L2, I hate to sound skeptical but who were you going to buy the policy from? Big commissions may be in play. The Federal limit for a taxable estate is 5.45 MILLION per person and twice that for a couple. Most people will not have a federal estate tax due. That said, some states charge estate tax at much lower levels so you do want to check out that. I agree with Tyler than a second opinion from a fee-only advisor is a good idea. Life Insurance trusts were the hot thing WHEN estates where taxed at much lower limits (like 1 million). But now they are rarely used. If you do have about 11 million, you really need to work with a planner.
ecD - P.S. Thanks for your service!!!!
ecD, a family needs to save about 15% to replace their income in retirement (this includes any employer match). This saving can be in tradtional retirement accounts (always take advantage of a match), ROTHS, or even taxable accounts (it is nice to have different buckets of money to draw from). I wonder what you expect your tax rate to be in retirement. For many it will actually be lower than in their earning years which makes the ROTH less attractive. Now understand, I think a ROTH is a great idea for people your age, and I work with a lot of young adults. But you may consider putting some of it in a taxable account. If so, place your investments that spin off very little taxable income in the taxable account (to take advantage of capital gains rates). You should also think about using ETFs/exchange traded funds rather than Mutual Funds in such an account as ETFs often have lower taxable distributions at year end. All of this is very hard to determine with just a little information. Go spend a little on an hourly planner. I suspect that would give you a fantastic return on investment.
L3 - Risk and return are related. The higher the expected return, the higher the potential risk. Corporate vs. government doesn't mean much since "corporate" bond fund could many anything that invests in corporate bonds. For example, a corporate bond fund invested in the corporate bonds of a few select technology companies would likely be much riskier than a corporate bond fund that invests in hundreds of bonds across different sectors and different countries. The same goes for government bonds. A government bond fund covering a single country would likely be riskier than a bond fund covering multiple countries, types of bonds, and maturities.
L3 consider splitting your investment into 2 funds, one corporate bonds and one treasuries (Vanguard has a Intermediate Treasury fund/VFITX that is good). Look at the standard deviation of the funds as that is a measure of the risk. I would avoid high yield bonds as, although they pay a lot more in interest, if rates go up, they will suffer much more than other types of bond funds.
Seb - Will the money likely be passed along to heirs? If so, a Roth IRA might be beneficial, depending on their tax bracket when it comes time to withdrawal compared to the tax bracket when you contribute the money. If you have money in a traditional IRA, it might make sense to simply convert some of those funds next year when your tax rate is lower. Since we can't predict tax rates, that's why many advisors will recommend having some money in pre-tax, tax-free, and taxable accounts. This gives you flexibility when it comes time to make withdrawals.
ecD, it is a learning process. You seem to know a lot for your age. Keep it up. Good luck!
Nito, this is a CPA question but I feel like you could at least keep the basis as shown on the 1998 return (good for you for finding it!). One of the reasons I often avoid the occasional non-deductible contribution to a traditional IRA is that the record keeping over the years can be problematic as your case shows.
L2 term policies often have upside age limits. If you outlived the policy then the funds would not be available. But again, I question your need for such a trust...... PLEASE get a second opinion from a fee only advisor.
L2 - I second Bobbie's recommendation...have a fee-only advisor look at your situation. You won't be disappointed!
Natasha - That's so frustrating when an employer changes things like that! It sounds like your time horizon is still what many would consider "long-term." I'd encourage you to talk with an advisor about the best way to invest your money given your needs, risk tolerance, time horizon, etc. Just as important, it sounds like you might need to ramp up your retirement savings to help make up the possible shortfall, assuming the $50,000 is the only retirement money you have. Although it's never easy to make up lost time, it's certainly doable!
Natasha, I think you can just roll this over into a traditional IRA. For now, I would just invest it. But once you are older (i usually suggest 70 and up) and perhaps interest rates are higher, you MAY choose to purchase a single premium annuity from a plain vanilla provider like Vanguard. There are no bells and whistles with this kind of product. You just give them a lump sum of money and in return they promise to pay you (or jointly with you spouse) a given amount for the rest of your lives. The older you are, the higher the amount is. I would avoid annuities that are "investment vehicles," that is, they have investments inside of them which can fluctuate. Usually you can have much lower expenses (especially at a place like Vanguard) if you invest outside of an annuity product.
Mia, under current law you never have to take distributions from ROTHS. They are considering changing this for high income retirees but currently no one has to take distributions. That means the money can grow tax free for as long as you don't need it. If you leave the ROTHS to a young beneficiary (perhaps grandchildren instead of children) the potential for at least partial tax free earnings can continue for decades.
Mia - The funds in the TSP account are what we call "index" funds (except for the G-fund). In other words, they track a particular list of securities that tend to represent an asset class (e.g. large cap U.S. stocks) so I wouldn't necessarily discount the returns being "awful" as it all depends on what we're comparing it to. For example, the Vanguard 500 index fund and the TSP C-fund should track the exact same index (the S&P 500), so you should notice fairly similar returns between those two funds.
My thanks to Kiplinger for making this afternoon possible. It is always a joy to spend time with other NAPFA advisors as we try to help individuals with financial questions. All the best to everyone.
That's all the time we have for today, folks!
Yes, thank you Kiplinger and all the advisors and consumers who make this possible! Have a great evening everyone!
Thank you so much for your questions today, and a big thanks to all of the NAPFA advisers who participated.
Mark your calendars: Our next Maximize Your Money Chat will be June 16. Hope to see you then!