Ask Terry Questions Inheritance/Small Windfall Best Use For This Money

Inheritance/Small Windfall Best Use For This Money

By Terry Savage on March 30, 2015 | Financial Planning / Retirement

Terry, I and my husband are 51 and 55 yrs. old respectively we are both working. Daughter, in college, earning her own way and acquiring student loans (end of 4 yrs. she’ll owe only about $22K). Inheritance from mother in-law received in Dec. 2014 ($20K). We have nothing saved for retirement. So far we have used 8K for credit card debt and a down payment on a newer/used vehicle. Is it best to place the remainder in a Roth IRA? Remaining credit card debt totals about $3K. This debt is on interest free card which we are able to manage payments (above and beyond the minimums) in order to erase the debt. Savings acct. total $2K. We are renters as well. What is the best use for this windfall considering our situation?

Terry Says:  One of the best things about putting the money in an IRA is that it is literally “out of your hands” and out of the way of temptation to spend it!  So a Roth would be a good idea, invested conservatively.  (I would suggest an equity-income fund, such as the T. Rowe Price Equity Income fund  — full disclosure: I use that fund!)

Just remember that a Roth is not a joint account; IRAs are, by definition, “individual” accounts.  You could each open an IRA and each put $6500 in it — as long as each of you had that much earned income in the past year.  Of course, you won’t get a tax deduction for a Roth, but it has the advantage of tax-free growth and no required withdrawals at age 70-1/2.

Two other “family” things:  First, I hesitate to bring this up– but an inheritance remains the property of the inheritor, not marital property — until your husband gifts you the money to open your own Roth!  (No gift tax on transfers between spouses.)  He may have some thoughts on that.  And second, I am so-o glad you did not volunteer to use the money to pay down your daughter’s student loans.  She can do that herself!  And she won’t be supporting you in your old age, so you will need that money.  In fact, get that other card paid down and try adding to the IRAs next year!

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