Inheriting $25,000...
January 26, 2008 12:24 PM Subscribe
A family friend recently died and left me and my sister $25,000 each. Now what?
Seems like we should hire professional help, but what sort of help (specifically)? Lawyer? Financial planner? Tax attorney? What?
(In terms of my current financial situation, I paid off my credit cards last year, and am planning on putting some of this money into a Roth IRA, and the rest to pay for living expenses over the next couple of years of my master's degree. If there's some way I can avoid giving much of the money to Uncle Sam, that'd be swell.)
Seems like we should hire professional help, but what sort of help (specifically)? Lawyer? Financial planner? Tax attorney? What?
(In terms of my current financial situation, I paid off my credit cards last year, and am planning on putting some of this money into a Roth IRA, and the rest to pay for living expenses over the next couple of years of my master's degree. If there's some way I can avoid giving much of the money to Uncle Sam, that'd be swell.)
This question gets asked like every week now. Just clicking one of your tags turns up several instances.
posted by knave at 12:51 PM on January 26, 2008
posted by knave at 12:51 PM on January 26, 2008
Yeah- just see if you can buy an hour's worth of a financial planner's time. Look for the fee-only ones because most of the others don't like to bother with anything under $somehugeamount. Unless you're getting a whole financial plan at the same time, or there are some other complications, figuring out what to do with $16,000 ($25k minus 2007 & 2008 ROTH contributions) that you're going to spend soon anyway should take them about 1/2 an hour, imo.
disclaimer: I am a fee-only financial planner, but I am not your fee-only financial planner.
posted by small_ruminant at 12:56 PM on January 26, 2008
disclaimer: I am a fee-only financial planner, but I am not your fee-only financial planner.
posted by small_ruminant at 12:56 PM on January 26, 2008
Max your 2007 and 2008 Roths and IRAs, then either put the rest into a savings account for emergencies (if you don't have one) or a CD (if you have liquid savings and you'd like to lock in good rates before they plummet).
posted by rxrfrx at 1:37 PM on January 26, 2008
posted by rxrfrx at 1:37 PM on January 26, 2008
$25,000 is hardly worth seeing a financial planner about although it probably seems like a lot of money to you right now. It might be worth it if you had a steady job for the future and were seeking advice about all of your future financial plans. But in your case it sounds like you are continuing or going back to school and likely to need to spend the $25,000.
Maxing out your Roth is a good idea. The rest, assuming you need it for school expenses in the next couple of years, should not be invested in stocks. That is too risky for short term needs. Just put it in a high interest paying money market account or CDs.
posted by JackFlash at 1:45 PM on January 26, 2008
Maxing out your Roth is a good idea. The rest, assuming you need it for school expenses in the next couple of years, should not be invested in stocks. That is too risky for short term needs. Just put it in a high interest paying money market account or CDs.
posted by JackFlash at 1:45 PM on January 26, 2008
my sympathy for your loss and my congratulations for your gain.
this sounds like you don't really need it all that much right now, so turn it into a safety net for a rainy day. if you're living in the united states and are a regular working joe, you're most likely one catastrophic event away from financial ruin. (ever noticed that even those with health insurance can easily rack up a million dollar hospital bill when it really rains?) it's smart to have 25k stashed away just in case.
I'd suggest finding a high-interest savings account or a cd and locking it in for a year or even longer. 5% interest should add $1,250 in just a year and the fed might just lower interest rates again if the economy keeps tanking. perhaps you can still find 6% somewhere, bankrate.com is the place to look.
don't just do something because it burns in your pocket. that's for kids.
consider joining a website like mint.com to keep track of your spending and earnings (they put quicken to shame) and spend a bit of time monitoring the fat wallet forums and you'll be on a good track.
posted by krautland at 1:59 PM on January 26, 2008
this sounds like you don't really need it all that much right now, so turn it into a safety net for a rainy day. if you're living in the united states and are a regular working joe, you're most likely one catastrophic event away from financial ruin. (ever noticed that even those with health insurance can easily rack up a million dollar hospital bill when it really rains?) it's smart to have 25k stashed away just in case.
I'd suggest finding a high-interest savings account or a cd and locking it in for a year or even longer. 5% interest should add $1,250 in just a year and the fed might just lower interest rates again if the economy keeps tanking. perhaps you can still find 6% somewhere, bankrate.com is the place to look.
don't just do something because it burns in your pocket. that's for kids.
consider joining a website like mint.com to keep track of your spending and earnings (they put quicken to shame) and spend a bit of time monitoring the fat wallet forums and you'll be on a good track.
posted by krautland at 1:59 PM on January 26, 2008
If you are under 30, you should be aware of the big magic that compound interest can perform for you. If you put 20,500 in a roth at 26 and get average returns, you could retire with a million smackers. You could fare better in retirement by putting that away now and forgetting about it until you're 65 than someone who starts saving for retirement at 40 (when most people do) and puts away a LOT more money.
