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Stephen G.
Stephen G., Sr Financial Expert
Category: Finance
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Experience:  Extensive Experience with Tax, Financial & Estate Issues
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My husband passed away 4 months ago at the age of 34. I am

Customer Question

My husband passed away 4 months ago at the age of 34. I am 36. We have two kids ages 2 and 5. I am a stay at home, homeschooling Mom and plan to continue this lifestyle until my children are grown and am able to thanks to our home being paid off, having no debt, and having social security money. I am wondering what to do with my husbands 401k. I do not need the money now but will in my 50's. Should I just leave it where it is? I also have some money in savings. About $40,000.00. Should I leave that there for emergencies or invest some of it somewhere?
Submitted: 11 months ago.
Category: Finance
Customer: replied 11 months ago.
I will also over the next 14 years be able to save a bit of money too from my social security checks. Probably $500.00-$1,500.00/month.
Customer: replied 11 months ago.
Also, do you know at what age I will be able to start getting my husbands and my own social security (separate from what we are now receiving from death benefits)?
Expert:  Stephen G. replied 11 months ago.

Well, first of all my condolences for your loss. I'm sure you have your hands full with your children and of course they'll need a strong Mom now more than ever.

It's great that you are starting to think about these things now. You will also want to start thinking about setting up a college fund for your children in the near future.

First of all, may I ask how comfortable you are with the investment world at this point & where do you think you stand about understanding the various investment vehicles available these days, mutual funds, common stocks, bonds, treasury obligations, etc.?

Customer: replied 11 months ago.
I have 10,000 to 20,000 coming my way in the next year from various investments my husband had and those will be going into opening college fund account for my kids. That is not my main concern though. My main concern is if I will be able to live off of the 401K money, his social security....from when I am 50 to say 85. I live very frugally and my bills are only $800.00/month. I am not saying I will never enter the workforce ever again but I do not know what the future holds for me in that aspect as my children are very, very young right now. I do not know much about the investment world. Not totally clueless but don't know as much as my husband did. I have 220,000 in 401k.
Expert:  Stephen G. replied 11 months ago.

To answer your first question with respect to the 401-k, can you tell me what the approximate value is and do you know what it is currently invested in?

The $40,000. is a pretty good sum to have available for emergencies, so I would leave that alone for the time being. Generally having 6 months worth of living expenses is a good guideline, but that's pretty much based on someone losing their job. Since your income is basically guaranteed, via the Social Security benefits, that guideline wouldn't apply in your case. Are the Social Security benefits your only source of income?

As far as your question about your husband's Social Security benefits, under today's rules that would be at Age 60 in your present situation. However, should you remarry that could change. If you were disabled the age drops to Age 50. Of course, after you children finish High School or at Age 18, their benefits cease.

OK, let me address your comments re the 401-K in my next transmission.

Expert:  Stephen G. replied 11 months ago.

Do you know what the 401-k is currently invested in?

Customer: replied 11 months ago.
The 401K is at $220,000. It's in Wells Fargo. Various stocks. I am look at it and see how much I will have a month at certain ages if I begin taking it out.
So 60 years old I can get his SS benefits. Thanks.
Yes the social security is my only income. I receive it monthly for the next 14 years. My kids get it each until 18 years old. They are only 2 years old and 5 years old now.
Yes the $40,000 I will not touch. It is for emergencies. Should I leave it in regular savings account or put it somewhere like a bond where it will make interest?
Customer: replied 11 months ago.
The social security we receive each month is way more then we need to live on as we have no house payment, no car payments, no debt. I am going to be saving a lot of it for college, etc.
Expert:  Stephen G. replied 11 months ago.

Do you currently have a CPA for your tax filings or financial advice, or some other professional that is already on board giving you financial advice?

The reason I ask is that there are specific investment vehicles that are available to meet certain financial goals & objectives. For example, when you begin to consider college funds you should look into so called "529 plans". If you are not familiar with them, basically they allow you to accumulate funds for college for your children and the earnings accumulate "tax free" and as long as the funds are used for college tuition, books, etc., then the earnings are never taxed.

As far as the 401-k money is concerned, the first question would be what degree of flexibility do you have in terms of investment options in the existing 401-k plan? Since you are the beneficiary under the plan, if necessary, you could rollover the funds to a self-directed IRA and have total flexibility over the investments. I'm not suggesting that, I'm just explaining why I'm asking about the 401-k plan itself. Was the 401-k at Wells Fargo set up by your husband or is it part of a plan that he had as an employee somewhere? What did he do for a living?

Customer: replied 11 months ago.
I have read that I could leave the 401K where it is or change to an IRA. At this moment I don't think I have to time to worry about it and change things on it if it's in an IRA as my kids keep me busy. No, I have no financial person at all. BUT, my brother is a CPA and his company has offered me free financial advise, etc. if I want it.
The 401K was from my husbands job. He was a machinist programmer.
Customer: replied 11 months ago.
I watch the 401K periodically and I see it goes up and down a bit. Somedays it's at 220,000. Some days it's at 205,000. Is that normal? It's not going to just vanish, right? Seriously dumb question but I have no idea how it works now that it just sits there.
Expert:  Stephen G. replied 11 months ago.

