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My unmarried (no children) well-off Aunt just passed away and left me and four other cousins her 401k from her most recent company. The lawyer handling the estate called me yesterday and told me my individual amount is $56,000 and will be issued by Fidelity. Before I get into my own assets for advice, because this money is from her 401k it has not been taxed yet so any money I take out will take around a 20%(i think) tax cut. However, I can transfer it to my own IRA and have it not taxed. I can also take some money out and leave the rest in the IRA, only taxing some of the funds. I do not have to either leave it all or take it all out. Me: Currently 28 years old $48,000 a year salary The only debt I have is the $6,000 left on my student loans, as I just paid off my car. In savings I have $1,700. I know I was at least going to pay off my student loans and maybe put my savings up to $10,000 for an emergency fund. But because this money is being taxed maybe I should just leave the emergency fund in the IRA and only pull it out when I have an emergency? Anyway, any help would be appreciative.
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Jul 29, 2015 16:56
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| # ? May 2, 2024 10:41 |
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Unless you really have an emergency, I'd absolutely just transfer to your IRA and let it ride.
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Jul 29, 2015 17:06
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IF YOU TAKE A PAYOUT: counting standard deductions, etc. this money should all be in the 25% federal tax bracket for single. You'll also pay state and/or local so let's call it 30% actually for tax. I get $39k left over. What are your expenses per month? If you only have $1,700 in savings, I think it must be fairly high. You should make your emergency fund six months of expenses (taking into account some reasonable cutbacks you might make in an emergency). If you think $10k could last you six months, I'd say do this: $6k - pay off the loan $8500 - get your emergency fund to 10k $5500 - invest into target retirement fund in Roth IRA at vanguard.com . $5500 - hold onto until January 1 of next year, put it into the fund from the prior line. $2500 - go have a fun trip somewhere in Europe or something. $11000 - open a taxable investment account, again probably at vanguard.com . Someone else can probably give you better advice about fund choices. You would be setting yourself up very well and having some fun. IF YOU DON'T TAKE A PAYOUT: just let it sit in the traditional IRA. Neither option is terrible if you can avoid the 10% early withdrawal fee in this case due to inheritance.
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Jul 29, 2015 17:10
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Nail Rat posted:IF YOU TAKE A PAYOUT: counting standard deductions, etc. this money should all be in the 25% federal tax bracket for single. You'll also pay state and/or local so let's call it 30% actually for tax. Here's my current budget:  The difference goes to my student loans
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Jul 29, 2015 17:19
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Depending on whether the payout would be subject to the 10% early withdrawal penalty, in your case it might make sense to take that payout since you're sitting with less than 1 month of expenses in savings. It looks like for you six months would be more like 12k. So you could pay off the loans, add 10.5k to your savings, put 5500 into a Roth IRA, then maybe put 15k into a taxable fund. Then the money that was going to your studen loans, start putting it each month to your savings, and every January 1 dump 5500 into your Roth IRA. Just a suggestion, anyway - somehow you have to build a better emergency fund. If you'd take the 10% penalty on the early payout, it's not worth it for sure.
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Jul 29, 2015 17:25
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There is no penalty any way he takes it. He has 4 options: 1. Take a lump sum distribution, will be taxed as income 2. Transfer to an inherited IRA and use the 5 year method, where you can take money out whenever but it all has to be out within 5 years 3. Transfer to an inherited IRA and use the life expectancy method. You must take out at least $xxx each year, known as a required minimum distribution. 4. Some 401k plans will let you leave the money in the plan and provide their own distribution requirements, but I wouldn't view this as a good option. The inherited IRA must be its own new account (separate from any other IRA accounts you have) and the transfer must be direct from 401k -> inherited IRA. You don't actually have the option of leaving it in your IRA forever because of the RMD, but obviously you can take the RMD and then separately contribute to your own IRA.
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Jul 29, 2015 18:23
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RisqueBarber posted:Here's my current budget: As in you pay $494 on your student loans every month? Make that a line item on your budget. The best budgets have a "leftover" line item of $0 because all your money should serve a purpose. If your student loan payments aren't actually $494, I'm guessing your leftover money goes toward Recreation or something because you've got doodoo for savings my man.
