Investment Help for my Mom

[kepakids4]

My mother is 76 years old and recently lost her husband. I need some help in making some financial decisions for her. My mother is not in great health so I do not expect her to live much more than 5-7 years.

She does not have any real expenses and does not require alot of money to live on and gets buy on her social security and money in the bank. Her income does not require her to file an income tax return.

First question, my Dad had a $40,000 IRA at Putnam Investments invested in Class A shares of George Putnam Balanced Fud and Putnam Multi Cap Growth Fund. I want to roll this over to Vanguard. She will be using this IRA for additional money. Where should she invest this?

She also has another $40,000 received from life insurance. She does not need access to this money but I do not want it sitting in a bank savings account. Any suggestions on where to invest this cash.

Thanks

[Default User BR]

As we aren't talking a large sum, and the need is relatively short-term, I would take very little risk. Remember, tomorrow she could take a fall and need money for additional assistance not covered by Medicare or the like.

Find the best online bank accounts for part of it. Interest rates vary quite a bit, although you should expect under 1%. Some could go into CDs. I would stay away from the stock market.


Brian

[grabiner]

My mother is 76 years old and recently lost her husband. I need some help in making some financial decisions for her. My mother is not in great health so I do not expect her to live much more than 5-7 years.

She does not have any real expenses and does not require alot of money to live on and gets buy on her social security and money in the bank. Her income does not require her to file an income tax return.

First question, my Dad had a $40,000 IRA at Putnam Investments invested in Class A shares of George Putnam Balanced Fud and Putnam Multi Cap Growth Fund. I want to roll this over to Vanguard. She will be using this IRA for additional money. Where should she invest this?

You have to determine whether this is going to be her money or her children's. If it is going to be her money (that is, she might need it for her own living expenses), then it should be invested conservatively; Target Retirement Income makes sense for a retiree with a short life expectance. If you know that it won't be her money (she can live on SS and has enough emergency funds to cover everything else, including long-term-care insurance), then you can invest it as if it were part of her children's portfolio; if your own IRA is in Target Retirement 2030, you could use it for this IRA as well.

She also has another $40,000 received from life insurance. She does not need access to this money but I do not want it sitting in a bank savings account. Any suggestions on where to invest this cash.

Is this in addition to her emergency fund? If she won't touch the money for at least a year but might need it eventually, I-Bonds are a good choice, or CD's at a bank.

[fundseeker]

I am not an expert at money and tax issues, but if she uses the IRA money, will there be taxes to be paid? If so, is it not better to use the other money first? Also, when you open any new accounts, if she puts you as the person to recevie the money upon passing away, it might make things easier during probate.

[grabiner]

I am not an expert at money and tax issues, but if she uses the IRA money, will there be taxes to be paid? If so, is it not better to use the other money first? Also, when you open any new accounts, if she puts you as the person to recevie the money upon passing away, it might make things easier during probate.

Normally, it is better for her to use the taxable money (after taking RMDs from the IRA); the IRA money continues to grow tax-deferred as long as it is in the IRA.

However, there is one possible exception. If she is in a much lower tax bracket than her heirs, and her heirs are not maxing out their own retirement accounts, then she should withdraw the IRA money before her death. Otherwise, her heirs will have to take out the IRA money in a higher tax bracket, and they have no advantage in receiving the IRA money since they can use any taxable inheritance to increase their own IRA and 401(k) contributions.

[kitteh]

My mother is 76 years old and recently lost her husband. I need some help in making some financial decisions for her. My mother is not in great health so I do not expect her to live much more than 5-7 years.

She does not have any real expenses and does not require alot of money to live on and gets buy on her social security and money in the bank. Her income does not require her to file an income tax return.

First question, my Dad had a $40,000 IRA at Putnam Investments invested in Class A shares of George Putnam Balanced Fud and Putnam Multi Cap Growth Fund. I want to roll this over to Vanguard. She will be using this IRA for additional money. Where should she invest this?

She also has another $40,000 received from life insurance. She does not need access to this money but I do not want it sitting in a bank savings account. Any suggestions on where to invest this cash.

Thanks

I'm sorry about your Dad.

Are you sure that your Mom does not need to file tax returns? I pay zero federal taxes since my taxable income is Social Security and interest on taxable savings, and Schedule A wipes that out, but I need the federal return so that I can file the state income tax return. My state taxes even low income people. It also has a property tax break that is obtained via the state return based on income.

I assume your Mom is going to be using the IRA rather than the life insurance proceeds for spending because of mandatory withdrawals? I am not sure of the rules about this, but since your Mom now has your Dad's IRA, I think she is required to start withdrawals from that in some way. Those will be taxable, assuming it is a Traditional, not a Roth, IRA and may even increase her income enough so that part of her Social Security becomes taxable.

