Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, January 27, 1992 TAG: 9201250111
SECTION: BUSINESS PAGE: B-5 EDITION: METRO
SOURCE: MAG POFF
DATELINE: LENGTH: Medium
HOW TO INVEST THIS INHERITANCE
Q: I am a 61-year-old woman still working as a private duty nurse. A close family member of mine died last January. I am the beneficiary of the life insurance, which is the most money I have ever had. I would like very much to invest it, but I don't have any idea how to go about investing. Also, could I use an IRA at my age?A: Because you can't replace the money and because you are approaching retirement age, you must be conservative in handling this inheritance.
You don't say how much you have, but an amount equal to three to six months of your living expenses should be in a cash emergency fund. A safe place would be in an insured money market account or certificate at a bank.
You might divide the rest between two types of mutual funds. One would be a fund that invests in Treasury bonds and high-grade government securities. The second would be a conservative stock fund, which is usually called a growth and income type of fund.
To choose your funds, buy Money magazine or Kiplinger's Personal Finance magazine. Read the publications' rankings and the advertising. Select funds that emphasize high-grade conservative investments and charge low fees.
The tax deferral in an IRA has the greatest impact over the very long term. You would have to pay the taxes on an IRA after retirement.
Your conscience box
Q: I would appreciate it very much if you would print the addresses of where a person could send money that they might owe the federal and state governments without having to give their name.
A: The course of action you are suggesting makes no sense.
If you owe money, an anonymous contribution cannot be credited to your account. If the authorities challenge you later, you have no means of proving that you sent money. Spokesmen for both the Internal Revenue Service and the Virginia Department of Taxation also advised against anonymous contributions.
But if such an action would somehow help you sleep at night, and if you owe back taxes, you can send your money to the Internal Revenue Service Center, Philadelphia, Pa. 19255. The state address is Department of Taxation, Box 6-L, Richmond, Va. 23282.
Another alternative is simply making a contribution to the federal government in your own name without stating your reasons for sending the money. In such a case, the money you send the IRS would be in the form of a check made payable to the Bureau of Public Debt. The government receives such contributions, using them to reduce the federal deficit. People who do that can claim a deduction on their tax returns as a contribution, provided that they itemize deductions.
Figuring to the end
Q: I am 64 years old, retired and have $350,000 in an IRA and 401(k). Based on a 10 percent return for six years, at age 70 I will have approximately $620,000. How much would I be required to take out each year.
A: You are surely not earning 10 percent now, so it is impossible to predict how much money you will have six years from today.
You must start withdrawals by April of the year following the year in which you turn 70 1/2. But if you wait until that year, instead of starting at 70 1/2, you must take a double withdrawal the first time.
The amount is based on your life expectancy, and it must be recalculated each year because the number of years expands as you age. You also have the option of basing it on expectancy for two lives such as you and your wife.
The IRA department at Dominion Bank reported that the current expectancy at age 70 1/2 is 16 years.
Thus, if you use that method, you would be required to withdraw one-16th of the amount in your account for the first year. You would want to recalculate for subsequent years.
$25,000 options
Q: My husband recently passed away, and now I have $25,000 to invest somewhere. I have $34,000 in IRAs and $12,000 in a money market account at the bank. I also have $23,000 in General Electric's savings and security account which I would like to leave alone.
Would an annuity from New York Life Insurance be safe? Or would some type of fund in government securities be best for the $25,000? I am almost 66 years of age and in good health. I can live on the $1,044 coming in each month as I have everything paid for, but I may need some extra cash once or twice a year for special things. I don't want money tied up that I can't get to.
A: If you wish to keep your funds liquid, you should avoid an annuity. Most annuity policies carry heavy penalties for withdrawals during the first eight to 10 years.
A fund that invests in government securities would give you a high degree of safety combined with liquidity. You have the options of reinvesting or taking your dividends and of redeeming all or any part of your shares.
Mag Poff covers banking and finance for the Roanoke Times & World-News. She will help find answers to your personal finance questions. Send them to her at the Roanoke Times & World-News, P.O. Box 2491, Roanoke, Va. 24010.