MONEY Ask the Expert

How to Invest an Inheritance

Investing illustration
Robert A. Di Ieso, Jr.

Q: I’m 22 years old and inherited quite a bit of money from a parent who passed away. What is the best thing to do with the money in terms of investing and long-term growth? — Val

Step One:
Before all else, you want to look at how this money fits into your overall finances, says Ken Moraif, a certified financial planner and senior advisor with Dallas wealth management firm Money Matters.

Do you have high-interest debt, such as a car loan or credit cards? If you do, it makes sense to use some of this gift to pay off the debt, says Moraif — but don’t use it as a license to overspend.

On the other hand, if you have a mortgage outstanding, hang onto that. After factoring for low rates and tax deductions for interest on that loan, your inheritance is better put to work elsewhere. Ditto for student loans, for which interest may also be tax deductible.

Step Two:
Take a look at your cash cushion. If you don’t have one, consider tucking away a small portion of your inheritance in a savings account. Ideally, you want to set aside enough to cover three to six months of expenses. By keeping some cash on the sidelines, you won’t have to tap your investments (perhaps at an inopportune time) if you get into a bind.

Step Three:
Before you think about specific investments, you’ll want to figure out the best investment vehicle for you. If you have access to a tax-advantaged 401(k) retirement plan, bump up your contributions so you’re on track to contribute the maximum ($18,000 in 2015).

The money will need to come from your paycheck, says Moraif, but you can use some of your inheritance to supplement your income if need be. Likewise, you can also set up a Roth IRA and tuck away up to $5,500 a year.

In a Roth, you won’t be able to make tax-free contributions, but your investments will grow tax free and won’t be subject to tax when you withdraw – assuming you do so after age 59½. “You want to take full advantage of any tax breaks,” says Moraif. “Those are grand slams.”

Step Four:
With the ground work laid, then you can finally look at where exactly to invest your money. The answer will depend on how much you inherited and how much you ultimately think you need.

If you are looking for a single place to park your inheritance over the long term, look for a low-cost index fund that offers broad, inexpensive exposure. The Vanguard Total Market Index fund (VTSMX), for example, holds more than 3,700 U.S. stocks of all sizes, across virtually all sectors.

This is a good place to start, but you will eventually want to look at further diversifying with international stock fund, alternative funds and even bond funds. If your retirement plan or brokerage offers target-date funds, this is one way to get the right balance. These funds base their allocation (mix of stocks and bonds) for your target retirement age and automatically shift the allocation as you get closer to your retirement date.

Of course, depending on just how large of an inheritance you’re talking about, you may want a more tailored allocation – one that is just aggressive enough to get your nest egg to where you need it.

“Your asset allocation should be a function of your hurdle rate,” he says. “You only want to take as much risk as is necessary to accomplish your financial goals.”

Read next: Buying or Selling a Home in 2015? Here’s What You Need to Know

MONEY workplace etiquette

Should You Give Your Boss a Holiday Gift?

Robert A. Di Ieso, Jr.

Q: Should I give my boss a holiday gift? And what about the people who work for me?

A: Just over a quarter of workers buy for the boss, according to a survey conducted last winter by staffing company Spherion. But you probably shouldn’t follow their lead.

You risk looking like a suck-up to your boss and your co-workers, says Lizzie Post, co-author of The Etiquette Advantage in Business. And the gesture could make your manager feel awkward if he or she doesn’t get you a gift.

The right way to managing gifting upwards—if you are going to do it—is to pool with your colleagues to get one gift from everyone, says Post. Just don’t make it too expensive (no jewelry) or personal (no massage) or offensive (no reindeer sex t-shirt). “Stick with something work appropriate,” says Post.

She suggests a monogrammed business card holder or hand-crafted chocolates.

And what about gifting in the other direction if you’re a boss? Just 9% of supervisors surveyed by Spherion said they planned to give presents to subordinates.

But giving to your direct reports can be a nice thing to do, says Post. “It’s expression of gratitude or recognition for someone’s hard work,” she adds. “And there is nothing wrong with that.”

If you go ahead and buy for your underlings, keep it fair and give gifts of equal value across the board. You don’t want to be accused of favoritism when you’re playing office Santa.

MONEY Ask the Expert

Home Insurance Policies to Skip

For Sale sign illustration
Robert A. Di Ieso, Jr.

Q: I just bought an $89-per-year insurance policy for our sewer pipe. My wife says these kinds of policies (of which I have quite a few) are a waste of money. What do you say?

