Where Did It All Go?

Nancy Nealious made some missteps in managing an inheritance

best interest at heart,” she says. “I’m not doing business with him anymore.”

She’s now taken a greater interest in managing her money, reading personal finance magazines and surfing financial sites such as Morningstar.com. “I wish I had started learning this stuff earlier,” Nealious laments. But she’s not going to stay stuck in regrets or remorse. She’s gearing up for medical school, eventually pursuing some kind of franchise venture, and getting on with the business of living.

Financial Snapshot: Nancy Nealious

ASSETS

Market Value of Home $20,000
2003 Kia Spectra 5,000
Checking Account 13,000
Savings Account 6,500
Annuity 11,000
Roth IRA 3,000
Total $48,500†

LIABILITIES

Student Loans $8,500
Total $8,500
NET WORTH $40,000

*ACCORDING TO KELLEY BLUE BOOK

†includes half the home value

The Advice
Melanie Dean, a certified financial planner and president of Dean Financial in Nashville, Tennessee, took up the challenge of analyzing Nealious’ situation. “Nancy is blessed to have received an inheritance from her father. Many aren’t this fortunate, due to their parents’ lack of planning or resources,” says Dean. However, much could have been done differently.

Salvage what’s left. Disposition of money upon inheritance requires serious consideration. Inherited assets have different tax consequences upon receipt as well as future expenditure, says Dean. Ideally, Nealious should have liquidated the proceeds from life insurance first because they are tax-free. The investment account should have been second, given a long-term tax rate versus the traditional income tax liability. She should not withdraw any money from the retirement account at all, but roll it over into a Roth IRA in her name. “Nancy will be able to generate large gains before later withdrawing the assets tax-free,” says Dean. Such a rollover was not allowed until a change in the tax law effective this year.
At this point, Dean recommends Nealious put the remaining cash from her inheritance in a money market account at her current bank. “She has low income and is single, unable to rely on anyone in case of a major expense,” says Dean. “She needs to be able to get that money as needed.” She estimates that Nealious can likely get a rate of 5.5%. (For more on how to handle an inheritance, see “Managing a Windfall,” November 2006).

Move on. What’s done is done. Nealious needs to keep moving forward. To begin investing, she should begin transferring $100 monthly into an S&P 500 index mutual fund. “This is an easy way to get a feel for the market’s ups and downs,” says Dean. The account can be opened at the local bank where she opens a money market account. “This will eliminate the need to secure a financial adviser immediately. She can take her time and find a good one later.”

Focus, focus, focus. “Nancy doesn’t have realistic goals, a plan, or a good timeline,” says Dean. The most important goal related to medical school is cash

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