Helping Mom With a Lump Sum
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So is our contact us button, where you can just click that button and ask us a question. Today, we are joined by Monica, who listens to us from upstate new york. Hello, Monica. How are you and what can we do for you today?

Hi, joe. Hi, mark was so excited to be able to to talk to you again and get some feedback again. My mom and I called party two and hf years ago.

At this point, we are trying to figure out her finances. My dad passed away ten years ago, and SHE worked for his company. So he was kind of trying to wrap up and be able to retire.

And you helped us kind of organize what was going on at the time. But they spend some changes. So we wanted to touch base and see what you would suggest. Um she's in a much Better spot now not is scare with what to do with the funds are having funds um but just kind of wanting to make a plan.

Now that's so great though that like I love when you come back with us and we kind of get through this because I remember your mom was a little ski sh and so um we are so happy that she's in a different place. So tell us how we can help you out what what is the situation and what can we do to help improve IT.

okay. So at the time, we were just kind of making ends me with wrapping up that business and making sure they had enough month to month to get by until SHE started. You know turning on all the retirement options that he had um saved at that point.

Um since then, she's close up the the company and has was actually able to sell IT. Wow which was a surprise. We really didn't expect that to happen. So that left and much Better but in the agreement was um that annually till two thousand twenty nine IT would be fifty thousand dollars year which more than made up like the salary SHE had so he was a much more comfortable pot and that's great so that's kind of war we were as of last week. Um but then last week, the person who purchased the company said he had a separate company but he is looking to sell but needs to clean up now and make sure they're very cleanly separated two separate companies and needed know a lot of feedback from her and her lawyer and her lawyer suggested at the time to try to get IT bought out like completely so you would not have to you know worry about your idea if he .

defaults or something that .

to lena um not that there is a worry of that but just legally want to be safe you know absolutely .

I take less money up prune to have the security of having there's much as possible at front.

right? So IT sounds like that's pretty much good to go as of this week or next week. We should have a big lumpsum, and we're trying to figure out what to safely do with that.

We never really had to look a good emergency fun kind of thing for her set. So maybe keeping some of IT clean for that if there is a recession on the line coming up. But where and what .

how do we handle in? okay. So what will the lumps amount be?

It'll be two hundred and fifty thousand.

Oh, wow, okay, great. Will that be taxable to her? Or do we need to pull some money up? Four taxes? Yes, yes. How much should we keep out for taxes?

Fifty mabe OK.

Just for I mean, well, I mean, it's the cell of a business is about it's just like any asset, right? So the irs is going to say, hey, Monica s mom, what was the business? I watch the cost basis of the business.

I presume that chain or dad, I mean, they built IT from nothing. So it's probably not that big of cost basis. You'll have to ask the account um or the person who's the lawyer to kind of help you just get a sense because you're onna have to report IT.

So obviously, if we reported, we have to put some number down there. I don't know what that numbers is going to be, but as to be something, I mean, if again, if your cost basis was zero and you sell IT for two fifty, the worst you're going to do is, is the fifty grad IT will not be more than that. But I bet it's less okay.

So we know fifty grand for taxes. What about the emergency fund? Like what does he spend on an ongoing basis?

He really doesn't spend that much. We are just going through her numbers. And IT looks like three to four thousand a month.

He really, he received social security right now.

SHE right now gets a thousand dollars a month for herself. But starting middle of twenty twenty five, SHE will be picking up my father's like survival benefit, which will be bump up to that three thousand.

So she's a really good ship there. Okay, that's good. And so any other money that he has invested right now?

Yes, she's got about a million dollars.

And okay, pre tax, right?

Yes.

okay, yes. How well, this mom, I I never neglected to ask you that question.

Sixty one.

okay. So she's Young. She's healthy. How much does he have in the bank right now?

Ten thousand. okay.

So we'd like I mean, do you agree that there is some comfort level that you would have and just keeping safe fifty total in the bank just as an emergency reserve, would you feel SHE would feel Better with that and you would feel Better with that, right? yes. Do you think more because, I mean, look, there's a case to be made. We should put a little more in there because, you know, two years of her living expenses, SHE has a SHE owns a home, right, right. And what's the house worth?

Four hundred things.

no mortgage, right?

No burgage.

just I don't know, like things break in the house, stuff happens. Um so maybe I would say fifty, we keep aside for taxes, then maybe maybe just for the time being until we get through tax time, maybe we keep like one hundred and fifty in the bank of meaning that we put fifty aside for taxes, add ninety to her bank account. We let that kind of let's let that play out a little bit.

Now I don't think you should sit in cash. I think have some cds. Um I think you should probably have like a one year and a two year, maybe a three year C D.

With most of the money. And then she's going to have another hundred thousand dollars to invest into a plane broke age account. Does he have any money in a broker account right now?