A: Well, if your sewer pipe cracks over the next 12 months, that’s money well spent. With tens of thousands in excavation, repair, and cleanup bills, you’ll be glad you get paid back for whatever portion of the expense the policy covers (perhaps $5,000).

Of course, it’s unlikely that the pipe under your front lawn will crack this year, in which case you won’t collect anything on your policy except perhaps some peace of mind. Now, $89 certainly isn’t a big outlay if it helps you sleep at night, but consider all of the similar insurance plans and extended warranties you can buy for just about every appliance, electronic gadget, and piece of home equipment you ever purchase.

Those can add up to many hundreds of dollars spent annually on policies that, frankly, have dubious value because of likely coverage restrictions in the fine print, because you may not remember exactly what policies you’ve bought or where the paperwork is if something does happen to a covered product, and because if the company providing the policy goes belly-up, your insurance goes with it.

“As a general rule, I’d advise against buying any sort of extended warranty or product insurance policy,” says Linda Sherry, a director at Consumer Action, a national nonprofit advocacy group based in San Francisco. Those plans are huge profit centers for the retailers, which often pay large commissions to the salesmen who pressure you so hard to buy them.

Most products come with a one-year warranty anyway—and that’s often doubled by the credit card you buy it with (check your card policy). So the extended warranty you buy from an appliance retailer, for example, could be duplicative.

Besides, the point of insurance should be to protect you from financially catastrophic expenses like a house fire, car accident, or health emergency. Smaller emergency costs, such as replacing a section of sewer pipe, a water heater, or a big screen TV, are hopefully the sorts of expenses that you could cover by other means, such as shifting funds from your contingency savings.

If you’re still tempted to pay for certain extended warranty coverage, perhaps because it includes an annual maintenance visit (as with oil-furnace coverage) or free tech help (as with some computer plans), just make sure the price of the annual policy is no more than 10% of the purchase price of the covered product, says Sherry. “Anything higher is overpriced.”

MONEY IRAs

The Best Way to Tap Your IRA In Retirement

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q: I am 72 years old and subject to mandatory IRA withdrawals. I don’t need all the money for my expenses. What should I do with the leftover money? Jay Kahn, Vienna, VA.

A: You’re in a fortunate position. While there is a real retirement savings crisis for many Americans, there are also people with individual retirement accounts (IRAs) like you who don’t need to tap their nest egg—at least not yet.

Nearly four out of every 10 U.S. households own an IRA, holding more than $5.7 trillion in these accounts, according to a study by the Investment Company Institute. At Vanguard, 20% of investors with an IRA who take a distribution after age 70 ½ put it into another taxable investment account with the company.

The government forces you to start withdrawing your IRA money when you turn 70½ because the IRS wants to collect the income taxes you’ve deferred on the contributions. You must take your first required minimum distribution (RMD) by April of the year after you turn 70½ and by December 31 for subsequent withdrawals.

But there’s no requirement to spend it, and many people like you want to continue to keep growing your money for the future. In that case you have several options, says Tom Mingone, founder and managing partner of Capital Management Group of New York.

First, look at your overall asset allocation and risk tolerance. Add the money to investments where you are underweight, Mingone advises. “You’ll get the most bang for your buck doing that with mutual funds or an exchange traded fund.“

For wealthier investors who are charitably inclined, Mingone recommends doing a direct rollover to a charity. The tax provision would allow you to avoid paying taxes on your RMD by moving it directly from your IRA to a charity. The tax provision expired last year but Congress has extended the rule through 2014 and President Obama is expected to sign it.

You can also gift the money. Putting it into a 529 plan for your grandchildren’s education allows it to grow tax free for many years. Another option is to establish an irrevocable life insurance trust and use the money to pay the premiums. With such a trust, the insurance proceeds won’t be considered part of your estate so your heirs don’t pay taxes on it. “It’s a tax-free, efficient way to leave more to your family,” Mingone says.

Stay away from immediate annuities though. “It’s not that I don’t believe in them, but when you’re already into your 70s, the risk you’ll outlive your capital is diminished,” says Mingone. You’ll be locking in a chunk of money at today’s low interest rates and there’s a shorter period of time to collect. “It’s not a good tradeoff for guaranteed income,” says Mingone.

