Want to minimize costs of establishing inherited IRA

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Ken Reckers
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Joined: Fri Apr 20, 2007 9:52 am

Want to minimize costs of establishing inherited IRA

Post by Ken Reckers » Fri Apr 27, 2007 4:22 pm

We are inheriting an IRA. The deceased's financial advisor is splitting
it up correctly among the beneficiaries. He also will set up our
account with the correct titling. I believe a trust was involved
so this may be complex.

I acknowledge that this is worth financial remuneration.

However, he will be selling us mutual funds with loads.

I'm trying to figure out how to minimize the cost.

My only idea is to buy class C shares, which have no front end load,
0.8% higher expenses, and a back end load of 1% which reduces to zero
after one year. Then after one year, transfer to Vanguard.

Any advice?

"Ken"

Laura
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Joined: Mon Feb 19, 2007 7:40 pm

Money Market

Post by Laura » Fri Apr 27, 2007 4:32 pm

Ken,

Why is this advisor putting your money in load funds? This is not a requirement as far as I know. Have him put the money in the newly titled mutual fund in a money market account or have him re-title the existing assets and tell him not to change anything. As soon as this is done then have Vanguard contact the company holding these assets to arrange a rollover to Vanguard. The current custodian will then sell the existing funds (no tax implications since in an IRA) and transfer cash to Vanguard.

Don't let him do anything else with your money. If he deserves a fee just pay him the money. It really isn't that difficult to re-title an account. Also, he is an intermediary for the actual company holding the cash so they paid him not you.

Just my thoughts.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.

livesoft
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Post by livesoft » Fri Apr 27, 2007 6:25 pm

My spouse inherited an IRA from her mom. She found the forms on the Vanguard web site to transfer the money to Vanguard. You can also call Vanguard up for help.

Since you posted on this web site, I will presume that you know about Vanguard and probably have accounts with them. I suggest you sever the relationship with the deceased's financial advisor. You owe them nothing. Do not even wait one year.

Also "we" cannot inherit an IRA unless it is split into individual inherited IRAs. The titling of the inherited is not too tricky, but may be unusual to you. Since folks inherit IRAs all the time, places like Vanguard know what to do. For IRAs inherited from a non-spouse, they also know that you have to take the required minimum distribution each year if that is what you want.

Anyways, do not let the financial advisor bamboozle you into believing they are doing something special that Vanguard cannot do for you.

Ken Reckers
Posts: 42
Joined: Fri Apr 20, 2007 9:52 am

Post by Ken Reckers » Fri Apr 27, 2007 11:55 pm

Laura and livesoft,

Thank you very much for your responses. Your suggestions may be enough for me to proceed
with more conviction, and more intelligently.

Please allow me to add more details. You are correct that "we" did not inherit the IRA.
My spouse and children were some of the beneficiaries. Here's what I think is happening:

Separate inherited IRA accounts are being established for each beneficiary so that the
RMD can be calculated based on each beneficiary's life expectancy.

My spouse's may be straightforward. However, for the children, trusts were established
with my spouse as the trustee. RMDs would be payable to the same trusts. I have absolutely
no idea how the trust's inherited IRA would be registered or how the trust's taxable account
would be registered.

I am worried that I am being "bamboozled." On the other hand, maybe it makes sense
to allow the advisor to set up the trust's taxable account, and to receive the first RMD,
before asking Vanguard to request the transfer. If I proceed that way, perhaps it could
be done with money market accounts until transferring both to Vanguard. Vanguard's site
has the scary disclaimer to consult a tax pro or attorney when dealing with trusts.

Yes, we currently have Vanguard funds. I haven't picked up the phone
to call them in over 10 years! Maybe it's time.

One more thing: the deceased's IRA is not in a mutual fund. Whatever it is apparently
must be liquidated first, because we were told we can not keep the same equities.

Thanks for reading.

"Ken"

Laura
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Joined: Mon Feb 19, 2007 7:40 pm

Call Vanguard

Post by Laura » Sat Apr 28, 2007 6:21 am

Ken,

Give Vanguard a call. They have a trust department that can help answer some of these questions. I think you are getting bad information from the current advisor. They will want a copy of the trust documents sent to them so they can review them and confirm that they can establish a trust that meets the requirements of the documents so be prepared.

