Help with advising sister who's husband just passed.

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jsm1708
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Joined: Mon Feb 20, 2017 10:39 pm

Help with advising sister who's husband just passed.

Post by jsm1708 »

My sister's husband recently passed away at the age of 54. Now my sister is wanting me to help her handle investing her deceased husband's 401K and life insurance. My first thought was to just have her call Vanguard and talk to an expert. Then I thought that I may be over complicating it. My sister is 53 and has nothing personally saved for retirement. Her husband passed with approximately $170K in his 401K that is in a tax deferred account. In addition to his 401K, she also will receive approximately $110K of life insurance. Should I just advise her to allow Vanguard to roll the 401K into an IRA? Also, I'm not sure how to advise her on how to handle the life insurance money. My sister is employed and has no children living at home. She probably makes $45K a year. Anyone have any suggestions on how I should proceed?
Nyc10036
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Re: Help with advising sister who's husband just passed.

Post by Nyc10036 »

Condolences to your sister.

Personally I don't think there is a need for her to talk to Vanguard.

Are you absolutely certain there is nothing saved in IRAs?
What about other savings?
Is the house fully paid off or is there a mortgage?

What about medical insurance? Was she on her husband's plan at work?
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Wiggums
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Re: Help with advising sister who's husband just passed.

Post by Wiggums »

Very sorry the loss in your family.
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delamer
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Re: Help with advising sister who's husband just passed.

Post by delamer »

I’m sorry for your family’s loss.

Is she going to need any of the insurance money to pay her day-to-day bills? I assume her income is reduced due to her loss?
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sailaway
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Re: Help with advising sister who's husband just passed.

Post by sailaway »

Does her own income meet her needs or will she need to start drawing from these funds immediately? That will make a difference with what to do with the life insurance money. If she doesn't know, plop it into a HYSA for now while she works out her new expenses.

The 401k could be rolled to an IRA an put into a target date fund, if she doesn't need it to bridge her until SS. If she can at least stretch her income and life insurance until this is penalty free, that would help. But if she thinks she will need to access these funds earlier than 59.5, then Roth conversions may be helpful.
niagara_guy
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Re: Help with advising sister who's husband just passed.

Post by niagara_guy »

I am sorry for your sister's and your loss.

I assume the life insurance will pay promptly and then it can be used to pay for any urgent bills. I don't think it's necessary to make decisions about the 401k in the short term. I am a fan of Vanguard (I have not used PAS but it might be an option for her if she needs an advisor). I don't know the details but she might have to do a rollover of the 401k to an IRA (the plan might not allow her to keep the money in the 401k). Her husband's HR department should be able to help. Vanguard can answer questions about moving the 401k to an IRA.

I trust the advice given on this site. Try to keep her away from financial advisors that will charge high fees.
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Watty
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Re: Help with advising sister who's husband just passed.

Post by Watty »

Rolling the 401k into an inherited IRA at Vanguard and putting into a target date fund would be a good safe choice. Later on she can move the money into something else without any tax issues if she wants to. She can contact Vanguard and they should be able to walk her through the process.

There is a wiki on managing a windfall and a main point is to park the money someplace safe for six months or a year while you come up with a long term plan. I would just put any of the insurance money that she does not need right away into six month CD and then figure out what to do with it in six months.

https://www.bogleheads.org/wiki/Managing_a_windfall

When she is ready for it she can post her information here using this suggested format as a guideline, but she does need to follow it exactly.

viewtopic.php?f=1&t=6212
Topic Author
jsm1708
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Re: Help with advising sister who's husband just passed.

Post by jsm1708 »

Wow! Thank you to all who have responded so quickly. I will try to answer the questions I have been asked. There are no other IRAs that I am aware of. She rents her home from her father-in-law. I am not sure if her income is enough to pay her monthly expenses. As you can tell, my sister and her husband were not big savers. I am just trying to make the best out of a sad situation.
Nyc10036
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Re: Help with advising sister who's husband just passed.