Beyond investing the extra cash, consider just spending it. Some retirees are reluctant to spend the money they’ve saved for retirement out of fear of running out later on. With retirements that can last 30 years or more, it’s a legitimate worry. “Believe it or not, some people have a hard time spending it down,” says Mingone. But failure to enjoy your hard-earned savings, especially while you are still young enough and in good health to use it, can be a sad outcome too.

If you’ve met all your other financial goals, have some fun. “There’s something to be said for knocking things off the bucket list and enjoying spending your money,” says Mingone.

Update: This story was changed to reflect the Senate passing a bill to extend the IRS rule allowing the direct rollover of an IRA’s required minimum distribution to a charity through 2014.

Do you have a personal finance question for our experts? Write to AskTheExpert@moneymail.com

Read next: How Your Earnings Record Affects Your Social Security

MONEY

How Your Earnings Record Affects Your Social Security

Q: I took my Social Security in Jan 2011 at age 65 1/2 and have continued to work full time. By the end of this year, I figure I will have contributed around $5,500 into Social Security in each of the past four years. Knowing I made more money in recent years than I did in the prior years—the years on which my Social Security was based—I expected a readjustment, but my benefits didn’t change. My local Social Security office told me that any readjusting would have been done automatically in January. Then last month I got a letter stating that my check will increase by $1 per month, attributed to the 2013 year. What about 2011 and 2012? Nice return on $5,500! Do I have any recourse? Don

A: First off, I agree that it is very hard to keep paying into Social Security after you’ve started receiving benefits and not feel like you’re getting anything out of it. I think payroll taxes should be reduced for people who have reached full retirement age (it’s 66 now and will rise to 67 for people born in 1960 and later). Doing this would benefit workers and also give employers an incentive to hire older workers. To say the least, I am not holding my breath waiting for such changes to be enacted.

The specifics of how your future benefits are affected by your recent earnings is all about how Social Security calculates your earnings base. Social Security keeps track of all your covered earnings (earnings on which you paid Social Security payroll taxes) during your working life. Each year, it applies an index factor to your earnings to adjust them for the wage inflation that has occurred since that year.

In this way, money earned during 1985, for example, carries the same weight in calculating your Social Security benefits as money earned in 2005 or 2010 or 2014. This indexing stops when you turn 60; any earnings after that age are included in your earnings record on an unadjusted basis. Because of wage inflation, it’s quite likely these later-age earnings will raise your benefits.

The agency uses your highest 35 years of earnings to determine what it calls your Primary Insurance Amount (PIA), the benefit you’d get if you began collecting benefits at your full retirement age, which in your case is 66. If you do not have 35 years of eligible covered earnings, the agency enters a zero for each “missing” year. So, for example, if you had only 20 years of covered earnings, Social Security would calculate your benefit by using the earnings for those 20 years, adding 15 zeroes, and using this average to determine your PIA. (The PIA is also used in determining benefits to your spouse or former spouse that are based on your earnings record.)

Now, even though your earnings have been increasing, it’s possible they would not become one of your new top 35 earnings years. And even if they did, they might not raise your earnings base very much.

Perhaps you already have obtained your earnings record from Social Security. If not, you can get your earnings record at the Social Security website. It’s also possible, but a lot of work, to use this record to compute your earnings base.

The only recourse I can suggest is to take your earnings record to a Social Security office and ask a representative to walk you through it to make sure you’re being properly credited for your recent work history.

I hope this helps—though I realize my suggested remedy may only lead to more frustration for you. Best of luck.

Philip Moeller is an expert on retirement, aging, and health. His book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” will be published in February by Simon & Schuster. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: Why Workers Undervalue Traditional Pension Plans

MONEY Ask the Expert

How to Pick a Medigap Policy That’s Right for You

140603_FF_QA_Obamacare_illo_1
Robert A. Di Ieso, Jr.

Q: “I’m looking into Medigap insurance policies with very limited success. The information is very scarce. It is difficult to choose an insurance company. What criteria should I use to decide among carriers?” — Ray, Henderson, Nev.

A: Medigap, an insurance policy that supplements Medicare, helps pay for some of the medical costs that Medicare doesn’t cover, such as your co-payments, co-insurance, and deductible. Some policies even help with services Medicare doesn’t touch, like medical care outside the U.S.

You can choose from 10 standard Medigap policies, each named for a letter in the alphabet. The government mandates what features the 10 plans must offer, but the policies are sold through private insurers. (If you live in Massachusetts, Minnesota, or Wisconsin, the standard benefits on the Medigap policies sold in your state differ.)