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Jul 29, 2015 18:27
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Take the payout, pay off your debt. Setup a nice emergency fund in a brokerage account holding an s&p500 ETF - think 10k. Anything else put into a Roth IRA. Chances are the tax rate you'll pay now will be less than if you pay taxes when you're older. Take the hit now and use the money wisely.
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Jul 29, 2015 19:11
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Nail Rat posted:IF YOU TAKE A PAYOUT: counting standard deductions, etc. this money should all be in the 25% federal tax bracket for single. You'll also pay state and/or local so let's call it 30% actually for tax. The payout will bump at least some income up into the 28% federal bracket. If not all the money is needed immediately, I would go with the 5-year distribution.
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Jul 29, 2015 19:19
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The mathematically correct answer is to take the 5 year distribution and put the first year into loan payoff.
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Jul 29, 2015 19:46
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RisqueBarber posted:My unmarried (no children) well-off Aunt just passed away and left me and four other cousins her 401k from her most recent company. The lawyer handling the estate called me yesterday and told me my individual amount is $56,000 and will be issued by Fidelity. Before I get into my own assets for advice, because this money is from her 401k it has not been taxed yet so any money I take out will take around a 20%(i think) tax cut. However, I can transfer it to my own IRA and have it not taxed. I can also take some money out and leave the rest in the IRA, only taxing some of the funds. I do not have to either leave it all or take it all out. I would just put it in IRA unless you are at a point in your life where you want to make a down payment on a house. Do not waste this on paying off a low interest student loan, a car, tv, or wedding. $39,000 is enough of a down payment to take away a ton of headaches from home-buying and trying to figure out where you are going to get the money for all the closing costs, etc.
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Jul 30, 2015 14:51
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What is the interest rate on the student loan?n8r posted:Take the payout, pay off your debt. Setup a nice emergency fund in a brokerage account holding an s&p500 ETF - think 10k. Anything else put into a Roth IRA. Chances are the tax rate you'll pay now will be less than if you pay taxes when you're older. Take the hit now and use the money wisely. One should not keep their emergency fund in an S&P500 index.
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Jul 30, 2015 15:35
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CountingWizard posted:I would just put it in IRA unless you are at a point in your life where you want to make a down payment on a house. Do not waste this on paying off a low interest student loan, a car, tv, or wedding. $39,000 is enough of a down payment to take away a ton of headaches from home-buying and trying to figure out where you are going to get the money for all the closing costs, etc. But he has less than 1 month of expenses saved up and at his current rate, getting to a six month emergency fund will take about ten years, since all but $100 of his surplus each month goes to student loans. This is a really god chance to get out of that. He goes to the ER once for a relatively minor thing, or his car needs something non-trivial done, his whole emergency fund is just flat out gone. Also $39k may not be enough of a down payment on a house depending on the situation. In the Chicago area, that wouldn't even be 20% down unless it was in a crack house or the western/far south suburbs no one wants to live in. Plus why the gently caress would you buy a house with $1700 in savings and only able to add $100 to that per month with your budget?
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Jul 30, 2015 15:36
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Barry posted:What is the interest rate on the student loan? 4.5%
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Jul 30, 2015 15:36
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Barry posted:What is the interest rate on the student loan? I disagree - especially if you're talking about an emergency fund that is far above what the OP actually needs. Even a significant market downturn would result in the OP still having 7k which given his income would be sufficient.
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Jul 30, 2015 15:44
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But if there's a serious market downturn, that's bound to result in lots of lost jobs. If he loses his job as part of that, he'll have to pull his emergency fund at the very same time that the market has gone down. It's a bad idea.
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Jul 30, 2015 15:47
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n8r posted:I disagree - especially if you're talking about an emergency fund that is far above what the OP actually needs. Even a significant market downturn would result in the OP still having 7k which given his income would be sufficient. It's an emergency fund, strictly for emergencies. Your only real concern should be easy access and preservation of purchasing power. Invest elsewhere.
