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Tips to make $115K last
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November 20, 2000: 6:03 a.m. ET
Start by rolling a 401(k) into an IRA so the money will grow larger
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NEW YORK (CNNfn) - Your dad has passed away, and he left your mom $115,000 in a 401(k) and an insurance policy. Now, you're wondering what the best strategy is for the money to give your mother some lasting income and peace of mind.
In response to a reader's question, Heather Locus, a certified financial planner, said one step may be to roll over the 401(k) to an IRA so it can grow larger.
Ask the experts a question.
My father passed away about three weeks ago at 69. My parents were both retired. My father received pension in the amount of $2,100 a month after taxes and $1,000 a month in Social Security. He had $72,000 in a 401(k) account and will receive about $45,000 in life insurance after funeral expenses and other debts.
My mother is 60 and will receive about 60 percent of my father's pension, plus the full amount of his Social Security. I would like to know how my mother should invest the $115,000 from the 401(k) and life insurance to provide her with three things: 1) some supplemental income, 2) some liquidity and 3) some growth potential to offset increases in inflation and sustain her standard of living.
They still owe about $65,000 on their home and make a monthly mortgage payment of about $600 a month.
There are a number of differing objectives to try to balance.
Your mother will want to roll the 401(k) account to her own IRA so that she has the option to continue to defer distributions until age 70-1/2 and elect new beneficiaries.
If she isn't aware of the rules regarding the taxation of Social Security benefits, she should speak with a tax and investment adviser to try to minimize the taxes owed on her benefit. In general, if her income from investments and the pension plus 50 percent of her Social Security benefit is greater than $25,000, up to 50 percent of her benefit ($6,000) will be taxable. If the calculation comes to more than $34,000, up to 85 percent of her benefit ($10,200) will be taxable.
It is extremely difficult to advise on an investment allocation without speaking directly to your mother regarding her cash flow needs and risk tolerance. Given your first two stated objections, she should consider leaving the life insurance proceeds in a high-paying money market for at least six months to a year to allow time for her to get past the initial shock
and obtain a better understanding of her monthly cash needs.
To help with the third objective, if she is not an extremely conservative investor, she could invest the 401(k) rollover in a diversified equity portfolio, since ideally she will not begin withdrawing from these funds for 10 years or more. This would provide an overall allocation of 60 percent in stocks and 40 percent in bonds.
Given that this is probably a difficult time for your family, I would strongly encourage you to meet with a qualified trusted adviser and not rush into any decisions. 
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