Medigap Plan A is the most basic policy, while Plan F offers the most extensive coverage, picking up almost all of your out-of-pocket expenses. Plan F is also the most popular, accounting for 55% of plans sold, according to America’s Health Insurance Plans, the health insurance industry trade group.

The fastest growing Medigap policy, Plan N, is a newer option that has cost-sharing requirements but is typically less expensive than Plan F.

To shop for a Medigap plan, start with the Medigap policy search tool at the Medicare website. Enter your zip code, and you’ll see the standardized plans available to you, details about what they cover, the estimated costs, and a list of insurers selling those plans in your area. For price quotes, you’ll have to call each company directly.

Usually the only difference between same-letter policies is cost—and the price range can be shockingly large. According to a survey of rates by Weiss Ratings, the annual premium on a Medigap Plan F ranged from $162 to $5,674.

“I recommend that people get Plan F if they can afford it because it offers the most coverage,” says Fred Riccardi, client services director for the Medicare Rights Center. If you can’t swing a Plan F, pick the option that offers the most coverage within your budget.

Once you settle on a letter, you can shop on price alone. “Since the policy itself is standardized, premiums are really the only thing that will vary across insurance companies,” says Riccardi. “The only reason I see people go with a more expensive policy is if they prefer a certain insurance company.”

However, you do need to pay attention to the insurer’s pricing system too. Some plans are “issue age,” meaning the premiums rise with medical inflation. Others are “attained age” policies, with the price increasing each year with your age as well as medical inflation. You’ll also see “community rate” policies, which charge every policyholder the same premium regardless of age.

Attained age policies may appear to be the cheapest initially, but in the long run they could cost you more. “People should be aware that if they buy an attained age rated policy, their premiums will increase as they get older,” says Riccardi. “They may be better off considering a community rated or issue age rated policy if these options are available in their state.”

To get the lowest price and ensure that you won’t be denied, apply for a policy during the six-month open enrollment period that begins the month you turn 65, says Riccardi. Under federal law, insurers cannot deny you coverage during that window, and they must offer you the best available rates regardless of your health.

If you’re shopping for a Medigap plan outside of this window, you can be turned down or charged more for a pre-existing condition, unless you live in a state that offers extra consumer protections.

MONEY Ask the Expert

How to Negotiate the Best Price From a Home-Improvement Contractor

For Sale sign illustration
Robert A. Di Ieso, Jr.

Q: Can I negotiate the cost of a home improvement project? I feel like these guys all really want my business, but I don’t want to anger anyone by suggesting they lower their bids.

A: Yes, you can negotiate with a contractor; the trick is doing it without making it feel like a negotiation. Anytime you’re haggling over someone’s work (versus a mass-produced product like a car or flat-screen television), look for a way to ask for a lower price without any suggestion of insult. The last thing you want is an angry contractor looking for ways to cut corners on your project to make it come in at what he thinks is an unjustly low price.

Here are three effective techniques you can use:

1. Announce that you’re getting multiple bids. One of the major advantages to getting three or more bids for any significant (say, more than $5,000) home project is that you can tell the prospective contractors, honestly, that you’re doing so. That gets the message across that a) you’re concerned about the price, b) he’s competing with other contractors for your job, and c) he’d better sharpen his pencil and give you the best possible number he can. This is not to say that you should hire the contractor with the lowest bid. Hire the one whose work and reputation are the best. But the process of competing for your business will almost certainly drive down everyone’s price.

2. Ask him to “value engineer” the plans. Rather than flat-out asking your contractor if he will lower his price to win your business, which could backfire, ask for his advice on how you can rein in the cost of your plans. If his bid is $30,000 and you’re trying to keep the project to $25,000, for example, tell him so, and ask him if he can recommend any changes that could bring the cost in line. Maybe he will suggest a similar-looking-yet-more-affordable tile for your new master bathroom or a different layout that keeps the fixtures where they are and therefore slashes the plumbing costs. An open conversation about where to scale back doesn’t run the risk of making him mad—in fact, it shows that you value his opinion. And it further drives home the message that your budget is tight, possibly leading him to make other money-saving suggestions elsewhere.

3. See if you can contribute some sweat equity. If you’re handy and have the time, you might be able to knock off a portion of the project yourself. In that case you can ask the contractor to reduce his price accordingly. If you have a good hand for painting, for example, that’s a perfect project to tackle yourself. You could also do some basic demolition (assuming you have the know-how and gear to do it safely), excavation work (for small projects that don’t require power earth-moving equipment), or landscaping around the finished job. Any of these could easily slash hundreds or thousands of dollars off the project price.

