Expert: Paul Henneman - 7/27/2007

Question
QUESTION: Hello Paul,

I have a relative that going to get tax free Disability payments for life,and I'm wondering what and how to invest
her money.  A IRA? Roth or traditional?,Trust?  Can i,or some other relative manage her money account?
Thanks,
Dick



ANSWER: Dick,
  Thank you for your question!
Every investor is different, so the ultimate answer is to work with the relative to find out how they would like their funds managed. In general, retirement accounts are excellent due to the tax benefits. This would mean an IRA or ROTH IRA. Of the two, the ROTH IRA is preferable because taxes are not withdrawn when the funds are disbursed at retirement age. The maximum contribution currently to a ROTH IRA or traditional IRA is 4,000 per year, going up to $5,000 per year in 2008. If you plan to invest more than that, you would need to incorporate additional investments outside of the retirement account.
Yes, a relative can manage the account. If the account is set up online, you could just have access to the account with the login information. If you want legal control, perhaps a power of attorney or trust needs to be set up. However, I am not a lawyer and I would suggest you seek out specific legal advice from an attorney if you need the legal control of the account.
One thing I would strongly recommend. Pick up a copy of "Investing for Dummies". While not a flattering title, this book gives a good introduction to most forms of investing. IRA and ROTH IRA's are both covered, enough to give you a firm understanding before you begin.  To jump in without this basic knowledge of each type of account would be a mistake. It is not a difficult read, and can be completed quickly. It is available at most major bookstores and at www.amazon.com

I hope this helps! Please do not hesitate to follow up with me if I can be of any additional service,

Sincerely,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com


---------- FOLLOW-UP ----------

QUESTION: Thanks for your reply. another question if you please.  Would the monies invested in a Roth,or traditional IRA account be taxable,or just the accumulated interest when withdrawn?

Answer
Thank you for the follow up question!
My understanding is that taxes work slightly differently in a ROTH IRA versus a Traditional IRA.
There are two main differences. First, with a ROTH IRA, you do not have to pay taxes on the withdrawls at retirement age, as long as the funds have been there for a minimum amount of time and you are at least 59 and 1/2 years of age.  However, with a ROTH IRA, you typically cannot tax deduct the contributions you make each year, which you can do with a Traditional IRA.  But even with that drawback, the lack of having to pay taxes at retirement ages dramatically outweighs not being able to deduct the amount you contribute each year on your tax returns.
I hope that helps! Please do not hesitate to follow up if I can be of any additional service,

Best Regards,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com