@MikeT. Life insurance paid during lifetime, even endowment contracts, will be partially taxable. You'll want to find out the basis in the policy (how much your Mom paid) since tax will only be owed on the tax deferred growth and not on the basis. There may also be a variety of payment options to receive the funds, allowing your Mom to stretch the payments (and the tax) over a number of years. A conversation with the insurance company about your Mom's options are a good place to start.
Jodi, the best advice I can give with inheritances is to make it a part of your plan. It is a great gift that your Mother wanted you to use in the best possible way for you. Incorporate it with your other assets in a holistic approach towards your goals. If your investment goals have a long time horizon, you are correct, investing for growth is likely the right approach.
Hi Ruth, congratulations on successfully saving for retirement! Yes, I think you are wise to give it a year with the resources you have. Very smart. I think your plan to pay off the loan as you've suggested is good.
@Ms. Y: I don't have a crystal ball to see what Congress is going to do (neither do they!) but my advice would be to proceed as planned and reevaluate if something actually changes with the law.
@i have just about made it - I think you are on the right track incorporating taxes into your withdrawal plan. Very, very generally, I often recommend maximizing the 15% tax bracket with withdrawals from pre-tax accounts, then taxable accounts. If you don't need the money, it may even make sense to convert some to a Roth account. I would recommend speaking to a holistic advisor and reviewing tax projections to determine the strategy. Keep in mind the taxes you'll have to pay on those withdrawals.
parisorbust asks: Retiring overseas in a few year with all money in 401k/IRA. How can investments be managed when Fidelity/Vanguard/etc will not non US residents to purchase ANY investments (only sell).
@TN you should be making contributions to SS via self-employment taxes on your personal return if you are a 1099 employee. SS does pay more the longer you wait until you collect.
@TN: Yes, assuming you qualify for SS benefits, your benefit will increase 7-8% annually depending on your year of birth until a maximum of 132% of your benefit at age 70. At that point, there's no advantage to continue waiting to claim SS.
TN - I hit post too early - look for the FAQ on the SS site (which is very good these days) and try question 7.
Parisorbust I'm not perfectly sure how to remedy that situation. I would start with an attorney that works with transnational or cross-border clients. I cannot imagine you are the first person to look to relocate abroad yet keep their investments in the US.
@Betty: The appropriate investment depends on Mom's income needs. Whatever she needs for income, emergency, and health care expenses, keep in a conservative investment. CDs or short term bond fund would be reasonable. If there's a pretty good chance that she won't use the rest, and it's going to be inherited by the family, then it's reasonable to invest it as if it's the beneficiaries money already. It's not uncommon for our 90 year old clients to have a higher portion allocated to stocks since they won't use the money during their lifetime.
Hi Ricardo, glancing at Morningstar's analysis of this index fund, it has really low expenses, is a good long term REIT index fund and is consistently more volatile than it's category peers. Assuming this is a long term holding for you, it looks like a solid choice in it's category. Due to the continuing pressure on RE prices, you may continue to see this
@Betty - for whatever income she needs for the next 10 years, CDs are probably the best bet. If any of the portfolio beyond that is meant for gifting purposes, perhaps it is worth diversifying. It is very difficult to say without knowing her needs and goals, but I would simply be cautious if she is in touch with her accounts still what impact any fluctuation in value would have for her. It may not be worthwhile to maximize returns if it would cause her to worry over it.
Ricardo - one more thought - a way to think about volatility is whether you are paid for it over time and it looks like long term that is true here.
TKS - it's true but it's a calculation, usually far less than what one is hoping for because the calculation is similar to an annuity and if for any reason you interrupt the distribution scheme, the entire amount becomes taxable. We use this in very special circumstances only and nowhere else.
Oops - tks, I misspoke - you said this was a 401(k) not IRA. Check the rules of your plan which dictate any distribution scheme. But I doubt it's available. My previous answer applies to IRAs. Sorry.
