Disability Check - Where to Stash?

[sandrark]

So, I just got a 4 figure check from my disability insurer, towards payment of my file. I'm unsure how I want to allocate it...

1) We have 6 months of expenses in savings already, with more to be stashed when my car sells (bringing us up to 12 months).

2) I am fully funding my 403(b). Returns have averaged 30% over the past year.

3) My only debt is a car loan, at 3.9%. Balance is ~ $15K. Projections show it paid off in ~ 36 months, with no additional $ thrown at it.

I am tempted to stash the money in a 457(b) retirement plan, rather than paying off half the car loan. My reasoning:

- This is for my disability, due to surgery. Unfortunately, it is likely I will need another one within 10 years, which may force me to medically separate at age 55 or so (rather than work to 62, as planned). SO the more money I can stash, the better. I think it will also reduce my taxes this year, which is another bonus.

- The investment in the 457(b) is relatively minimal now, but could double or triple by the time I retire - and I'm likely to need the funds MUCH MORE in retirement than I do now, especially with medical issues.

- The car loan is cheap money, and I'm making more in the market (at the moment).

What am I missing? Do you agree or disagree, and if so, why?

Sandi

[swanson719]

Why the 457(b) over a Roth IRA? A 457(b) is taxed at withdrawal, whereas a Roth is all post-tax money. It may reduce your taxes this year, but if you're going to need the money more in retirement, wouldn't it be better to have lower taxes in retirement? Your money may double or triple between now and retirement in a Roth just as easily in a 457(b), but with a Roth you won't pay taxes on the gain. In the 457(b) I doubt the tax offset this year will outweigh the taxes on the gain.

I don't argue investing the money over paying off the car loan, it being cheap money. I just think from a tax standpoint the Roth is better. We're also making an average of 50%+ investing into Asian markets in our Roth as opposed to the 30% you're seeing in the 403(b). Investing into developing countries seems to have always paid off well in the past. India, China, and Brazil are all hot right now.

[sandrark]

We make too much to qualify for a full Roth contribution.

When are taxes are done in a month or two, if we qualify for a partial Roth contribution, we'll pay it from our 12 month savings account.

Sandi

[jefffou]

HSA would work pretty good here.

However, that would mean that either you or your husband would have a high-deductible health care policy. Looks like you do not (considering your employer...hint: 457 and 403b), but what about your husband?

Fully deductible going in, and if spent on health bills in the future, non-taxable coming out....also investable with some providers...hsa administrators with Vanguard funds comes to mind.

Just a thought,
Jeff

[sandrark]

We have full medical coverage through my work. Premiums are ~$220/month, no deductible HMO. I already contribute ~ $1K per year to an FSA, which is about right for meds, co-pays, glasses, dental, etc.