 

MONEY Social Security

The Hidden Pitfalls of Collecting Social Security Benefits from Your Ex

Q. I have spoken with seven people at the Social Security Administration and gotten five different answers to my question. I want to draw Social Security from my ex-husband of 30 years at my present age, 62. I know that is not my full retirement age, and I would receive a reduced benefit. I also want to wait until full retirement age, 66, to draw from my Social Security benefit and receive it in full without reduction. Can I do this? —Sandra

A. This sounds like a sensible plan but unfortunately, when it comes to Social Security rules, logic doesn’t always carry the day. In this case, your plan conflicts with the agency’s so-called “deeming” rules, which apply to people who apply for spousal benefits—whether they are married or divorced—before they reach full retirement age.

Before we get to the problems with deeming, let’s quickly review the basics. If you were 66 and filed a divorce spousal claim, you would collect the highest possible spousal benefit—50% of the amount your ex-husband is entitled to at his full retirement age. It isn’t necessary for your ex to have filed for his own benefits at 66 for you to receive half of this amount. In fact, he doesn’t even need to have reached age 66. That’s just the reference point for determining spousal benefits.

Since you’re filing early, however, you won’t get half of his benefits. The percentages can be confusing, so here’s an example from the agency’s explanation of benefit reductions for early retirement. If your ex-husband’s benefit at full retirement age was $1,000 a month, your “full” divorce spousal payout at age 66 would be 50%, or $500. If you file at age 62, that amount will be reduced by 30% of $500, or $150. The payout you get, therefore, comes to $350 ($500 minus $150), or 35% of his benefit.

There are a few other rules for receiving divorce spousal benefits. You cannot be married to someone else. And if your former husband has not yet filed for his own Social Security retirement benefit, you must be divorced for at least two years to claim an ex-spousal benefit.

Now for the deeming pitfalls. If you meet these tests and file for a divorce spousal benefit before reaching full retirement age, Social Security deems you to be simultaneously filing for a reduced retirement benefit based on your own earnings record. The agency will look at the amount of each award and will pay you an amount that is equal to the greater of the two.

Since your spousal filing has also triggered a claim based on your own work history, you cannot then wait until full retirement age to file for your own benefits. In other words, your own retirement benefit will be reduced for the rest of your life. Logical or not, those are the rules.

There’s no simple solution to the deeming problem, but you do have some choices. Figuring out the best option depends on many factors, including the levels of Social Security benefits that you and your ex-husband can receive, as well as your overall financial situation. Do you absolutely need to begin collecting some Social Security benefits at age 62, or can you afford to wait? You should also consider whether you’re in good health and how long you think you may live.

Your first choice is to do nothing until you turn 66, which is the full retirement age for someone who is now 62. Once you hit that milestone, deeming no longer applies. At that time, you could collect your unreduced divorce spousal benefit and suspend your own benefit for up to four years till age 70. Thanks to delayed retirement credits, your benefit will rise by 8% a year, plus the rate of inflation, each year between age 66 and 70. (Your spousal benefit remains the same, except for the inflation increase.) So, even if your divorce spousal benefit is greater than your retirement benefit at age 66, this may no longer be the case when you turn 70.

But if you need the money now, your best choice may be to file for reduced benefits. If your reduced divorce spousal benefit is higher than your own reduced retirement benefit, you have another option. At 66, you could suspend your own benefit and receive only your excess divorce spousal benefit—the amount by which your ex-spousal benefit exceeds your retirement benefit. It probably won’t be much. Still, suspending your benefit will allow it to rise until age 70, though it will be lower than you would have otherwise received because of early claiming. If these increases provide more income than your divorce spousal benefit, this move may be worth considering.

Variation of these choices include filing early at age 63, 64, or 65. You can also consider how delayed retirement credits would affect your decision if you filed at age 67, 68, or 69. In the end, you’ll need to do the math to compare the potential benefits of delaying vs. claiming now. Or you may want to get help from a financial adviser.

Philip Moeller is an expert on retirement, aging, and health. His book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” will be published in February by Simon & Schuster. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: This New Retirement Income Solution May Be Headed for Your 401(k)

MONEY workplace etiquette

How to Handle a Co-Worker Who’s a Chronic Complainer

Robert A. Di Ieso, Jr.

