Pool finance option

[rmclain73]

Not sure if this place is correct for this post, but thought I would throw it out to you all. I am curious on all of your opinions.

My wife and I really want a pool, and nice backyard. We work very hard for our money, and want to enjoy life with our family as much as we can when not at the office. We are very conservative with our finances. We for the most part go without unless we can pay for things in cash. We own a business that allows us to draw a good yearly salary. The business had been around for over 30 years before we took over, so its a stable place in the medical field. We put away as much as allowed for retirement, and pay an additional $20k a year on our mortgage. Other than the loan on the business, and my wife's med school loan, we have no other debts. Our goal was to save enough cash, in addition to our other yearly savings and spending, to buy the backyard of our dreams. We planned on being able to have the money to move ahead in 5-10 years.

A few weeks back a former employer of mine called me to let me know that they planned on distributing to me in whole a stock option plan (ESOP). Mind you none of this money came from my wages, all of it was a benefit for being a good employee for many years. I never thought I would see it truth be told, nor did my financial planner. Now, I can roll this ESOP into a 401k or IRA plan, or I could withdraw it and pay taxes and penalties as someone would for an early 401k withdraw. I would still be leftover with enough to pay for 80% of the pool and yard cost. I could kick in the rest myself. Now here is the real question. Invest it, or put it towards the pool? I know it is very financially irresponsible to pay the penalty and taxes. However, I never figured this money would come, nor did I figure it in any party of our financial planning. I see it almost as a bonus. Someone giving me a gift. Like taking the lump sum on a lottery win after taxes. No loans needed to pay back, and going this route would free up my wife and I from having to save for the next 5 - 10 years makes this desirable. This would also allow us to put that money we were saving towards whatever comes up. I realize that I would miss out on potential earnings from the stock, but we are still saving and putting away.

I am sure my CPA and financial advisor will object highly to this, but what are your thoughts?

 

[tim5055]

Pay attention to your CPA and financial adviser. They are disinterested third parties and hopefully have your long term well being in mind. The pool/back yard of your dreams should not come at the expense of a secure retirement. You already said that you didn't expect this and had a long term plan for your pool/yard so roll this into a 401k or IRA plan and stick to your original plan. Retire 5 years earlier....

JMHO

 

[martinkennedy]

Everything is relative. To state the obvious, only you and your family can answer the question. Now that I have given you the adult and stodgy response, my vote would be to go for it! You sound responsible and prepared for your long term financial health. The only advice I would offer is that you make sure that your plan for that dream backyard is well thought out and you have some hard quotes of what your cost is going to be. I am in the 10th month of my build and it is a complete makeover of our backyard environment. Before I got started I thought the cost would be around $150k. **** the cost for the stucco perimeter walls, sea wall, TV and sound system and outdoor lighting is $110K. That was even before the infinity edge pool and retaining walls to support the change in elevation. My overall project now starts with a 3 in front of it. The good part is that I knew this up front and there were no surprises.
We decided this is going to be were my wife and I are going to retire when the time comes. It's a ridiculous cost but its what we wanted. But we did not risk our future financial plan. I don't know if this helps, but good luck

 

[zea3]

This is a very personal decision and ultimately you and your wife should have a long talk and make this decision together. Take a 30 day cooling off period if you can and carefully weigh all the pros and cons of this decision and come to an agreement that you are both comfortable with.

If it were me and using the money was not going to place me in financial jeopardy I would use the money. Life is full of surprises, and not all of them pleasant. You have an opportunity to fast forward a dream into reality that most people do not have. If you are both comfortable with that decision, go for it!

 

[wellsnlisa]

What about putting the money in the 401K, getting a pool loan, suspend contributions to the retirement account until the pool loan is paid? Your FA could tell you if this is feasible.

 

[kchamp]

I think wellsnlisa had a good option. Or what about keeping the money for retirement and taking a loan out against your 401? That way you are paying yourself back interest and did not take a tax penalty on the "surprise" money. Good luck in whatever you decide!

 

[rmclain73]

Some good things to think about here. As an owner and administrator of the companies 401k, I am limited and restricted to loans and contribution suspensions. I am talking with my finance team tomorrow morning. I can post back with what we decide. Another thing I would like to throw out there, I know what the costs are to do this now, not sure what they will be in 5-10 years. Take the yearly average 3% cost of living increase over that time and costs could be much higher

 

[CB]

Is the money enough to pay off your wife's med school loan? Then take the med school money and save twice as fast.The 401k penelaties and the money you would save on not paying interest may make this an option to think about.One less loan to worry about.Whatever you decide, it's your money.

