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Investing an inheritance

Dr. Don TaylorDear Dr. Don,
I will be receiving a $30,000 inheritance in about six weeks. I have about $12,000 in savings and about $25,000 in my 403(b) plan. I'd like to put this inheritance away in an interest-bearing account such as a certificate of deposit but earn the best interest possible. Any suggestions? -- Devonne Deposit

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Dear Devonne,
I always have mixed emotions when I hear someone has received an inheritance because I realize that the windfall generally comes about because the inheritor has lost a family member or friend.

Keep an eye on the status of the Bush tax plan. The proposed Lifetime Savings Accounts would allow you to invest up to $7,500 a year, and the contribution limit will be adjusted for inflation each year. You'll be able to withdraw money from the account at any time for any purpose. While contributions aren't tax deductible, the money grows tax-free, and distributions will also be tax free. This Bankrate feature has more on the proposal.

Combine this with the proposed Retirement Savings Account that will allow you to contribute up to $7,500 a year toward retirement with future contribution limits being adjusted for inflation. Contributions aren't tax-deductible, but earnings will accumulate tax-free, and qualified distributions after age 58 (or upon disability or death) will be tax-free.

You can always shop for the best CD rates in the nation using Bankrate's Best Rates page. I'll advocate keeping half the money in CDs maturing in 2003 and half maturing in 2004 until the fate of the president's savings plan is decided by Congress.

Don't look at this investment decision in isolation. Take a holistic approach to your investments. After all, it's all your money. How is your 403(b) plan invested? How are your current savings invested? What are your financial goals beside retirement? When do you plan to retire?

I think it's worth the time and expense to have a fee-only financial planner review your holdings and suggest some investments, especially when it comes time to fund these tax-free savings plans. The National Association of Personal Financial Advisors can help you find a fee-based planner in your area.

-- Posted: March 17, 2003




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