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Beginner Investing/Injury Settlement Reinvestment Questions

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I will be receiving a final payment from a structured injury settlement (in the form of an annuity), approx. $50K; the injury was received as a child, I am now 30 yrs. old. I understand that the settlement funds are not considered as taxable income.  I want to reinvest these funds, preferably in a Roth IRA or other tax deferred investments for my retirement, but I'm unsure what my options are? or how long it will take to get the funds invested because of annual contribution limits, etc.  Also I'm unsure whether it's best to try to invest all of it in maybe a variable annuity(I don't like the high fees# or to take a few years and put the max into a Roth to dump the money in and also max out my employer 401K profit sharing plan for a few years and live on some of the cash to supplement the cash loss? If I do this, where is the best place to invest the money in the mean time until I can get it dumped into the Roth and my work 401K ?

Could this be an option? - open a traditional IRA #which I pay taxes on the earnings annually) and then annually convert a portion of it over to the Roth.  I am totally unsure of what this process entails, cost, etc. and whether this is the smartest way to get these funds invested?

Or do you have some other investment strategy I can consider?

Also I am unsure if the IRS considers these funds as pre-tax or after-tax dollars?  Which I need to know this so I can pick either a qualified or non-qualified type IRA....I hope they are  considered after-tax so the principal once withdrawn will be tax free and only the earnings will be taxed....correct?

Definitely in need of a smart plan here.....Thanks in Advance!

Answer
I will be receiving a final payment from a structured injury settlement (in the form of an annuity), approx. $50K; the injury was received as a child, I am now 30 yrs. old. I understand that the settlement funds are not considered as taxable income.  I want to reinvest these funds, preferably in a Roth IRA or other tax deferred investments for my retirement, but I'm unsure what my options are? or how long it will take to get the funds invested because of annual contribution limits, etc.  Also I'm unsure whether it's best to try to invest all of it in maybe a variable annuity(I don't like the high fees# or to take a few years and put the max into a Roth to dump the money in and also max out my employer 401K profit sharing plan for a few years and live on some of the cash to supplement the cash loss? If I do this, where is the best place to invest the money in the mean time until I can get it dumped into the Roth and my work 401K ?

Could this be an option? - open a traditional IRA #which I pay taxes on the earnings annually# and then annually convert a portion of it over to the Roth.  I am totally unsure of what this process entails, cost, etc. and whether this is the smartest way to get these funds invested?

Or do you have some other investment strategy I can consider?

Also I am unsure if the IRS considers these funds as pre-tax or after-tax dollars?  Which I need to know this so I can pick either a qualified or non-qualified type IRA....I hope they are  considered after-tax so the principal once withdrawn will be tax free and only the earnings will be taxed....correct?

Definitely in need of a smart plan here.....Thanks in Advance!




First of all, the only funds that can be used to fund a tax qualified plan #IRA, 401(k), etc.) are earned income.  Of course, it matters not where the money deposited actually originates, but the total contributions made to all of your existing plans in a particular year can exceed neither your total annual earned income nor your total contribution limits for the respective type plans.  The exception to this is of course amounts transferred from another qualified plan.  You cannot transfer funds into your 401(k) except from a previous employer’s sponsored retirement plan, and this rarely a favorable option.  

A variable or indexed annuity MAY be a very good option for you.  As far as fees are concerned, they are not typically “high;” they are commensurate with the account provisions and guarantees offered in the annuity.  An annuity is an insurance product, and as such, every peril that is underwritten has a cost.

It does not appear that your situation constitutes rocket science, but it does warrant advice face-to-face advice from someone who understands it and your objectives completely.  Contact us at the ACFA website and we will be happy to find you someone locally with whom you can consult at no cost:
www.christianfinancial.vpweb.com

Beginner Investing

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Rob Drury

Expertise

Basic investment planning, retirement planning, qualified retirement plans (401(k), IRAs, etc.), retirement account transfers and rollovers.

Experience

Comprehensive financial planner, 14 years; Executive Director, Association of Christian Financial Advisors, the nation's largest nonprofit financial planning network. Financial writer and frequent contributor to journalists and media sources.

Organizations
Association of Christian Financial Advisors (Executive Director), National Association of Insurance and Financial Advisors (NAIFA).

Publications
Fox Business News, Yahoo Finance, Yahoo Small Business, BankRate.com, Savingforcollege.com, BoomerPlaces.com, InsuranceQuotes.com, InsuranceQuotes.org, DailyFinance.com, Credit.com, Military.com, VitalAdvice.com, Can Do Finance Online, Credit Sesame, Money & Finance Online, The Fiscal Times, Business Insider, military-advanced-education.com, ExpertBeacon.com

Education/Credentials
BBA, MAS; Securities licenses, FINRA Series 6, 63, 65, 22

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