Not even know.

okay. And is that freekick her? Is he gonna able to handle this just in terms of like, should we investor is, is that going to be beyond what he could take right now in terms of risk?

Think SHE SHE would be fine doing that. Familiar with that. So could you even break IT down for the like the city? How much should we put in in OK?

Mark, you want to happen here. Do you think i'm being overly conservative by having of the money? So let's say that we put fifty aside just for taxes and you maybe there will be less than that.

You should definitely let's get that number. But let's say that in this account total in the bank, there's one hundred and fifty grand. So we know that there's got to be some amount. The tax money should be in a three months c day, right, because that that's all that you can afford, right? You can we have to file taxes in a few months then, mark, how do you want to latter the rest of the .

cds mean in the tax money? It's like you if you even want to do with three months city, yeah, if you you don't have to just let that sit there till you pay your taxes in the spring. I mean, SHE, you know he doesn't spend a lot of money, so is no, this is gonna set up for a while, so SHE can go pretty. For now. You can put the two I was going say.

yeah, that's what I would say. I would say, wake for the, i'd like her to for C, D, let's just pretend we unit again. We are making this up, right. Let's say there's fifty grand that's in taxes and you don't even have to put IT in A C D.

And then what we can do is just leave the amount of money out that we think she's gonna need because, you know, she'll need money for the first six months of the year, if IT goes until IT goes to three thousand. So we know that will need like thirty grand accessible after the s okay, just to pay her for stuff, maybe a little, but so thirty, okay. So now of the remaining eighty, maybe we put forty thousand in a one year C D and forty thousand two years C D, so that in one year that C D comes due.

And then like that, her spending money, she's good just in case he may not even need IT. We're just giving you the optionality. And and I think that, that makes more sense. In terms of just and if he feels more comfortable with that, you know he could just do IT for like eighteen months instead of two years.

But like what we're trying to do is we're trying to set her up so that whatever we put in this broken account, that SHE doesn't have to touch ch IT for a couple years because the money that is coming as the lumpsum makes a real difference. That's her living expenses essentially, and that gets you through the first couple of years. And then we'll get a Better sense of what her spending looks like.

And maybe, you know, at that point, we're just going to we're going to then start to say after a couple of years, then we can start using the money inside of the I R. A account if we'd like just slowly, virtually. I want to get through this tax here because she's gonna get hammer a little bit.

But then, you know, essentially, whatever money SHE needs, SHE can just pull out of those I R A, the irr ray account slowly but surely IT doesn't have to be a lot IT could be like a year from now. You might say, i'm good. I didn't even spend all this money.

I don't need money from the area account. That's fine. We can basically have her pull whatever SHE needs out of that. I ra account a little bit at a time, pay very low taxes.

I mean, essentially gonna unlike the twelve percent tax bracket, SHE pulls the money out, and you can either live on IT or add IT to the broker account. And that, I think could be really helpful for her because she's gonna build that account up. You know, look, I don't think she's ever going to mean a bad tax situation.

I kind of feel like she's got IT now. It's a shockingly fabulous development that he gets this money because what I do think that does is that helps us get to that get through this first year. But you know, he can take out forty SHE could take fifty grand a year out from her ira account and be in the twelve percent tax bracket. And everything's fine.

And dad, hey.

how's e's getting .

health care right now?

He's six.

She's only sixty.

Okay, great. Okay, that's good. You did the math wrong use but but that even Better.

So I think that I don't want to go crazy with the investing part of this. She's got plenty of money. Nothing bad. S gonna happen. I'm just saying for the first, like eighteen months, I don't want her to necessarily just tap into the iras.

Let's see how you're spending goes maybe if you like, hey, I said I was the real four grand a month, but now he really is like forty five hundred a months. That's what she's doing. Like I want a Better sense of what the dollars really are, but there's nothing going on here that causes me any conservation.

SHE doesn't. She's got ten years to get money out of this I R A account before the government will force her to do so through required minimum distributions. And she'll get that money, actual payer taxes and to be a very low rate that spells success in terms of her financial life. So you think that you can be on board with this? You think this is a good plan?

Yes, very much. so. I just want to Better understand the broker account myself. So within the broker account.

we then get the cds no, I I think you could you know where does the I ra account held right now?

Well, she's got split between this IT was one of the reasons we called the first time she's got a split between mass mutual and vanguard. And I was trying to get at all of anger, but he was a comfortable moving at all.

So it's still split. Okay, what is IT invested in inside of mass mutual? Do you know cause mass mutual and insurance company?

So that could mean that IT is in variable annuities ties, but IT also could just be like mass mutual neutral funds. I'm interested because maybe what will do is you'll just open up a broken account at vanguard. They may be able to buy some cds, but maybe you just does that at the bank.

Could, I don't want to stress her out too much. You know, you would open up a broker account in her name. okay. Are you the only child?

