Best option for small inheritance?

[mountainsoft]

No one likes to think of their parents dying, but the reality is they are getting older and will pass at some point. While I don't expect ANYTHING from either of our parents, it is possible we may receive a small inheritance ($10K to 20K max) after all expenses are paid.

Assuming we have no debts that need paid off, what is the best way to handle a 10-20K lump sum like that for our own retirement?

 

[RobbieB]

Just invest it like you would anyway?

 

[NW-Bound]

Just invest it like you would anyway?

+1

I would do the same whether it's $10K or $1M.

 

[Meadbh]

I had a small (unexpected) inheritance a few years ago. I used it to decrease my withdrawal rate that year. Effectively, it meant that more of my portfolio stayed invested. Money is fungible. What I did not do: splurge on something I would not otherwise have bought.

 

[Ticker]

If you have kids, you should gift it to them. they probably can make good use with it, and you'll feel great about re-gifting something that cost you nothing.

 

[Sunset]

I had a small (unexpected) inheritance a few years ago. I used it to decrease my withdrawal rate that year. Effectively, it meant that more of my portfolio stayed invested. Money is fungible. What I did not do: splurge on something I would not otherwise have bought.

+1
This also tends to reduce the income tax payable for that year.

 

[ABQ2015]

I didn't have an emergency fund (except for a few thousand in savings) when I got a small inheritance from my older sister so put the money in a money market for emergencies. It's almost 10 years later and I still think of it as my sister's money.

 

[calmloki]

... I got a small inheritance from my older sister so put the money in a money market for emergencies. It's almost 10 years later and I still think of it as my sister's money.

Ditto my gal's cash from her Mom. It's Betty's money.

 

[RobbieB]

I would blow some of it on good food & drink, but that's what I always do anyway -

 

[NW-Bound]

Wait a minute! In the earlier post you talked of investing. Now, I learn that you are investing in enlarging your tummy.

 

[RobbieB]

I like a proper balance of some for now and some for later.

 

[ohyes]

Wait a minute! In the earlier post you talked of investing. Now, I learn that you are investing in enlarging your tummy.

I like a proper balance of some for now and some for later.



This forum makes me laugh as often as it educates me.

 

[jollystomper]

When my mother died a a few years ago, I received an unexpected inheritance of around $15K from her estate, due to mutual funds and insurance she owned. DW and I pass on on half to our kids, took a nice trip with about $2k of it, and the rest spread among our AA. It was not a make or break amount for retirement, mom loved her grandkids, and in her later years told me frequently "I know you've done well with your money, but don't to forget to enjoy it before you are too old". I think she would have been happy with what I did with it.

I will be receiving another unexpected (and larger) amount from her estate sometime this year when her house sells, we likely will go the same route with it.

 

[chrisaukcam]

re: best option

I got a small amount ($25k) when my uncle died. I used part of it for fun - used it fund a vacation; drank a toast to him. The rest I invested.

 

[DrRoy]

Just invest it like you would anyway?

+1

From inheritance I received, I did some upgrade around the house, paid down the mortgage, and invested the rest. Make sure your Roth gets full funding.

 

[rodi]

DH received $8k when his dad died. (small ira went to the kids - rest of $$ went to MIL). It went into a separate savings account - and he uses the money for extra trips to visit his mother.

 

[Live And Learn]

OP states that he wants to use it for his own retirement. In that case the response "invest it as you would any new money" makes the most sense. My target asset allocation is 50/40/10. I would use the money to bring me to that split. If I were already exactly at that target mix I would split the money 50/40/10.

 

[NW-Bound]

This forum makes me laugh as often as it educates me.

Posts that are informative and make one laugh at the same time would be more enjoyable. Those are hard to make.

 

[mountainsoft]

Just invest it like you would anyway?

Unfortunately, the extent of my investment knowledge is my IRA through Vanguard.

I thought we might be able to start an IRA for my wife, but as I understand it IRA's have to be "earned" income. I don't believe you can start an IRA with a large lump sum like that?

I suppose the easiest is just to put it in a taxable savings or money market account and use it for emergency funds.

No worries. I just didn't know if there was some top secret awesome thing to do with sudden inheritances.

The food and drink thing is tempting, as-is the vacation, but neither seems very "responsible".

 

[Accidental Retiree]

Unfortunately, the extent of my investment knowledge is my IRA through Vanguard.

I thought we might be able to start an IRA for my wife, but as I understand it IRA's have to be "earned" income. I don't believe you can start an IRA with a large lump sum like that?

I suppose the easiest is just to put it in a taxable savings or money market account and use it for emergency funds.

No worries. I just didn't know if there was some top secret awesome thing to do with sudden inheritances.

The food and drink thing is tempting, as-is the vacation, but neither seems very "responsible".

You're not retired yet, right? I just read where you two are making $4000/month. Yes, you can fund an IRA for your wife for 2016 and 2017. Your earned income would cover that.

Edited to add: By the time you get an inheritance, if any, then you may not have earned income....

 

[RobbieB]

It's responsible if you don't "blow it all"

But do have some fun, after all it's a windfall and those are always nice. So put 90% in your emergency account and blow 10%.

Those Superbowl lobster rolls were really good -

 

[NW-Bound]

The IRA annual contribution limit is $5,500, and for people above 50 it is $6,500. However, it cannot be larger than your earned income.

Money is fungible, so it does not matter that you spend your income and put the inheritance into the IRA, or spend your inheritance and save your income.

If the amount is over the limit, you can spread it out in multiple years, or split it between a couple. Right now, one can still put in money for 2016 prior to April 15, and money for 2017 at the same time.

 

[NW-Bound]

One thing I forgot. A non-working spouse can make an IRA deposit if the other spouse has earned income. I think they have to be filing joint tax return. If I am wrong, someone will correct me.