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Happy Cinco de Mayo! To celebrate Mexican independence, we fielded questions about financial independence.
Joe and Vincent needed advice about rolling over an old 401(k)s; Dave wondered about strategies for taking his minimum required distribution from his IRA; while Don and an anonymous e-mailer wanted clarification on beneficiary IRA's.
The IRS has a good explanation of beneficiary IRAs, but in a nutshell, here's the deal, when the beneficiary is NOT a spouse:
If the IRA owner dies before taking required minimum distributions, the general rule is that the entire balance of the IRA must be distributed within five years of death. But, there's an exception to the five-year rule: you can elect to receive distributions over a period not exceeding your life expectancy. If you decide to take this option, it's vital that you elect a method of distribution and that you take the initial distribution by the end of the year following the year of the IRA owner's death.
If the IRA Owner dies after starting minimum required distributions, the remaining distributions generally must be paid out at least as rapidly as they would have been under the method of distribution in effect before his/her death or within five years of death.
John from NC is receiving a $200,000 inheritance. After paying down outstanding debt and funding an emergency reserve fund, we discussed how to put the rest of the money to work to fund both retirement and college education.
S. needed a second opinion on his $1 million IRA portfolio. While $1 million is a lot of money, it seems smaller when trying to plan for a 30-year retirement. One thing to watch for as you build a portfolio is duplication-remember, diversification is not about how many funds you own-you need to own different asset classes, like large, small and international stocks, bonds, commodities and cash.
DC asked for suggestions for how best to plan, prepare and utilize money he has saved. "It is about enough to buy 1/2 of a new car in today's market." For small amounts of money (less than $25,000), I think target date funds make sense. Otherwise, you can try a simple first portfolio like this:
-- 50% Bond Fund (Vanguard's Intermediate Term Bond Index fund (VFICX), Vanguard Total Bond Market Index Fund (VBMFX), Schwab Total Bond Market (SWLBX), Fidelity U.S. Bond Index (FBIDX)
-- 40% Total Stock Market Index Fund (Fidelity Spartan Total Market Index, Schwab 1000 Index Fund Investor or Vanguard Total Stock Market Index)
-- 10% International Stock Index Fund (Fidelity Spartan International Index (FSIIX), Vanguard Total International Stock Index (VGTSX)
We fielded questions from Jim from Colorado and Howard from Kentucky and Joe from Baltimore about how to help out kids. In Jim's case, I cautioned him against depleting his IRA funds to help his adult children buy a house; while with Howard and Joe, we talked about 529 plans and DRIPs (dividend reinvestment plans).
Here are web sites and resources mentioned in this week's show:
-- NAPFA: National Association of Personal Financial Advisors (fee-only advisors)-- 529 plan info
Thanks to everyone who participated and to Mark, the BEST producer in the world. If you have a financial question, there are lots of ways to contact us:
Call 855-411-JILL and we'll schedule time to get you on the show LIVE
Send an email: firstname.lastname@example.org
Tweet me: @jillonmoney
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