Post by Nyc10036 »

jsm1708 wrote: Tue Apr 13, 2021 8:50 pm Wow! Thank you to all who have responded so quickly. I will try to answer the questions I have been asked. There are no other IRAs that I am aware of. She rents her home from her father-in-law. I am not sure if her income is enough to pay her monthly expenses. As you can tell, my sister and her husband were not big savers. I am just trying to make the best out of a sad situation.
I have read though I have not personally experienced poor service at Vanguard.
I am not going to leave Vanguard, but I am diversifying my accounts to Fidelity so I have more of a 50-50 split.

Life insurance money into online savings account giving 0.5% which will give her some time to ponder.
Figaro
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Re: Help with advising sister who's husband just passed.

Post by Figaro »

My condolences.

It didn't sound too complicated situation for the assets mentioned.

Get the death certificates ready for these.

Life insurance: deposit into a high yield.savings account initially and just hang onto it for a while to determine best course of action.

401k:. Another poster said to put into an inherited IRA, but since it's a spouse - should actually put it into her own IRA (bc of the Secure Act, it's much simpler to just take it into your own IRA as a spousal transfer. lf she did not have an IRA setup yet, have her set up a new one then do the transfer.

Social security:. Have her schedule a call with her local social security office. Will qualify for survivor benefits. The admin could then walk through different scenarios.

In addition to these avenues, have her comb through old accounts to be sure there are no random one off accounts somewhere where they could be redeemed.
techiegirl
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Re: Help with advising sister who's husband just passed.

Post by techiegirl »

If she rolls over the 401k into an inherited IRA, she can take withdrawals before 59.5 without penalty, as a spousal inheritance. If she rolls over to her own IRA, she won’t be able to.

Also when I contacted the company about my husband’s 401k, they started the clock ticking and told me I had 90 days to make a decision on what I wanted to do. If I didn’t, they would cash out the entire 401k and send me a check (minus withholding). They were not very nice or helpful.
Topic Author
jsm1708
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Re: Help with advising sister who's husband just passed.

Post by jsm1708 »

techiegirl wrote: Tue Apr 13, 2021 9:31 pm If she rolls over the 401k into an inherited IRA, she can take withdrawals before 59.5 without penalty, as a spousal inheritance. If she rolls over to her own IRA, she won’t be able to.

Also when I contacted the company about my husband’s 401k, they started the clock ticking and told me I had 90 days to make a decision on what I wanted to do. If I didn’t, they would cash out the entire 401k and send me a check (minus withholding). They were not very nice or helpful.
That is great information. Thank you. Yes, it sounds like your husband's company was not nice to deal with.
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jsm1708
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Re: Help with advising sister who's husband just passed.

Post by jsm1708 »

Figaro wrote: Tue Apr 13, 2021 9:08 pm My condolences.

It didn't sound too complicated situation for the assets mentioned.

Get the death certificates ready for these.

Life insurance: deposit into a high yield.savings account initially and just hang onto it for a while to determine best course of action.

401k:. Another poster said to put into an inherited IRA, but since it's a spouse - should actually put it into her own IRA (bc of the Secure Act, it's much simpler to just take it into your own IRA as a spousal transfer. lf she did not have an IRA setup yet, have her set up a new one then do the transfer.

Social security:. Have her schedule a call with her local social security office. Will qualify for survivor benefits. The admin could then walk through different scenarios.

In addition to these avenues, have her comb through old accounts to be sure there are no random one off accounts somewhere where they could be redeemed.
Thank you for the detailed response. I will make sure we cover all that you suggested. I was already thinking of opening her an ALLY account to put the insurance money in after reading some of the previous suggestions.
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BL
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Re: Help with advising sister who's husband just passed.

Post by BL »

If things can wait a bit, that would be the best thing. Check the Wiki for "windfall" which gives suggestions for sudden money influx. I agree that leaving the 401k alone for a bit if that is allowed by the company, and also parking the life insurance in a safe place for a while is a good idea. If she needs extra cash the life insurance would be available. (Some folks spend anything they can get their hands on, but hopefully she is not one of those.) Working as long as possible would help her save for retirement or at least not use up what she has saved. Looking at her expenses might be important in planning, even though things may change somewhat.

Go to Amazon.com and look at books by Jane Bryant Quinn. She is easy to read and gives good advice. They are handy to have for reference when a subject comes up. Your public library probably has them also. Mike Piper can be searched here or his book on Social Security can be had at Amazon.