@Ricardo real estate is a great diversifier, but we sometimes forget it can be volatile. You'll win by rebalancing into assets that drop swiftly. Look at what's gone up, and see if it makes sense to use this as an opportunity to buy into real estate.
Ricardo, Its almost impossible to know why any security, let alone a fund holding over 130 positions moves in any direction. My question would be what was your objective when investing? Was it price appreciation? Income? A combination of both? What was your time horizon? Short term (5 years or less); medium term (5 - 10 years) or long term (10 years +)? Has anything changed in your objective? If so perhaps you should reevaluate if this position is still appropriate for you especially time horizon and income or growth.
@TKS - An early withdrawal penalty of 10% is applied to withdrawals from IRAs before 59 1/2 and 401(k) before age 55. After age 55 for the 401(k), you also need to have terminated employment from the employer that sponsors the plan. You'll still owe income tax on the IRA or 401(k), it's simply the 10% penalty won't apply after age 55 or 59 1/2. Therefore, if you retire between 55 - 59 1/2, there's an advantage to leaving the money in the 401(k) rather than roll it to the IRA so you can avoid the 10% penalty.
@tks - the 55 rule for 401(k) is that you must retire after 55. Check your plan documents if they have this provision, it's fairly common though.
@tks There are other ways to avoid the 10% penalty as well if you need funds, but leaving money in the 401(k) that you'll need before 59.5 (assuming you separate from service after 55) is often times a good plan
@bob k - I would look at your mix over all of your accounts, and use assets that work well in the IRA for that part (bonds, real estate, commodities). However, don't just rely on "risk tolerance" alone. I believe your assets should be aligned to your goals and needs, not how you answer a questionnaire. How you answer it today may be different than tomorrow.
@Bob K: An appropriate allocation might include a decent portion of the stock % to domestic equities, with a tilt toward small/value mutual funds. You also might consider 1/4 or 1/3 of the stock allocation (15-20%) or so to international and emerging market stock mutual funds. As for the bond portion, you have a lot of options, but the combination of a good domestic and international bond index fund should suffice for diversification purposes.
Good point Robert! @Bob K: As Robert said, the risk tolerance is only one piece of the pie in terms of the information you should consider when putting together an overall investment plan!
@bob k - the mortgage question is one where having a financial plan really helps, and working with a financial advisor who knows your values. I can agree having a long-term mortgage makes sense financially... however... many people prefer the feeling of not having that liability in retirement. It all depends on your assets, goals, needs in the context of an overall plan.
@tks The tax implications will be the same at any time you take money from a qualified retirement plan. If you put the money in on a tax deferred basis you will pay the tax upon withdrawal. If you put in after tax contributions, and the plan allows you to take those dollars out, you would pay tax on the amount over your contribution (essentially your basis in those contributions) for the after tax portion only.
@tks What is you objective?
@Bob K: I'm personally a big proponent of entering retirement debt free so I'd say pay off the mortgage. But other advisors may feel differently.
Agree completely Tyler... paying off the mortgage is most often something people should target
@Vark77... you will need to run an income tax projection to know if you shouldn't tap retirement accounts. I see people in these situations with negative taxable income and they miss opportunities to withdraw on a low tax basis
Hi Ohio Buckeye, we run an excellent report in the office that considers birthdate, gender, PIA, spending needs, future earnings, etc. It compares available strategies to show you which one provides the most overall income from SS to your household. You may choose a different strategy for other reasons but clients find it quite helpful. Most fee-only planners would have a similar tool available to provide the report at a reasonable charge. I recommend you get specific guidance with your actual benefit, spending numbers.
@Vark77 it sounds like you have a lot of moving pieces, and I certainly can't say which accounts would be best to tap from an investment standpoint. I do think you appear otherwise are thinking about things correctly. Keep in mind the limitations on one-time partial withdrawals from the TSP. Also, try to coordinate your investment approach over your accounts. Some of your concerns are fairly (medicare costs) are likely minor compared to keeping your investment plan. While we want to incorporate taxes in the plan, don't put too much of the tax decision in front of the investment plan.