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Q&A: After a windfall, questions on what to do with the cash

December 30, 2024 By Liz Weston

Dear Liz: After selling my house and downsizing at age 84, I am cash rich for the first time in my life. My goal now is not so much to grow the money substantially, but to avoid paying taxes on my investments, as I would have to do with certificates of deposit. Are tax-free municipal bonds my best option, or what would you suggest?

Answer: If you’re in a high tax bracket — roughly 32% or higher — the lower interest rates paid on municipal bonds can still give you a good-enough return to make buying them worthwhile. If you’re in a low tax bracket, the math doesn’t work so well.

Also, municipal bonds aren’t covered by FDIC insurance the way a certificate of deposit would be. Investing in bonds involves some risk. The chances of default are minimal if you choose highly-rated bonds, but your bonds could lose value if interest rates rise.

Consider using some of your cash to consult a fiduciary, fee-only planner who can help you figure out a strategy that reflects all aspects of your financial situation, not just your tax bill.

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Filed Under: Investing, Q&A, Taxes Tagged With: FDIC insurance, Investing, municipal bonds

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