No.

there's three us. okay. SHE should make this broker account, something called a transfer on death account, where if he were to pass away, IT would pass you guys and equal shares. Just so I could avoid probe. I think that I would make a lot of sense for her to then have a very low key vanguard broker account, which would be like an individual account that is half a stock index fund and half a bond index fund .

and that's IT I just pull .

up her yeah tell .

mml american funds growth.

okay, that's that's just a plain old large growth stock fund.

okay? Mml equity.

Okay, another stock .

fund in vo vi global strategic income.

okay, that's that's a international bond fund.

M M L medica. Value.

that's dobe. Okay.

yeah， good. We want your reason.

I know I need help. Value, okay. M my inflation .

protected in income, okay.

that's our inflation protected bonds.

And then there's a fixed account and an mml U. S.

Government money work but to me, favor. So you're looking at the top of the statement. Can you just read what the statement is, how it's titled? It's like Monica mom is IT for the benefit of Monica .

this your dads um there were at one point two, but now this is just market .

type .

I array.

Oh, okay, you just give me the okay, so this is an anuwa, okay, this is an annuity contract. So what this means is this is an insurance company product, alright? And there are a number of things that we can do with this.

Um the new attempt is your mom, meaning your parents put money into this product called ananimous and it's really all the damage has been done, meaning there was high fees ba ba blood. So it's not like the worst thing in the world at this point. I want again, I don't want to make her crazy, but this has a very high fee structure compared with save the vanguard, how much money is in the mass mutual and how much money in the vanguard.

Mass mutual about six twenty five, and bandara is about four hundred.

okay. So would he be OK if we moved some of the money into the language a little .

bit at a time? Maybe i'm been trying for years, but I think .

OK I mean IT may not be. So here's what my here's what I think you should do. I think after next year in twenty twenty six, okay, i'm going to change my mind a tiny bit.

I think in twenty twenty six, you should start pulling money out of the mass mutual account fifty grandier about. okay? And you can pull IT doesn't matter.

You can say to them you want to annuitity IT, or you can just pull the money out and sh'll pay tax on IT. SHE has to pay tax anyway. Just take IT out of that one first. Leave the vanguard. Only pull from mass mutual. I hope that we kind of get through I hope we can play through this money over the next five, six, seven years and just get IT out of the mass mutual environment simply by pulling the money out. And then IT closes down and then you've got one vanguard retirement account and then you'll have the one vanguard broker account, just an account in her name, not a retirement account, taxable broker account.

okay. So if he were open to moving the mass metro or chunk of IT to vanguard, would you suggest one .

hundred percent? I would move the entire six twenty five into vanguard right now because they would save her in fees. You gona save probably one and a half percent year.

So of that, six twenty five say, hey mom, you want to save six grand a year. It's possible. IT is possible. Just to be clear, you're onna. Have her listen to this and then you're gonna get back in touch with us if he needs a little like gentle drive from you know her her nis jail and really her age you know what that pisses me off that I just realized that i'm basically her age, a little little her um you say Angel wants to talk to but like this is a great outcome financially for her IT really is. And the broker account is like that two hundred fifty thousand dollars.

It's think of IT as instead of getting the fifty grand a year from the company to set this aside and he said to her, jill says instead of taking fifty granted year out of dead and your company, you're going to take fifty grandier out of the I R. A. From mass mutual and that's gonna be what you live on.

Fifty grandier want you to get on top of that. That's the same number works so well. IT will be perfect.

okay. And now the one of the head I know he had was the best mutual on paper looks like he was returning more each year. IT was sively.

IT was more stocks vers bonds, where the banger ard I set up for her was more bonds. So IT was returning last that, you know, was a reason. But how how can I help her?

Just take the money. So how much is in the vanguard? What I have, what's is IT forty, forty stocks, sixty bonds so have heard take money in the mass mutual just say, hey, mom, as you get older, it's fine.

We don't have to do IT. We don't to kill IT. We can just be fifty, fifty and that's probably what he is overall.

So take sum from the stocks and some from the bonds in the mass mutual and the VGA. You you can shifty, you can make IT fifty fifty if you want. You shouldn't worry about that.

You can be happily fifty fifty. And that language account, I want to get out of that mass mutual so badly right now. But we're going to do what we can do, right?

Yes.

I think this is, this is good. I think this is great. You let us know if mom wants to come and get a little hand holding. No, I think this is a good outcome though.

All right, if you have a mom who needs some help, or if you have an adult daughter who need some help, or you just need help for yourself, go to our website, jill on money doc m. Click the contact us button to note. Let us know if you willing to come on the air light hate why on the website.

Don't forget to sign for a free weekly newsletter because IT comes at every friday, and mark is a great job with that. You can subscribe to us on the auto C P, or wherever you find your favorite podcast. Please leave us a rating and review wherever you listen. Try to lift someone up, change your work, change your wealth, change your life. Thank you for listening, and i'll talk you tomorrow.

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