There are many choices on when/which to take SS: widow age 60 to Full Retirement Age, her own anywhere between age 62 to age 70. If she can delay her higher widow's benefits to FRA, that would give her the best future benefits. She could take her own before that. There is a calculator mentioned here that might help. Then again if she will run out of money earlier, she may not have the luxury of delaying for higher future benefits.

A quick read is 16-page etf by a recommended author written for his beginner children:
https://www.etf.com/docs/IfYouCan.pdf
Especially read Hurdle 5 to remind her not to get scammed. She may well become the target for these.

I would feel safe having Vanguard PAS manage funds for 0.3%/year as they put you into low-cost index funds and don't try to sell you expensive insurance or other investment products. I believe they would tell you what they advise before you commit. An alternative is to pick out a balanced fund there that has the suitable % of fixed income. This can wait a bit. Use this time to gather information and do the required things.

Remember even good advice can backfire due to what happens in the markets. Also having a low-cost good advisor might be good in case you get hit by the proverbial truck.
HomeStretch
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Re: Help with advising sister who's husband just passed.

Post by HomeStretch »

Not the most urgent financial task, but your sister may need to update her estate planning documents. Beneficiary(ies), executor named in will, healthcare representative, attorney-in-fact for durable power-of-attorney, etc.
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JoeRetire
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Re: Help with advising sister who's husband just passed.

Post by JoeRetire »

jsm1708 wrote: Tue Apr 13, 2021 8:50 pm Wow! Thank you to all who have responded so quickly. I will try to answer the questions I have been asked. There are no other IRAs that I am aware of. She rents her home from her father-in-law. I am not sure if her income is enough to pay her monthly expenses. As you can tell, my sister and her husband were not big savers. I am just trying to make the best out of a sad situation.
Creating a plan starts with assessing her current situation thoroughly and comparing it to her needs and goals. Treating the inheritance and insurance money in a siloed manner is not optimal.

Perhaps you can help her find a fee-only fiduciary financial planner. She can spend a few hours with them and come up with a viable plan.
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Cigarman
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Re: Help with advising sister who's husband just passed.

Post by Cigarman »

My deepest condolences.

Not 100% on topic but I went through something similar when my wife passed last year. The funeral home was very helpful in providing a list of tasks that needed to be done (credit cards, insurance, people to notify, etc.) but I also compiled my own list on a spreadsheet with a column indicating the day I notified the companies and when I got a response from them.

Make a file and keep PDFs of all correspondence in that file as well as hard copies to keep forever. This is especially true if there were credit cards in his name only. She will not be held responsible for any charges that were in his name but will receive collection letters on those accounts once they are written off and will have to respond to those letters.

We were not budgeters so I made a list of all the recurring charges and eliminated those that I felt I no longer needed. (As an example, we had a Vonage land line that I eliminated in favor of cell phone only, saving $250/year). She may be surprised at how much she is spending on things that she no longer wants or needs.
billfromct
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Re: Help with advising sister who's husband just passed.

Post by billfromct »

Since she is 53, it's my understanding that she won't be able to collect SS survivor benefits until she is age 60 at the earliest (reduced amount) & if she is still working & making above $19,000 (actually $18,960 for 2021), $1 of SS benefits will be withheld for every $2 of earnings over the $18,960 earnings amount. Once she reaches full retirement age (probably 67) there are no earnings restrictions while collecting SS. It's my understanding that the SS money withheld is somehow given back at full retirement age with a higher monthly benefit, but why go through the administrative hassle.

Bottom line it probably doesn't make sense to collect SS while still working & under full retirement age. She will want to collect SS survivor benefits at age 67 if still working or earlier if not working.

It may make sense for her to open a Roth IRA with the insurance money. She can contribute $7,000 for the 2020 until mid May 2021, then contribute another $7,000 for her 2021 contribution. A tatget retirement fund like the Vanguard 2035 or 2040 target retirement fund may be appropriate as they are probably 70% to 80% stocks now then move to a 50% stock/50% bond allocation at the target year, then move to a 30%/70% allocation 7 years later. She should be encouraged to fund that Roth IRA every year until retirement.

I've read that the average SS benefit is about $1,500/month & with so little retirement savings, she may need to come to the realization that she won't be able to retire until age 70.

bill
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