The advantage of having your own CPA, is that not only would you have someone who knows the tax ramifications of various investments, but he or she can serve as an independent source of financial information & we are in general conservative in the investment world. You must make sure that the various investments available are appropriate to meet you financial goals. It can quickly get very complicated and the various so called "Investment Advisers" at these Securities Firms are generally glorified Stock Brokers that are interested in generating commissions for themselves.

You may not be able to answer my question as to what the 401-k is currently invested in, but I agree that at this point, it makes sense not to make any changes until you decide who you want to use to give you financial & investment advice.

Your brother would be an excellent source for what you need; are there any family dynamics as to why you prefer not to have him involved to that extent in your financial affairs? Don't make a common mistake by only using him for specific tasks and not giving him all the information he needs to properly advise you. I was the (older) brother in a similar situation and my sister had "control" issues with me being her adviser. She got over that quickly when she interviewed a couple of alternatives. So, subject to the family issue, your brother would be my first choice for you in terms of what you will require tax and investment wise over the long term. He's a CPA, so he's got the technical knowledge or if he needs information, he knows how to obtain & properly evaluate it.

When you are ready, from an investment standpoint, the first thing you need is someone to analyze the 401-k, the investment structure, and the specific options available. At this point, that's one of your biggest assets that you are counting on to supplement your income in another 15 +- years.

Customer: replied 11 months ago.
Thanks for your advice. Very much appreciated. And I am very close with my brother so I have no problem having him help me with financial things. I know he would be more than willing to help me out and I don't mind if he knows my finances as I trust him with my life. Thanks again. I will be taking your advice and having him look over the 401k.
Expert:  Stephen G. replied 11 months ago.

About your 401-k questions. It sounds like the investment is following the market volatility; that's why you are seeing the ups & downs. I doubt it will "tank" and be worth nothing, but remember I don't what the composition of the investments actually are.

What has to happen is that the investments should match your goal of being available to supplement your income when you need to draw on it. So that's the evaluation that should take place.

Expert:  Stephen G. replied 11 months ago.

You are very luck to have your brother and thankfully he chose an honorable profession & the perfect one to be invaluable to you. As I said, that's the right choice.

Please remember to rate my response as that is the only way we receive credit for our work.

Thanks for using JustAnswer.com

Steve G.

Customer: replied 11 months ago.
Here's what he has it invested in.
*Davis new york venture fund.
*Vangaurd extended market index.
*Vanguard institutional index.
*Vangaurd total stock index.
Customer: replied 11 months ago.
right now online I can see a lot about it. Meaning it says if I "retire" at 50 I will have $1,650/month. Is that figuring in taxes? It's taxed when you take it out, right?
Customer: replied 11 months ago.
I will just have to get together soon with my brother and have him look it over and go from there. Thanks.
Expert:  Stephen G. replied 11 months ago.

Yes, withdrawals are subject to income tax. However, based upon your present situation there would be very little, if any tax. If you withdraw before age 59 1/2 there would also normally be a 10% penalty, but in your case that would not apply as your withdrawals are due to the death of your husband, That's one of the technical issues that if you were to decide to rollover the funds to an IRA, it has to be done as a beneficiary of your husband, in effect as a "Deceased IRA", naming your husband to preserve the special rules that apply to you as a widow. That's a perfect example of why you need to run everything by your brother; if he's going to be the guy, then there can be no "I didn't want to bother him as he's so busy". I'm trying to frank with you here as I feel for your situation.

As an aside, generally Vanguard is an excellent Mutual Fund Company, in fact one of the leaders over an extended time period. However, you must look at the projections carefully & not "rely" on them. There are assumptions built into them that may or may not come to fruition. You (your brother) needs to evaluate & explain them to you so that you understand them & you will realize that these are projections only, not guarantees.

You can see that the Vanguard funds are all "index" funds, which means they follow various segments of the stock market and that's why you are seeing the swings in value. When you hear the news & they say "the market is down 300 points today, you can pretty much be certain that your investment is down too. Of course, it works the other way too. But, if the market "tanks" and drops a couple thousand points, that $220,000. value may be $175,000. and that projection of $1,650., may drop to 1,250. But what matters most to you is where is the market going to be in 15 +- years, so these type of swings are what is "normal" for the type of investment that are in the 401-k.

You need to get your brother on board. That's the bot***** *****ne. I can only do so much online. I can give you the direction you need, the things that you need to consider, etc., but this website is actually designed for each question to be responded to and perhaps 1 or 2 or 3 follow-up questions or comments to clarify something for you. Generally the whole process takes about 15-20 minutes on average. This exchange could easily be 6 or 8 separate questions. But as I said, I'm trying help out in light of your situation.

Customer: replied 11 months ago.
I appreciate your extended amount of time. thank you so much. You helped me a lot. Have a great day.
Expert:  Stephen G. replied 11 months ago.

Do you have any additional questions or can I clarify anything for you?

If not, I would appreciate it if you would take a moment to rate my response as that is the only way we receive credit for our work.

Thanks very much,

Steve G.

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