College Confidential’s “Dean,” Sally Rubenstone, put together 25 of her best tips. Get your free copy of the "25 Tips from the Dean" eBook and get helpful advice on how to choose a college, get in, and pay for it: http://goo.gl/9zDJTM
I am hoping that the brain trust at CC can help me. I am using an alternate posting name today because too many people in my town have figured out who I am under my usual posting name!
My husband will shortly be receiving a $108,000 settlement check for injuries received in an auto accident. I do know that none of the money that my husband receives for his injuries carries any tax liability. We would like to invest the money, but we are unsure how to best deal with the tax consequences of any profit we make on the investment.
I am self-employed and my husband is retired. Because H is retired, we cant put any money into an IRA for him. I opened a SIMPLE IRA 14 months ago and had planned to sock $12,000 per year into it for the next 14 years, then retire. I picked a SIMPLE rather than a traditional or Roth IRA because the government allows me to put as much as $14,000 per year into it. The SIMPLE is tax-deferred like a traditional IRA. I have used some online calculators and have learned that whether I invest money in my SIMPLE over the next 14 years, or I just add the $108,000 windfall to the money we have already invested and do not save another penny, well have just about the same amount of money when I plan to retire. If we manage to garner a 7% return and inflation is 3% a year, well be able to have as much money in retirement as we currently have now. The money should last until Im in my 90s. My Hs pension and my very modest income total about $50,000 a year. We currently have no debt. We have wanted to either build an addition onto our very modest house, or move to a newer, larger home for years. But, the money just always seemed to be needed for our kids. Now it looks like we may be able to finally to get a bigger house. My thinking is that maybe we should invest the insurance money and take out a loan for 10 to 15 years to pay for the new house. BUT, I dont know if thats the best course of action.
Would we be better off to pay for the new house in cash and put the maximum into a Roth IRA and another $6000 per year into my SIMPLE? I worry about having a huge tax bill that well be hard pressed to pay if I invest the insurance money into mutual funds and lose the tax break I get for putting a lot of my income into the SIMPLE. Plus, I worry about the increase in my property tax bill that will come along with a bigger home.
Do any of you have any suggestions about how to handle the tax consequences before I speak to a tax attorney? Id be very grateful for any advice you have. I figure that several CC heads are better than my Hs and mine plus one attorney :)!