 

[rmclain73]

Is the money enough to pay off your wife's med school loan? Then take the med school money and save twice as fast.The 401k penelaties and the money you would save on not paying interest may make this an option to think about.One less loan to worry about.Whatever you decide, it's your money.

It actually is enough to pay it off. I offered to do it for her, but she is the one who came up with this crazy idea of using it for the pool to begin with. Her interest rate is so low (1.48%) our CPA said to work more on the house mortgage than the med school loan. Helps with taxes too.

 

[Suprfly]

get the pool.. you only live once and no one knows their expiration date.

 

[Smykowski]

Sorry to hear about the difficult decision, but I'm a pool geek, not a financial advisor. I'm not sure if any of us can (or should) help you with this kind of decision.

 

[Patrick_B]

If you have to pay taxes and penalties, it's like borrowing at 40% or something like that. Cheaper to get a loan. If it turns out I'm wrong, please consider the source. I know water and pool chemistry not finance. Sorry. You ought to seek the advice if a FA, or trusted friend who is very good at investments and money management.

 

[duraleigh]

I am sure my CPA and financial advisor will object highly to this, but what are your thoughts?

If you know they will object, surely you know the reasons why. Do those reasons make sense?

 

[rustyb85]

If it's "surprise money" and you weren't expecting it to start with... I think I would go ahead and take it out and build the pool/backyard. It will be worth it! You only live once!

 

[QuiltinMom]

I would not use the money for a pool. Just because of the penalties involved. Maybe it is just me, but I hate paying any more in taxes than I have too.

How about rolling this $$ over to a tax protected plan so you don't have to pay the 40% taxes and penalties on it. Instead of paying extra towards your mortgage set up a savings account that is just for your backyard dreams. It will be fun to watch that account grow and that will also give you time to research and decide exactly what you want to include in your dream.

I am not a fan of borrowing money. It is a hard decision to make to yourself wait and not go for the instant gratification that our society seems to think we need, but when you have something that is completely paid for it just feels so good. It is worth the wait to enjoy something without a payment hanging over your head.

Just my opinion.

- - - Updated - - -

 

[andyoi630]

Personally I would invest the money and take a seperate home equity line for the pool. I paid for mine in cash and realized afterwards it makes no sense. Interest on loans is darn close to free right now. Especially if you have a business, any extra money you keep around is helpful for future growth.

 

[cbink]

If it were me, I'd cash it in and build the pool but that's mainly because my Dad died at 59 before being able to enjoy his retirement so my outlook is skewed by making sure I make the most of life. So long as your retirement is taken care of (it sounds like it is) use this 'bonus' to enjoy life.

There's no doubt the sensible financial decision is to roll it over and not pay the penalties so you need to do whatever you feel comfortable doing.

 

[rodog123]

Personally I would not use this cash to finance your pool. If you withdraw from your 401k or stock option plan you will have to pay a tax penalty of up to 40%

If you have the extra cash for a pool than yes, use it. but if your going to be strapped after purchasing pool than don't do it.

I would do a home equity or home improvement loan for 15 years which will keep your payments small and your cash flow flowing.

 

[freqz]

I agree with the "don't cash it out" sentiment. It seems silly to cash out this money and pay the penalty and taxes to turn around and put more money back into a retirement account.

*Sock this windfall into your retirement account and consider a portion of retirement savings prefunded for a few years.
*Use another tax advantaged vehicle (like home equity) to improve the backyard-- money is cheap right now.
*Use the cash you've already set aside (if any) to make the "down payment"
*Use the portion of retirement that has been "pre saved" along with what you were setting aside anyway to make the payments.

Credit is a tool and no sense not using it if you can do so responsibly, IMO.

 

[rmclain73]

Follow up:

My pool builder is more less busy with jobs through the fall. I need to have a more updated survey done on my land, and run everything through the town. I am 90% sure they will not have any problems, but my town is known for being jerks about the smallest of things. If the town says no, then this is all a mute point anyway. My pool builder can give me a better deal if we build in the fall, plus I will then be able to open in spring. The earliest we would start would be fall 2015. So for now the money is being rolled over into an account to be potentially withdrawn from at some point in summer/fall 2015.

I did run this by both my CPA and financial advisor. My CPA gave the answer I knew he would about taxes and what not, but in the end said it was our choice. My financial advisor actually surprised me. He said as you know everyone has a different financial situation. Looking at all aspects, and putting everything into play, using this money wouldn't be the worst thing we could do. Who knows where we will be in a year, but its nice to know that when the time comes to put the pool in, there will be money.