benficiary IRA questions

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benficiary IRA questions

Post by thisisntscott » Thu Feb 19, 2015 3:06 pm

Greetings Bogleheads! - see details and questions below! - Sorry Mods, I submitted a previous post but I just saw the required format!

Currently in final year of physical therapy school - expected 70k salary beginning June 2016,
Emergency funds: YES
Debt: 30k student loan debt, no issues anticipated with paying this off early
Tax Filing Status: Single
Tax Rate: 0% Federal, 0% State
State of Residence: IL
Age: 28
Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 20% of stocks

Beneficiary IRA (bIRA) - required minimum distributions based on my insurance lifetime (My father passed away in November. He name the beneficiary of his IRA as a trust. The trust's sole benficiary is myself, therefore I can allow this money to grow tax free and take a minimum distribution based on me living to 83 or so. what a blessing!)

Current Value of bIRA - 255k - CASH - NEED HELP WITH ASSET ALLOCATION - see below

Current retirement assets

Taxable: None


Plan to contribute the full 5500 every year, and contribute to my future employer's 401k up to the match

1. Here is my planned asset allocation for the beneficiary IRA - (I will be passively investing with banded rebalancing)

VTI -Total stock market - 50%
VXF - extended market- 15%
VXUS - total international stock market- 15%
VWO - international emerging markets - 5%
BND - total bond fund - 10%
bndx - total international bond fund - 5%

As you can see, I am tilting toward mid and small caps with VXF, and emerging markets with VWO. Please critique my asset allocation. I have heard that value stocks tend to outperform in the long run (along with smaller cap stocks). How can I effectively tilt towards small, mid, and all value stocks? Is this possible, feasible, or desirable? Any info or advice would be appreciated.

2. I am concerned that the market is at an all time high and will correct soon. How would you reccomend that I DCA this investment? over 6 months? 12 months? 18? 24? Should I just lump sum it? Any advice welcome!

3. What should I do with my Roth IRA? Ideally I would love to have it mirror the same allocation as above. However, with only 1500, should i just throw it in a target retirement fund? Should I just throw it all in VTI? Any advice welcome!

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Re: benficiary IRA questions

Post by powermega » Thu Feb 19, 2015 11:17 pm

Welcome to the board thisisntscott. I hope you find this site to be the wealth of information and wisdom I have found it to be.

I also have a couple of inherited IRAs. I was discussing my strategy for my inherited tIRA in this thread. Being in a low tax bracket, that discussion about loading up the inherited tIRA with my more conservative allocations does not really apply to you, but I still wanted to point it out to you.

This Wiki page is one of my favorite Wiki articles, and it addresses the question of where to put various kinds of investments. That page gets more interesting when you have taxable investment accounts, but it is still something to refer back to when you have questions about where to put various allocations. It also gets you to think about coming up with an overall allocation and then implementing that overall allocation in a way that is tax efficient. Personally, I like to bias my rIRA with more stock allocations. Others have similar or equal allocations between their rIRA and tIRA/401k accounts. Nothing wrong with that either.

One thing about your rIRA. You can only contribute to that if you have earned income. Passive and investment income does not apply. If you don't have some kind of a job that pays you some kind of wage, you can't contribute to an IRA. You can contribute up to $5.5k or the amount of earned income in that tax year, whichever is smaller.

To answer your questions...

1. I think your 85/15 overall allocation is fine for someone as young as you. I also think your allocation you came up with is fine too. There are many around here who like to tilt or slice-n-dice to get more exposure to small cap stocks. You might even find some research that shows this can increase returns over a straight total stock market (TSM) fund. Still, nobody knows what is going to happen in the future, and past performance (which all of that "research" is based on) is no predictor of future performance. Personally, I have a tilt for small caps. Your tilt for emerging markets would have a similar argument. Some others around here also have allocations for REITs, based on the idea that they can have lower correlation with TSM. Again, someone could show you some research where including REITs helped boost returns, but again, nobody knows the future. I personally have a REIT tilt too.

2. At your age, you have 35-40 years till retirement. Whether you bought with a lump sum or used a DCA would likely be irrelevant in the big picture. Personally, I would just take the plunge and get my allocation set up, and in fact that's what I did with my inherited IRAs. The idea of using some kind of DCA is also perfectly reasonable, and if it makes you a little more comfortable with your investments and more likely to stay the course, then it's not a bad thing. If I were to do it, I would consider a shorter DCA period, like 3-6 months. Staying out of the market for 12-24 months runs the risk of not participating in a bull market too. I also agree that the market looks like it's due for a correction. In fact, I have felt that way for a few years now! Trying to time the market usually results in heartbreak. I'm glad I didn't listen to myself for the last couple of years!

3. With your rIRA, I would just go 100% into VTI and be done with it. The account is not large enough for multiple allocations (yet). Your inherited IRA will be the focus of your attention for rebalancing anyway. If you do go with VTI, you want to allocate to your inherited IRA so that both accounts combined achieve your desired allocation.

Good luck, and happy investing!
Even a stopped clock is right twice a day.

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Re: benficiary IRA questions

Post by ReedMan » Fri Feb 20, 2015 9:08 am

Do you even have the option to DCA the bIRA?

We recently received an inherited tIRA and transferred to vanguard. When the funds sold, it was at a relative low point in the market, and when the Vanguard funds were purchased ended up being at a high point as well as the dividend date, so we missed that as well. It ended up being a lesson to myself that it's impossible to time the market, even though we had no control.

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Re: benficiary IRA questions

Post by thisisntscott » Fri Feb 20, 2015 7:25 pm

Thank you both for your replies.

I will definitely keep in mind your suggestions. I appreciate the feedback. Its nice to know i am on the right track! This whole thing won't be finalized until June, so I can't even decide if I want to DCA until then.

to the 2nd reply - yes, I can DCA the investment. The trustee decided to sell everything and put it in cash until the estate is settled. I might've put it in bonds or other short term investments, but I am not the trustee. Hey, at least the money won't disappear before it gets to me!

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