Where should my mom invest $20,000?August 17, 2012: 6:30 AM ET
My 57-year-old mother will receive about $20,000 from a divorce settlement in the next few months. She has minimal emergency funds and retirement savings. Where should she invest this? A CD? A money market account? An IRA? — Kelley C.
Building an emergency fund should be your mother's top priority, says David Frisch, a financial adviser at Frisch Financial Group in New York City. He recommends she stash that cash in an ordinary savings account. "As long as she may need to draw on that money in the next couple of years, put it in the bank," he says.
As for IRAs, your mom can only contribute to an IRA using earned income. If the money comes as part of a property settlement, then it's not considered earned income and can't be contributed to an IRA. That said, if the divorce settlement is in the form of alimony, it's considered earned income and can be contributed to an IRA. Just remember, money in a traditional IRA won't be available for penalty-free withdrawal until your mom reaches 59 ½ years of age.
— Austin Kilham
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