Q: One of my co-workers is always complaining about our boss. I have a good relationship with both of them, but I don’t want to seem unsympathetic to my co-worker. What should I do? – Darin, Arlington, Va.

A: Everybody needs to let off steam once in a while. But be careful about getting sucked into a gripe session about your boss. What you say could come back to bite you.

You are probably not the only one to whom your colleague is complaining. So if you join in to say something negative (even if simply in the spirit of sympathy) about your boss, your co-worker may pass on the message to others that you are unhappy, too, says Dana Brownlee, president of Professionalism Matters.

“Make sure whatever you say you would also be comfortable with if someone repeated it to your boss,” says Brownlee.

How best to handle the situation depends on what your co-worker is complaining about, says Brownlee. If you agree with the complaint – maybe your boss is a micromanager—and you want to help, talk about how you deal with the issue. You might say something like, “I know John can be controlling. But I made sure I was very proactive about giving him updates on the project, and he eased up.”

If there’s a serious issue that should be addressed, encourage your colleague to raise the problem with the boss directly—and suggest a tactful way to do it. “It’s not going to solve your colleague’s problem just talking to you about it,” says Brownlee.

On the other hand, if your colleague is a chronic complainer who is more interested in moaning about things than fixing problems, it’s time to short circuit that aspect of your relationship.

Constant complaining wears you down and distracts you from your work. Plus, turning a sympathetic ear will only encourage your colleague to come back to with a subsequent rant. “Complaining is like a fire, it needs oxygen,” says Brownlee. “And complainers seek out people who will feed that fire.”

When you see a bitch session forming, steer the conversation in a different direction. Say something like “I’m tired of talking about work. Let’s talk about something else.”

If your colleague launches in anyway, listen, nod but don’t comment, and then change the subject. Or, play the work card, and just say you don’t have time to chat.

Do this enough times and your complaining colleague will go elsewhere to vent, says Brownlee.

Got a workplace etiquette question you need answered? Send it to drosato@moneymail.com!

MONEY IRA

How to Use Your Roth IRA to Buy Foreign Stocks

Investing illustration
Robert A. Di Ieso, Jr.

Q: I would like to invest in foreign stocks and LLPs within my Roth IRA. Do I need to file any special forms at the end of the year? Are there any type of investments within the Roth that would not require a special filing? — Tom

A: Depending on what’s available in your Roth IRA or whether you have a self-directed Roth, there are any number of investments you can own beyond the usual stocks, bonds and funds. But just because you can, doesn’t mean you should.

Let’s start with the question of foreign securities. Assuming you’re able to buy stocks listed on foreign exchanges in your Roth — policies vary from brokerage to brokerage — you will need to file IRS Form 8938 to report these foreign assets, says David Lyon, CEO of Main Street Financial in Chicago.

One way to avoid having to file this paper work, among other headaches, is to stick with foreign stocks that are available to U.S. investors as American Depository Receipts, or ADRs. Most of the largest foreign companies have ADRs, which trade on U.S. exchanges and in U.S. dollars, and don’t require the additional paperwork, though there may be other tax considerations.

As always, consider how any such holdings fit into the bigger picture of your portfolio. By all means, you want exposure abroad, but buying individual securities on your own, a la carte, may not yield the best results over the long run.

To wit, a much easier way to gain exposure to foreign companies is via an exchange-traded fund or mutual fund that invests in foreign stocks on your behalf, says Lyon. For broad market exposure, he likes the Vanguard FTSE All-World ex-U.S. ETF (ticker: VEU). As the name indicates, this low-cost fund gives you broad, diversified global exposure, ranging from the developed markets of Europe and Japan to emerging markets in Asia, Latin America and the Middle East.

If you’re looking for a more targeted approach, you can find ETFs that specialize in just one sector of the global economy, or one region of the world, or even one country.

Similarly, if you hold a limited liability partnership (LLP) in your Roth IRA you will need to fill out Form 990-T for unrelated business taxable income.

That said, you probably don’t want to invest Roth IRA assets in an LLP. The reason: “Essentially you’ll be taxed twice,” says Lyon. In addition to first paying tax on the contributions you make to the Roth, he says, you will be taxed on LLP income above $1,000 a year. He adds: “Investors are typically better off focusing their investable assets in traditional investments that allow them to take full advantage of the tax deferred growth and tax free distributions.”

 

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