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Jul 30, 2015 15:50
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Droo posted:There is no penalty any way he takes it. He has 4 options: This is good helpful info. It wasn't specified in the post, but all take-outs in all the options will be taxed as income as well, but since 2 & especially 3 are smaller they are much easier to swallow. I use this website to calculate my expected RMD, but Vanguard does calculate it for me (that's where I have my Inherited IRA)and auto-deposit to my bank account. They made it pretty easy and hands-free. e: rearranged sentence for clarity Damn Bananas fucked around with this message at 19:55 on Jul 30, 2015 |
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Jul 30, 2015 16:15
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drat Bananas posted:This is good helpful info. It wasn't specified in the post, but all take-outs in all the options will be taxed as income as well, but since 2 & especially 3 are smaller they are much easier to swallow. I use this website to calculate my expected RMD, but Vanguard does calculate it for me and auto-deposit to my bank account (that's where I have my Inherited IRA). They made it pretty easy and hands-free. This is calculator is helpful but I was under the assumption I had to take out all the inhertiance within 5 years?
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Jul 30, 2015 16:36
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Nail Rat posted:But he has less than 1 month of expenses saved up and at his current rate, getting to a six month emergency fund will take about ten years, since all but $100 of his surplus each month goes to student loans. This is a really god chance to get out of that. First, emergency savings is overrated unless you have major financial commitments like a hous3 payment; medical costs can be ignored for years or completely, and there are alternatives to having a personal car. Second, he would be buying a house for many years most likely, and by then it could be assumed he will have higher income. I live in Austin, and $39,000 would be a good enough 20% down payment to get some small houses in the populated parts of the city, and more than enough to get a comfortable house in the surrounding area. I think Chicago has more affordable housing than Austin, especially considering we have had a housing crisis for the past few years, with not enough apartments or houses to meet our growing population. Only real estate inflated areas like big California cities and New York City would be a problem.
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Jul 30, 2015 16:40
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CountingWizard posted:First, emergency savings is overrated unless you have major financial commitments like a hous3 payment; medical costs can be ignored for years or completely, and there are alternatives to having a personal car. Second, he would be buying a house for many years most likely, and by then it could be assumed he will have higher income. I can't figure out if you're a troll or not, but either way you're not a real counting wizard. Your opinions on emergency savings are stupid and dangerous(it doesn't matter that he doesn't have "big expenses," he has over 2k a month in expenses. he'd literally be on the street in only a couple months), and you're just flat-out wrong about the Chicago real estate market. You can't have a place for under 300k anywhere that people actually want to live that's in good condition, and even that would be a great find. Nail Rat fucked around with this message at 16:57 on Jul 30, 2015 |
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Jul 30, 2015 16:51
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The emergency fund is a phony concept invented by jealous goons to keep you from doing anything fun with your windfall. Use it as the down payment on a $75,000 truck and build equity over the 10 year loan period.
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Jul 30, 2015 18:15
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Paying your rent is stupid guys, it takes at least a year for your landlord to evict you.
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Jul 30, 2015 18:17
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Nail Rat posted:I can't figure out if you're a troll or not, but either way you're not a real counting wizard. It would probably help if you understood what kind of perspective I'm taking in these opinions. If he cashes out the inheritance, he is far more likely to spend it on things he wouldn't otherwise spend it on because it is simply available to spend. I was pointing out the fact there are still tools and strategies at your disposal even if you don't have or can't afford to save for an emergency fund. I'm also arguing from a point where the OP has family nearby he can live with if he were to lose his job. In either case he would still have access to the money if there was an emergency if it is an inherited IRA.
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Jul 30, 2015 18:39
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Credit card debt and living with your parents: an adult approach to emergency planning.
