For the remainder of the $20,000 earmarked for retirement, you could put it in a high-yielding savings account and make additional Roth contributions in future years using that money, Bera said.
Or, you could open a brokerage account. In it, any earnings from an investment held longer than one year would be taxed at long-term capital gains tax rates, which are generally lower than the rates on ordinary income.
Meanwhile, if you are working full-time, your options for investing that $20,000 windfall might be expanded.
If you have a 401(k) through work, you could use some of your $20,000 windfall to bulk it up. In 2019, the maximum you can put in a 401(k) is $19,000. Contributions are made pre-tax, which reduces your taxable income.
"A lot of people aren't close to maxing out their 401(k)," Bera said. "Ramping up those 401(k) funds is important, and it will lower your tax liability for the year as well."
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You should at least put enough in your 401(k) to get your company's matching contribution if one is available.
"If you don't get the company match, it's free money you're leaving on the table," said CFP Rianka Dorsainvil, founder and president of Your Greatest Contribution.
If you have money left over from that earmarked $20,000 after your 401(k) contribution, a Roth IRA is an option for the remainder, as long as your income is within the limits ($137,000 for single filers and $203,000 for married couples filing jointly).
Or, if you have a high-deductible health care plan, you could put up to $3,500 into a health savings account this year ($7,000 for families).
HSAs come with a triple tax benefit: a deduction for the contribution, tax-free growth and tax-free withdrawals as long as the money is used for qualified medical expenses.
As with the younger crowd, a brokerage account also is an option.
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