Where to Invest

Today TaxMama hears from Mabel in Georgia with this tale of woe. “After 25 years of marriage I will receive $80,000 from my ex’s retirement account via a QDRO. With the economy like it is, I need to know the safest place to put this money. Also, is there an alternative that would make any withdrawal not so painful?”

Dear Mabel,

Ah, the eternal question. Where is it safe to put your money?

These days, the money is probably safest under your mattress.

Sure, FDIC, an agency of the Federal government will bail out your bank and give you back your money, since it’s under $100,000. But considering how many billions of dollars the Feds just shelled out for Fannie Mae, Freddy Mac and AIG and IndyMac Bank in the last several weeks….who knows if they’ll still have money left to pay you when your bank of choice goes under.

Seriously, we need to have faith.

First of all, remember the money from the QDRO is from a retirement account. You have to deposit it into an IRA if you don’t want to pay taxes on all that money right now. AND the money must go directly from your ex’s retirement account to your IRA in order to get the tax benefits of the QDRO. [Note: Qualified Domestic Relations Order –
http://www.taxmama.com/AskTaxMama/175/qdro.html )

So, the simplest thing to do is to find a bank who has strong reserves, in a community where people haven’t committed to mortgages they can’t afford to pay.

Buy a series of CDs with a variety of maturity dates – 3 months, 6 months, 12 months, etc. so you can draw money as you need it, without facing early withdrawal penalties.

Do not put the money into the stock market right now. Just about all the mutual funds I am reading about are issuing reports about how successful they are if they are only posting losses of 7% or 8% this year. You can’t afford that.

Something a little more complex? See if you can qualify for one of those low-income 100% loans. Buy a duplex – or a big house. Live in half and rent out the other half. Draw a little money from the QDRO’s IRA to help cover the mortgage. It won’t cost you much, since the IRA income will be offset by the mortgage interest you’re paying.

Sooner or later, the property value will go up. Much of your QDRO money will still be there.
In the meantime, you will have the rent to help cover your living costs. And you get to pick out your own next-door neighbor.

Be a good, but firm, landlord. Screen your tenant carefully for both character and finances. Then you and your children will have a source of future wealth – and good friends for years to come.

And remember, you can find answers to all kinds of questions about divorce and QDROs and other tax issues, free. Where? Where else? At TaxMama.com

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