Insurance Settlement Windfall

[mystang52]

DW was injured a few years ago and we are about to get small settlement.
She w*rks [school teacher], and will continue to do so another couple of years. In anticipation of my ER a few years back, we moved her entire 403B balance into Vanguard rollover IRA, and she stopped contributions.
So, with the upcoming settlement, I was wondering: should we park that settlement in a liquid account, and start a deductible IRA? We'd use the settlement funds to supplement that deduction for our cashflow.
We'll get the benefit of a short term tax break without seeing any cashflow shortfall. As I see it, it's not a huge difference but it's money in our pocket.
Am I missing anything, or conversely is it not worth the effort?

 

[Animorph]

Is she eligible for a IRA deduction? An existing employer retirement plan should kill IRA deductions, even with no balance or contributions. You might be eligible, I suppose. Depends on your tax bracket if the deduction is worth it. The IRA also shelters potential capital gains, as long as your tax rate doesn't go up when withdrawing. Also, the IRA locks it up until the account owner is 59.5, so a taxable account might be better if you will need the money before then. That would be my primary concern about the IRA, if everything else works out.

 

[Sunset]

Could she restart the employer 403B plan (don't they have employer contributions?).

Is the settlement taxable ? if so can it be put into an IRA directly without taxation?

Otherwise how about ROTH contributions vs regular IRA contributions, so they are tax free upon withdrawal ?

 

[pb4uski]

If your current tax rate is substantially higher than you tax rate in ER in the near future then it may be worthwhile to go 403b or tIRA route and save some on taxes.

If not, then I'd look at putting it in a Roth IRA. If you need it you can take out contributions tax and penalty free and if you don't need it you can let it grow tax free.