You weren't expecting it, so you could just sock it away pretty painlessly and be really, really glad you did when you get to be 65.
Check out the Motley Fool's retirement articles. They have some pretty solid advice.
posted by jennyjenny at 3:24 PM on January 26, 2008 [1 favorite]
You weren't expecting it, so you could just sock it away pretty painlessly and be really, really glad you did when you get to be 65.
Check out the Motley Fool's retirement articles. They have some pretty solid advice.
posted by jennyjenny at 3:24 PM on January 26, 2008 [1 favorite]
I would expect an hour with a tax accountant rather than a financial planner would be more beneficial. Just guessing.
posted by gjc at 3:42 PM on January 26, 2008
posted by gjc at 3:42 PM on January 26, 2008
Seconding seeing a tax accountant, given the financial goals you've stated.
$25,000 may sound like a lot, but it won't even cover two semesters' out-of-state tuition at some universities. Because most master's programs are unfunded, many students rack up credit card debt during their graduate studies (financial aid only goes so far). So having some of the money on hand might be wiser than locking it all up in a retirement account.
posted by needled at 4:50 PM on January 26, 2008
$25,000 may sound like a lot, but it won't even cover two semesters' out-of-state tuition at some universities. Because most master's programs are unfunded, many students rack up credit card debt during their graduate studies (financial aid only goes so far). So having some of the money on hand might be wiser than locking it all up in a retirement account.
posted by needled at 4:50 PM on January 26, 2008
Financial Planners are pretty useless- everything they're going to tell you is already listed here, and they're going to push more products on you "oh, what about life insurance??".
Considering you've probably already paid estate taxes on the money, the best way to avoid paying further taxes is just stashing it in a Roth. Max out the Roth (don't just put some). This year the limit is $4000, and I think next year it jumps up to $5000.
Use the Roth as your primary investment vehicle, as you will never pay taxes on that money ever again.
Once its in the Roth just put it in an Index fund and forget about it.
As for the remaining money (that's just chilling in your bank account until you put it in the Roth), I would just lock it up in CDs, and stagger it so that when the CD's expire, you can just put it in the Roth. This also prevents you from blowing it on something.
Of course this is assuming you've covered all your debts. If you need to cover some debt, I would still max out the Roth and just not do the CD's.
You should be able to cover 3- 4 years of max Roth IRA contributions, which will make a world of difference at the other end of the retirement tunnel.
posted by unexpected at 5:33 PM on January 26, 2008
Considering you've probably already paid estate taxes on the money, the best way to avoid paying further taxes is just stashing it in a Roth. Max out the Roth (don't just put some). This year the limit is $4000, and I think next year it jumps up to $5000.
Use the Roth as your primary investment vehicle, as you will never pay taxes on that money ever again.
Once its in the Roth just put it in an Index fund and forget about it.
As for the remaining money (that's just chilling in your bank account until you put it in the Roth), I would just lock it up in CDs, and stagger it so that when the CD's expire, you can just put it in the Roth. This also prevents you from blowing it on something.
Of course this is assuming you've covered all your debts. If you need to cover some debt, I would still max out the Roth and just not do the CD's.
You should be able to cover 3- 4 years of max Roth IRA contributions, which will make a world of difference at the other end of the retirement tunnel.
posted by unexpected at 5:33 PM on January 26, 2008
No one has yet given you the good news. You do not owe any taxes on this money. It is not income to you and no tax has to be paid.
posted by megatherium at 8:19 PM on January 26, 2008
posted by megatherium at 8:19 PM on January 26, 2008
megatherium is right. I suggested a financial planner only because if you are completely new to investing, even opening a ROTH is intimidating and you'll end up doing it at your local bank which will likely only have sucky funds to invest it in. Financial planners are good for education- that's what you're actually paying for. If you find a decent one, they'll be stoked to do it. Or maybe that's just us nerds. Anyway- if you're not inclined to try to sort through the zillion and one pages of investment advice online, paying for an hour's education will probably be a good investment.
If you are already comfortable with the basics of money, the posters above are completely correct, and you should skip all the professionals and do it yourself.
Just to clarify- ROTHs won't save you any taxes now. They'll save you huge amounts when you retire and get to pull the money out tax free. If you're desperate for the tax breaks now, do a regular IRA. That's not usually the best way to go, especially when you're years away from retirement, but it's your decision, and I don't know your situation.
posted by small_ruminant at 8:49 PM on January 26, 2008
If you are already comfortable with the basics of money, the posters above are completely correct, and you should skip all the professionals and do it yourself.
Just to clarify- ROTHs won't save you any taxes now. They'll save you huge amounts when you retire and get to pull the money out tax free. If you're desperate for the tax breaks now, do a regular IRA. That's not usually the best way to go, especially when you're years away from retirement, but it's your decision, and I don't know your situation.
posted by small_ruminant at 8:49 PM on January 26, 2008
This thread is closed to new comments.
posted by The corpse in the library at 12:30 PM on January 26, 2008