A couple weeks ago, I told you about my grandmother’s decision to part with some of her hard-earned money (hard-earned? she hasn’t worked outside the home since 1946… maybe “well-invested” is a better term here!), giving financial gifts to her children and grandchildren in an effort to avoid estate taxes should (A) she die in 2013 and (B) Congress fail to pass an extension of current policy that exempts estates worth less than $5 million from paying estate taxes.

A few days ago, it became official: the family money showed up in my bank account. It was quite¬† shock to see the $13,000 pop up overnight; it essentially doubled our emergency fund in a matter of hours. But since no one really needs a $26,000 emergency fund (I’ve never even dipped into my existing emergency fund!), my husband and I are now at odds over just what to do with it.

Option #1: The Down Payment Fund

I’m a huge fan of hoarding money. Maybe it’s because I don’t hoard other things; but when it comes to cash, I like to have a lot of liquid assets. I’ve proposed saving the money for our eventual down payment on a new house; although this financial gift came with no strings attached, I think my grandmother – and everybody else in my family – expected us to use the money for this purpose. However, with our house going off the market (it just wasn’t selling!) for a while, putting the family money toward our down payment is now on the back-burner.

Option #2: Boosting Our Retirement Savings

This year, my husband and I will likely max out our Roth contributions for the first time ever. Woo hoo! However, while we’re funding his employer-sponsored 401(k) plan to achieve the maximum company match, it’s far short of the contribution limit of $17,000 set by the IRS. One option would be to direct more of my husband’s earnings toward his 401(k) account, using the $13,000 gift from my grandmother to supplement the resulting difference in my husband’s paychecks.

Option #3: Save It For The Kids

Another option is for us to split the money evenly between my two children’s 529 college savings accounts. However, since I’m a strong believer that you should only put “extra” money into this fund – and only after you’ve maxed out your annual retirement savings – this is an unlikely scenario for us.

Option #4: Spend It On The Kids

Did you know that having kids are expensive? Haha, if you’re a parent this isn’t news. My daughter is four, and we’re hoping she’ll enter kindergarten next fall. The problem is that she misses the cut-off date in our district by mere days. I’m considering sending her to a private school for a year or two, then transferring her to the public school; this will allow her to enter kindergarten when she is ready, not when the state thinks all kids her age are ready. Anyway, the bottom line is that I could save this money for now, and use it to pay for her tuition during the 2013-2014 and maybe 2014-2015 school years.

Other Options

Splurging – and spending the money on something we don’t need – isn’t an option for us, although that doesn’t mean my husband and I haven’t discussed those far-flung scenarios where we spend the money on a new car, a grand vacation, or new furniture for the house. I actually wish I could more seriously consider one of these more frivolous options, but the responsible side of me is too strong to allow that.

Reader, what would YOU do if you received $13,000 from a family member?

Libby Balke
Libby Balke