I also suggest that you quickly do some research on inherited IRAs to bring yourself up to speed. Ed Slott has done a lot of work in this area and has several books you might find helpful. You can find out more at Ed Slott’s IRA Advisor website.

I wouldn't worry about liquidating the assets held in the deceased's IRA. Since these assets remain in an IRA they remain tax advantaged. All of you will pay the tax as you do RMDs.

Please make sure and read Ed Slott's material. He has many horror stories of lawyers and financial advisors giving bad advice causing people to pay thousands and thousands of dollars in taxes.

Good luck.

Laura
Last edited by Laura on Sat Apr 28, 2007 7:36 am, edited 1 time in total.
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.

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Barry Barnitz
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Contact:

Natalie Choate:

Post by Barry Barnitz » Sat Apr 28, 2007 6:41 am

Hi Ken:

Natalie Choate is judged by her peers as the undisputed consensus expert on retirement plans. She has a bulletin which may touch on some aspects of your situation:

Notice to Executors and Trustees:Here is how to transfer an inherited IRA that is payable to the estate (or trust) OUT of the estate (or trust) to the estate (or trust) beneficiary(ies), WITHOUT having a distribution of the entire account.

Her text, Life and Death Planning for Retirement Benefits is considered "the bible" on this subject.

regards,
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Spyder
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Re: Call Vanguard

Post by Spyder » Sat Apr 28, 2007 7:24 am

Laura wrote: I also suggest that you quickly do some research on inherited IRAs to bring yourself up to speed. Ed Slott has done a lot of work in this area and has several books you might find helpful. You can find out more at Ed Slott’s IRA Advisor website.
I also highly recommend Ed Slott's books, especially The Retirement Savings Time Bomb ... and How to Defuse it. One of my friends recently inherited an IRA and I was trying to find out how IRA inheritance worked, for him. I started by reading IRS publication 590; very confusing. Finally I found Slott's book. It's still very complicated and a little confusing, but it's much more understanding. It also gave me some insight into some things I could do to correct my retirement and estate planning.

I big problem in this area is that the people in the companies that administer the IRAs that are being inherited are not very helpful. Often times they don't understand how the inheritance of IRAs work, I'm afraid.
"Anything free | costs twice as much | in the long run | or turns out worthless." | -Robert A. Heinlein (The Moon is a Harsh Mistress)

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lucky7
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Ed Slott

Post by lucky7 » Sat Apr 28, 2007 9:05 pm

Slott's books excellent as all agree. Why not simply use one of his approved advisors, as listed on the web site Laura referenced? Check it out, fairly extensive network.

Bob
Scotty, beam me up.

Ken Reckers
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Joined: Fri Apr 20, 2007 9:52 am

Post by Ken Reckers » Sun Apr 29, 2007 9:56 am

Thank you all for the advice and references. Little by little, I am figuring this out.

For my spouse, the situation seems clear-cut.

For my children, this must involve look-through trusts.

I called Vanguard, and regarding the look-through trust, I got some general information, but not much more beyond "consult an estate planner." I am trying to figure out how to set up the account, in the name of the trust, to receive the RMDs from the trust's inherited IRA. (The trust will not be a very large amount, but over 50 years or more it will grow.) The retirement specialist at Vanguard did not ask for a copy of the trust documents to see if they could handle the trust. He referred me to an estate planner.

At this point, I will buy time buy parking the inherited IRAs in cash reserves. I'm hitting the library today to get Ed Slott's book(s), and I will examine Natalie Choate's text, too.

Thank you.

"Ken"

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lucky7
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Ken

Post by lucky7 » Sun Apr 29, 2007 10:27 am

I am glad you mentioned type of trust for could not tell if was a "see-through trust" or discretionary trust. I am no expert of trusts but Slott on page 168 of his latest book, "Your Complete Retirement Road Map" does mention "see through trusts". " ...This mean that it treats your kids (your trust beneficiaries) as if they inherited directly. If you wish all your trust beneficiaries to be able to use their individual life expectancies (rather that that of the eldest) for the stretch period, then you would have to leave their shares in separate named trusts..." His second book also reviewed trusts. His first and overall best book focused mainly on credit shelter trusts. BTW one aspect I prefer Fidelity vs. Vanguard is can go to an office and sit with someone if needed. Good Luck.

Bob
Scotty, beam me up.

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