I started to read up on the inherited IRA distribution requirements for a spouse, but it promptly gave me a headache. My guess is she might be required to take out about $2000 a year based on what the IRS thinks is a twenty year life expectancy based on her age.

I would just say, keep both in very safe stuff. Even though your Mom is 76 and not in the best of health, you never know how long she may live, and there will be no time to recover if it is in something volatile that goes down significantly.

I'm not far from your Mom's age, and I have 90% of my savings, IRAs and otherwise, in 5 year CDs in credit unions. That gives me the maximum interest rate but if I need to take money out earlier, the (usually six month) penalty is not that high. Having several CDs rather than having to withdraw the entire amount early is helpful. Digital Federal Credit Union (dcu.org) is offering 5 year CDs at 1.84% interest. Anyone can join that credit union by contributing $10 to one charity out of a list of charities on their website. It is a large, long established credit union and I have done business with them for many years without even living in a state where they have a branch. They are in various credit union associations which allow transactions and ATM access nationwide.

[retiredjg]

Consider the Target Retirement Income fund (30% stocks) or LifeStrategy Income (20% stocks).

[kepakids4]

Thanks for all your advice. I cannot convince my mom to transfer the money from Putnam Traditional IRA to Vanguard. I need to move it to a low risk fund at Putnam. Does anyone have any recommendations on a Putnam fund?

[Duckie]

Putnam funds have very high expense ratios and loads (commissions). Here is a list of their funds. But be aware that if she sells what she has, when she buys the new choice she will be paying the load again. It may not be worth it.

Show her the Expense Ratio Calculator and compare the expense ratio of her funds with something similar at Vanguard. Maybe she'll change her mind about moving. If not, you've tried.

[BL]

It may be too soon to force unnecessary changes onto a grieving widow. If you are going to leave funds at Putnam, perhaps just leave them alone and put the 40,000 into fixed income such as CDs, I-bonds, or high interest money markets FDIC insured. They won't make much but will be guaranteed to be there while the IRA will hopefully continue to increase. Later perhaps the growth fund could go into a more suitable fund (unless you have to pay another load for buying it). Are you paying an adviser there? Perhaps a later visit toward moving to Vanguard could be done in a year or so. The standard advice is to make only absolutely necessary changes or decisions in the first year of widowhood.

[umfundi]

Maybe a little from left field, but:

Can she use the insurance proceeds to convert the Putnam IRA from traditional (if that is what it is) to ROTH? That would have advantages for RMDs and for heirs.

If she does go to Vanguard, my recommendation is Life Strategy Income. Unless if the money is for legacy / heirs, Life Strategy Moderate.

Keith

[BL]

Maybe a little from left field, but:

Can she use the insurance proceeds to convert the Putnam IRA from traditional (if that is what it is) to ROTH? That would have advantages for RMDs and for heirs.

If she does go to Vanguard, my recommendation is Life Strategy Income. Unless if the money is for legacy / heirs, Life Strategy Moderate.

Keith

Clever idea, except that might tie up her resources for 5 years and she may need them before that. I don't think she needs to worry about costs of RMD if she doesn't pay taxes (Taxes will be filed as single rather than married the year after he died so things start being taxable at a lower income level than before.)

[Default User BR]

Can she use the insurance proceeds to convert the Putnam IRA from traditional (if that is what it is) to ROTH? That would have advantages for RMDs and for heirs.

Clever idea, except that might tie up her resources for 5 years and she may need them before that.

No. She's over 59-1/2, so no penalty will apply to withdrawals even within the five-year window.


Brian

[umfundi]

I don't think she needs to worry about costs of RMD if she doesn't pay taxes

My thought is it's the fact, not the cost of the RMD. She may be able to convert traditional to Roth at very low cost and, as I understand it, the Roth is not subject to RMD during her lifetime. The beneficiaries may see a benefit in inheriting Roth rather than non-Roth assets.

Keith

[kitteh]

It may be too soon to force unnecessary changes onto a grieving widow.

Right. She may see those investments as associated with your Dad and not want to let go of them for that reason. I'm just slowly ten years after my Mom's passing prying some things out of my hands that I should have discarded before.

[BL]

Can she use the insurance proceeds to convert the Putnam IRA from traditional (if that is what it is) to ROTH? That would have advantages for RMDs and for heirs.

Clever idea, except that might tie up her resources for 5 years and she may need them before that.

No. She's over 59-1/2, so no penalty will apply to withdrawals even within the five-year window.


Brian

Thanks for clearing that up!

[BL]

I don't think she needs to worry about costs of RMD if she doesn't pay taxes

My thought is it's the fact, not the cost of the RMD. She may be able to convert traditional to Roth at very low cost and, as I understand it, the Roth is not subject to RMD during her lifetime. The beneficiaries may see a benefit in inheriting Roth rather than non-Roth assets.

Keith

You made a good point.