Use inheritance to fund retirement plan

Dear Vinny,
I always have mixed emotions when I hear someone has received an inheritance because I know the windfall most often comes about because the inheritor has lost a family member or friend. I'm sorry for your loss.

When saving for retirement, you can invest in tax-advantaged retirement accounts or taxable investment accounts.

Your ability to move money into tax-advantaged retirement accounts is limited because your employer doesn't have a retirement plan, but you can fund either a Roth or traditional IRA account. Which one is right for you depends on several different variables. Use Bankrate's IRA comparison chart or look on Vanguard's Web site to help you make an informed choice.

At your age, the annual limit is $4,000. You have until April 15, 2008, to make contributions for the 2007 tax year. So, you could contribute $4,000 (for 2007) between now and that time, plus another $4,000 next year for the 2008 tax year. That gives you a total of $8,000 to start your tax-advantaged account.

In 2009 and later years, continue to invest up to the contribution limits for the account. You can keep the money in a bank or brokerage account, or invest it directly with a mutual fund family.

The balance of your money will be invested in taxable accounts, such as the CDs you have now. As with IRA investments, you can choose to keep your money in bank accounts, brokerage accounts or mutual funds.

Remember that investing too conservatively can be as big a risk as investing in stocks and bonds. You want your investments to earn more than the rate of inflation, or you're losing purchasing power. What's right for you will depend on your attitude toward risk and your investment horizon, which is the time period between now and when you expect to need the money.

I'd suggest meeting with a fee-based planner to get a big-picture view of your financial situation and investment options. The Bankrate feature, "Financial planners: not just for millionaires anymore" can help you find a planner.