What to do with early inheritance

[imprimis5]

My parents just deposited several thousand dollars into my account as my early inheritance. So here's the question. What do I do with it?

 

I don't care if it's not available for another 20 years or so, honestly. I can't put it into my 401k through work, but I do plan on contributing to a Roth IRA. Unfortunately, with annual contribution limits, that still leaves quite a bit that I don't just want sitting around not doing anything until I can put it into the IRA. CDs don't seem like a good idea right now, so I'll avoid those.

 

Any ideas? I'm looking mainly for tax-advantaged options for a few reasons.

[Maigs]

You can live off that money and put more into your 401k at work as a way to indirectly put the early inheritance into a tax advantaged retirement account

[qlilac]

IRA first and foremost, put in the max $5500 ($6500 for any 50+ individuals for anyone reading) if you're able and comfortable with that. Adversely, you could do as Maigahane said and raise your 401k contributions from your paycheck and use some of these funds to compensate for the loss in your take home from that. Take a look at your investment opportunities in the Roth vs the 401k. Sometimes you'll be able to get better portfolio options with the 401k, and it's tax deductible where a Roth wouldn't be. Be sure to check your employers contribution limit to the 401k, the official tax limit is 18k per year but some employers don't allow more than 10%,

 

 

Can I ask why you're not comfortable with CDs at the moment? If you look around you can usually get close to 2%, which may not be the best historically but it is a solid reliable source of interest and probably the best around at the moment. If you search really hard for new branches, many banks or credit unions will offer good Money Market deals as well. My branch offered 2% variable when we opened, but even then it's barely gone down so far.

 

 

 

[qlilac]

Oh, I forgot to mention to consider your tax bracket before deciding between the 401k and the Roth, while 401k is tax deductible now the Roth will be a much better option if you think you'll be in a higher bracket by retirement age. For someone your age (sorry I snooped on your profile) that's a very likely (and ideal) possibility.

 

 

(Also reach out to an accountant, very important step)

[imprimis5]

Thanks!

[Raincloak]

If your employer does any matching for retirement accounts, max out that option first.  It's FREE money and you've only got a couple months left this year to grab it.

 

Then pack your Roth IRA for this year.  Keep the rest of the money in the bank for 3 months.  When January rolls around, pack your Roth IRA for 2017.  Let me know if there's any money left after that.

 

As for where to put those Roths, I recommend an index fund.  I buy mine through Vanguard.

[Lydiechan]

I'm a little late to the party, but you can contribute a quarter of it to your Roth every year until it's all in.  You could also invest in something like mutual funds in the meantime to make sure you're keeping up with the value in the marketplace.

 

Are you already out of college and have a paid-for house?  If not, those are other great options.  Make sure you're checking to make sure it's not taxable.  (I think the most you can give someone is $14,000 before it becomes taxable, but I'm not sure.)

 

I recommend looking into Retire Inspired by Chris Hogan.  Lots of good info.