yes, you are going to have to put it in a short-term CD or money market account and yes the interest rate right now is horrible.  As far as the variable life goes, find out how much surrender value there is.  If you want to secure the amount you will receive, see if you can transfer the funds to the "fixed account" within the policy, if there is one.  That way, downturns in the stock market will not affect your cash value.

    An IRA is a totally different account used for retirement purposes.  There is a cap of $5000 per year to invest (if you are under 50) and you ordinarily keep it growing in the account until you are 59 1/2.  (IRAs can be withdrawn early for purchase of first homes, but I don't think this will help you much in your case since you would just be starting one.)

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