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Posted by DenverAnon on September 24, 2007, 8:47 pm
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One of my friends lost her husband in a recent car accident.
She has two children (15 and 11), the younger of the two is
severely autistic. She used to be stay at home mom, but
after the passing of her husband she started working at a
day care part time, primarily for health insurance benefits.
She is not very well informed about tax and financial
planning and asked me if I could give her some direction.
This is her financial situation:
1) She got $200K from life insurance ($100K for her, and
$50K each for her kids). It is currently sitting in some
sort of a money market account earning around 4%.
2) There is about $28K that she is eligible to get as the
only beneficiary of her husband's 401k
3) She got about $25K in charitable contributions from
friends and family
4) She receives $15K per annum from Social Security. Her day
care job fetches about $15K in income.
5) She has a certificate of deposit of $10K.
6) She has a home that is worth about $255K, but if she were
to sell it,. she will optimistically get $230. There is a
loan of $188K.
The cash assets total about $265K. The equity in the house
is another $40K.
Here are some questions from her:
a) Someone told her that if, god forbid, something were to
happen to her, the 401k money would go to the state because
her husband did not designate anyone else as the
beneficiary. Is this true? If it is true, is she better off
taking out the $28K, pay the penalties and face the tax
consequences?
b) What are the tax consequences of receiving the entire
$200K life insurance benefit? If there is going to be huge
tax burden, is there someway she can create a tax shelter
and receive an annual income for sustenance?
c) She has no intention of selling the house. Should she pay
off some of the mortgage?
d) Should she invest some of her assets in mutual funds
with, possibly, a better return than 4%?
I am sure some of you have experienced situations of this
kind before. If you can give any advice, I would be
grateful.
I advised her to spend a few hundred dollars and get
professional advice. She is willing to do that. But, we
wanted to get some sense of what questions we should be
asking and who we should go to.
Thanks in advance.
RT
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Posted by joetaxpayer on September 25, 2007, 11:40 pm
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DenverAnon wrote:
> The cash assets total about $265K. The equity in the house
> is another $40K.
>
> Here are some questions from her:
>
> a) Someone told her that if, god forbid, something were to
> happen to her, the 401k money would go to the state because
> her husband did not designate anyone else as the
> beneficiary. Is this true? If it is true, is she better off
> taking out the $28K, pay the penalties and face the tax
> consequences?
>
> b) What are the tax consequences of receiving the entire
> $200K life insurance benefit? If there is going to be huge
> tax burden, is there someway she can create a tax shelter
> and receive an annual income for sustenance?
>
> c) She has no intention of selling the house. Should she pay
> off some of the mortgage?
>
> d) Should she invest some of her assets in mutual funds
> with, possibly, a better return than 4%?
a) no. and no. She should transfer (direct transfer) the
funds into a rollover IRA in her name. No taxes would be
due, and she should set up beneficiaries on that account.
b) none. there could have been estate tax issues if the
husband left more than $1M (more in 07, but back to $1M in
2011 so no need to elaborate).
c) probably not, what is the rate? what are the payments? If
she sold the house, what could she rent in her area? Sounds
like she should conserve the money, it needs to bridge her
until she can work for higher wages if that's possible when
the kids are older.
d) maybe half of her $100K should be put into a very low
cost stock index fund, but over time, maybe $5,000 every 3-4
months. This is so if the market continues to be volatile
she won't panic if it's down 10% in 6 months with all the
money invested.
If she has more questions, especially on answer (a), come on
back.
JOE
www.joetaxpayer.com
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Harlan Lunsford on September 27, 2007, 2:37 am
Please log in for more thread options joetaxpayer wrote:
> DenverAnon wrote:
>> The cash assets total about $265K. The equity in the house
>> is another $40K.
>>
>> Here are some questions from her:
>>
>> a) Someone told her that if, god forbid, something were to
>> happen to her, the 401k money would go to the state because
>> her husband did not designate anyone else as the
>> beneficiary. Is this true? If it is true, is she better off
>> taking out the $28K, pay the penalties and face the tax
>> consequences?
>>
>> b) What are the tax consequences of receiving the entire
>> $200K life insurance benefit? If there is going to be huge
>> tax burden, is there someway she can create a tax shelter
>> and receive an annual income for sustenance?
>>
>> c) She has no intention of selling the house. Should she pay
>> off some of the mortgage?
>>
>> d) Should she invest some of her assets in mutual funds
>> with, possibly, a better return than 4%?
> a) no. and no. She should transfer (direct transfer) the
> funds into a rollover IRA in her name. No taxes would be
> due, and she should set up beneficiaries on that account.
I'm only responding to your a) above. Are you sure? She is
not the beneficiary of the 401k, therefore she can't roll it
over into her account, at least not because of that fact.
She should get to an attorney at once to probate the will,
or absent a will,get herself appointed administrator of the
estate. And listen to the lawyer instead of other people.
Gawd! I recommended an attorney? (grin)
ChEAr$,
Harlan Lunsford, EA n LA
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Harlan Lunsford on September 27, 2007, 2:37 am
Please log in for more thread options joetaxpayer wrote:
> DenverAnon wrote:
>> The cash assets total about $265K. The equity in the house
>> is another $40K.
>>
>> Here are some questions from her:
>>
>> a) Someone told her that if, god forbid, something were to
>> happen to her, the 401k money would go to the state because
>> her husband "did not designate anyone else" as the
>> beneficiary. Is this true? If it is true, is she better off
>> taking out the $28K, pay the penalties and face the tax
>> consequences?
Clarification: I just responded to the first responder and
not sure about the facts now. See quotes above; I took
that to mean anyone else other than himself. But maybe OP
meant anyone else other than his wife. You reckon?
ChEAr$,
Harlan
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by joetaxpayer on September 28, 2007, 3:59 pm
Please log in for more thread options Harlan Lunsford wrote:
> joetaxpayer wrote:
>> DenverAnon wrote:
>>> The cash assets total about $265K. The equity in the house
>>> is another $40K.
>>>
>>> Here are some questions from her:
>>>
>>> a) Someone told her that if, god forbid, something were to
>>> happen to her, the 401k money would go to the state because
>>> her husband "did not designate anyone else" as the
>>> beneficiary. Is this true? If it is true, is she better off
>>> taking out the $28K, pay the penalties and face the tax
>>> consequences?
> Clarification: I just responded to the first responder and
> not sure about the facts now. See quotes above; I took
> that to mean anyone else other than himself. But maybe OP
> meant anyone else other than his wife. You reckon?
Yes, I see how you read it, but the "if something were to
happen to her" implied she has access to the 401(k) money,
but the concern was the lack of next beneficiary. I'm not
100% sure of this being clear to us either way. I know when
I rolled my cash value pension to an IRA, I needed my wife's
notarized signature, the Mrs has dibs on that and 401(k)
money. Even my 401(k) loan years ago needed her signature.
We'll see if OP clarifies.
JOE
www.blog.joetaxpayer.com
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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