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Jul 30, 2015 18:43
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Hell you don't even need to take on credit card debt if you just start eating at soup kitchens and living in a debris pile. #lifehack
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Jul 30, 2015 18:45
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The king's attendant says, "If you would learn to serve the king, you wouldn't have to live on rice alone" The monk says, "If you would learn to live on rice alone, you wouldn't have to serve the king" The goon says, "I live in my parent's basement because of a false dichotomy of opulence and squalor"
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Jul 30, 2015 18:55
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This thread has turned stupid.RisqueBarber posted:This is calculator is helpful but I was under the assumption I had to take out all the inhertiance within 5 years? It's one of the options, but it's not mandatory for you to choose that option. See again the list of 4 that Droo posted; I'll reword a few. 1. Withdraw it all at once, have a big chunk of change available woohoo! But gets income-taxed on all of it, all at once. 2. Withdraw it all, but spread it out over 5 years to minimize income taxes on it but still have some money to play with. 3. Keep the account as a nearly permanent retirement savings, withdrawing only what you legally need to each year for the rest of forever. If it's invested then you will probably gain more value in the account than you're taking out of it in RMDs for the first many years, so it's like free yearly money while your balance stays the same or grows (I use mine to fund a yearly vacation). RMDs are so small that while they are taxable income, it's not going to affect your taxes much more than a Christmas bonus from work might. 4. I don't know anything about this one, I guess you'd need to talk to whoever the original 401k is through. You are talking about option 2, I chose option 3 for myself, and some people are recommending option 1... it's all up to you and your situation. edit: God, but be careful about how you actually move the money - double check that the customer service person knows exactly what they're doing to avoid unintentional taxes. I was working with someone from the original IRA company on mine to transfer to Vanguard and he almost had me do it in a way that would have counted as a lump sum withdrawal. I can't remember the specifics, I just remember the Vanguard rep being like NOOO you don't want to do it that way. Damn Bananas fucked around with this message at 20:18 on Jul 30, 2015 |
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Jul 30, 2015 20:13
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Okay , thanks. That option so far seems to be the best to me.
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Jul 30, 2015 20:25
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Just an update: The $56,000 was transferred into my fidelity account today. The plan right now is to withdraw $22,125. $6,125 - Pay off student loans $12,000 - emergency fund placed in T-Bills, CD's, or money market accounts. $4,000 - To pay in income tax I'll leave the rest of it ($33,875) in the account and withdraw it over the next 4 years and put that money ($8468 each year) into some vanguard investment. Any thoughts? Did I gently caress this up?
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Aug 7, 2015 15:58
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If the purpose of an emergency fund is easy access to money in a time of need, I'm not sure about CD's. Given a choice between a CD and a sack of cash under my mattress I'd probably choose the latter.
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Aug 7, 2015 16:21
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^^^ Good in concept but maybe somewhere not susceptible to fire or burglary.  Especially since CD interest rates are in the trash right now, I'd probably shop around for a good ol' standard savings account. It's counter intuitive to have to pay a penalty when you need to withdraw from the emergency fund CD.
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Aug 7, 2015 16:36
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RisqueBarber posted:Just an update: How did you arrive at $4k in income tax on the $56k? That seems low to me
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Aug 7, 2015 17:10
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Omne posted:How did you arrive at $4k in income tax on the $56k? That seems low to me I was under the impression I was only going to be taxed on the funds I withdraw. Withdraw $22,125 and pay 18% income tax. You think it should be higher?
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Aug 7, 2015 17:16
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I would've done the inherited IRA then withdrawn over time through RMDs or as needed, but it depends on your individual situation.
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Aug 7, 2015 17:30
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The perfect place for an emergency fund is a Discover online savings account. Seriously, like https://www.discoverbank.com 0.95% interest is better than most CDs below 5-year, and you shouldn't have your emergency fund in a multi-year instrument anyway.
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Aug 7, 2015 17:45
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RisqueBarber posted:I was under the impression I was only going to be taxed on the funds I withdraw. Withdraw $22,125 and pay 18% income tax. You think it should be higher? All that money's in the 25% income tax bracket, since your base income already puts you there.
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Aug 7, 2015 22:33
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GoGoGadgetChris posted:The perfect place for an emergency fund is a Discover online savings account. Seriously, like https://www.discoverbank.com Ally, CapitalOne360 are also good alternatives that have similar services. E-fund money should be accessible within a day and the 1% is just gravy.
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Aug 10, 2015 15:13
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Buy AAPL calls
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Aug 10, 2015 18:37
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| # ? May 2, 2024 10:41 |
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Tautologicus posted:Buy AAPL calls Is there a wrap-up of how this turned out?
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Aug 10, 2015 20:38
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