Investment Question

It sounds to me like you have some life events that are happening. My suggestion is to park the money for a while, and let you get these life events sorted out. Put the money into a money market account, perhaps at your local bank or credit union. Don't let anyone try to talk you into something else, don't buy insurance with it, and don't take any fliers.

After 4 or 6 months, when life gets sorted back out, then you have time to figure out something better. You might have time to do some reading in the mean time. At that time, you will want to figure out your retirement options, and how to best invest the rest.

The only exception to this advice would be to take the money you need to max out your IRA or ROTH for 2006. If you have someone do your taxes, they can tell you how much you need. Again, go to your bank, and open the right kind of account, and put the funds into a money market to buy some time.

The benefit of the money market is that it has a pretty good return for a safe investment, and it is safe. It also has no restrictions, so you can get at it any time. You are not locked in.

-john-

What is the source of the funds? Managing the tax consequences of the scenario might be the best first move you could make.

After that, I'd listen to Mr. Weeks

I agree with John but also get a book about money. Pick one of the top selling ones on Amazon. You have to learn to take care of your money.

Frank

Re a windfall in the neighborhood of $65k: I agree with the comments about double checking how to minimize taxes on this windfall.

What, if any, are your debts? E.g. student loans, car loans, home mortgage? Please give interest rates and time on each.

Where do you currently have financial accounts? E.g. a certain brokerage? A bank? Who holds your IRA? Your 401(k)? Answering these might help quickly narrow your choices for the lowest risk, highest yield place to park your money.

One shouldn't be worried about the 'for Dummies' titles. The books in these series are typically full of helpful advice.

CD- Certificate of deposit. Available at local banks. Pays you interest, their is a penalty if you pull money out before CD matures. CD could be 3 months, 6 months, 1 year 3 year...

Money Markets. Available at local banks and brokerages. If the stocks are held at a brokerage, you could sell the stocks and possibly hold proceeds in a money market at the brokerage.

Savings accounts. Available online and at a local bank. Pays low amount of interest.

I would be looking for a 4-6% interest rate. Most Money markets I see are for 5% right now. 5% is adequate while you park the money and wait (John Weeks gave good advice).

If the stocks were "given" to you. How they were "given" would affect how they are taxed.

I don't think I'm having any life events except I'm getting a huge sum of money I don't know what to do with. I like the money market/ reading up idea. And I didn't know there were no restrictions. This is forcing me to look into investing. Thx - Ted

======================================= MODERATOR'S COMMENT: Please trim the post to which you are responding. "Trim" means that except for a FEW lines to add context, the previous post is deleted.

I don't understand why all that would matter but here's my situation.

I'm debt free, I've been careful. Have a small 401k (fidelity) started through my company, no matching. I just guessed at where to distribute the money. It doesn't seem to grow very fast. I have a mortgage on a townhouse (around 6%) I've been paying on it for 3 years. With that I just make ends meet but at least I'm not paying rent.

I consider myself in good shape, I just have no reserve and a very small retirement fund. So this will be a big leap ahead for me.

Besides that I plan to make a few small purchases. I need some furniture and the rest is getting stashed away.

Check out bankrate.com for current CD rates.

I was gifted some stock by an individual, and the company is being sold. Apparently there will be a payout to the shareholders. I was wondering if I had to pay the taxes right away or could invest the lump sum and pay the taxes next year?

looks good, thx

"Ted Hart" wrote

The mortgage is something to consider paying down (in part or full) with your windfall, depending on the mortgage's terms, your tax bracket, etc.

For someone with, say, a car loan at 10%, it's pretty obvious that paying off the loan is the best place to put some of one's windfall. This is why I asked about debts. But with a home mortgage at around 6%, it's less clear.

You won't have to pay taxes until after your shares are sold. If the payout to shareholders occurs within one year of your acquiring the stock, you'll have a short term capital gain event. Otherwise a long term gain event. You'll need to find out from the individual who gave you the stock what the cost basis of the stocks is, because that is the cost basis you'll be using to calculate your gains.

Ted, this is actually a complicated question. The way to phrase it is, "will you be required to make estimated tax payments for 2007?" Maybe, maybe not. See the instructions for Form 1040ES...here's a link to the PDF from the IRS website - the packet explains estimated taxes in detail and has vouchers for sending in payments:

On that worksheet you'll need to enter your expected gain from this sale of stock. Find out from the person who gave you the gift what their cost basis and purchase date were -- both transfer over to you (with some rare exceptions). The difference between that cost basis and the buy-out price is your capital gain, and that's taxed at one of several rates depending on your income level and how long the stock has been held. Here's the IRS explanation of the taxes on that:

If they aren't required, you can pay any balance due when you file your taxes. But if you don't make required estimated payments, you're charged interest for paying late, even if you pay in time come April.

-Tad

That's not true. Assuming the giver held the stock at a paper gain when they were gifted, the recipient picks up the giver's basis AND holding period. So what matters re: long-term/short-term is when the giver acquired the stock, not when the gift was made.

Aquisition date follows as well as cost basis, the clock for Long Term Cap Gain doesn't start on the gift date.

JOE

Elle's questions are all aimed at providing a well-reasoned answer. The more details, the better the advice. For example, I'd suggest you consider a Roth IRA. You put in post tax money, and it's never taxed again. In an emergency, it may function as a source of funds, so it's less 'tied up' than the 401(k). Debt free is good. Since it sounds like you don't itemize deductions, the mortgage is costing you the full 6%, and paying it down isn't a bad idea. (I know, there are some pretty high end Town Houses so the real estate tax and mort interest may be over the standard deduction). These are the things that can change a reply. JOE

Stand corrected.

Just wanted to thank everybody for all of the responses. It's been a great help I now have some things to look into and start thinking about. - Ted