Strategy for investing inherited IRA with RMDs

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Aluminumfoil
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Strategy for investing inherited IRA with RMDs

Postby Aluminumfoil » Sat Mar 18, 2017 4:40 pm

Hi all, Would greatly appreciate any advice:

I am a 36 year old non-spouse beneficiary of an inherited retirement account that comprises about 85 percent of my net worth. The inherited account is currently at TIAA-Cref where 90 percent of it is invested in annuity contracts with a "guaranteed" rate of 3 percent and the remainder in two stock funds. I would like to reallocate toward equities and probably rollover all or a portion to Vanguard.

My RMDs are calculated based on my age, and for the next twenty years will be between 2.1% (based on my current age of 36) rising to 3.4% when I am 55. I intend to reinvestment my RMDs in my Roth IRA and any excess into a taxable brokerage account. I would like to keep as much of the investment in the inherited IRA as possible so it continues to receive pre-tax treatment.

My Roth ira and Roth 401k are invested in Vangauard Total Retirement 2050. My AA for the inherited account is less aggressive/risk tolerant because there is a chance (maybe 30 percent in the next several years) that I will want to take distributions well above the RMDs (as much as 50 percent of the entire account) to pursue a venture that may very well never generate income. That said, the current AA is too conservative and only generates a little over 3 percent a year.

One wrinkle -- I am concerned about investment volatility in the inherited account. Because each year RMDs are calculated on December 31 of the previous year, a year of high growth (when the snapshot is taken) followed by a year of a large decline (when the RMD based on the previous year's snapshot is distributed) could shrink the inherited account. Not sure how big an issue this may be. In a perfect world, the inherited account would be invested aggressively enough for the account to grow but would avoid super high volatility so that in most years the account grows by more than must be distributed (about 2.3 - 3.4 percent over the next 20 years).

I have been considering rolling over the inherited account into vanguard in 12 increments over the next twelve months. I would appreciate any advice about vanguard funds that might achieve some of my goals above. I think maybe 60/40 or even 50/50 stocks to bonds might be a good mix. And although it is a managed fund, I have been considering Vanguard Wellington fund for this, also vanguard balanced fund, or simply buying the component parts of vanguard balanced fund plus the international stock fund. Also considering investing 60 percent of the money in vanguard as 100% equity and leaving 40 percent of the money in TIAA's 3 percent annuities, but not sure whether this would achieve my goal of managing volatility.

I am a new and inexperienced investor and would greatly appreciate any advice!

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badbreath
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Re: Strategy for investing inherited IRA with RMDs

Postby badbreath » Sat Mar 18, 2017 7:53 pm

I am not going to answer every question but will give it a shot.

Yes roll it to Vanguard that's what I did with my FIL Inherited IRA. He had Vanguard but also some very expensive Fido funds.

Roll it over all at one time no need to split it up and take up your time. I know Vanguard will take some annuities but not all need to talk to Vanguard about that.

Just invest in total stock index and total bond index. I would not do 50-50 to conservative, something like 60-40 or 70-30 to have it grow more then you can take out. What you have to do is just add this to your portfolio and it is now part of your income, taxes and long term investing.
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

aristotelian
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Re: Strategy for investing inherited IRA with RMDs

Postby aristotelian » Sat Mar 18, 2017 8:17 pm

^What he said.

You might have some difficulty transferring the annuity. I am not sure what TIAA's policies are for Inherited IRA's, but their Traditional annuity has withdrawal restrictions once you are vested in it. Are the funds already in your name?

I don't get the concern with volatility. TIAA Traditional is as stable as they come. You say it is 90% invested in annuities.

Personally, I would keep it invested for long term growth. If you need more cash than the RMD, you can always withdraw more.

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Watty
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Re: Strategy for investing inherited IRA with RMDs

Postby Watty » Sat Mar 18, 2017 8:45 pm

Aluminumfoil wrote:One wrinkle -- I am concerned about investment volatility in the inherited account. Because each year RMDs are calculated on December 31 of the previous year, a year of high growth (when the snapshot is taken) followed by a year of a large decline (when the RMD based on the previous year's snapshot is distributed) could shrink the inherited account.


That really isn't a big concern since, adjusted for taxes, your net worth will stay the same regardless if the money is in the inherited IRA or some other account.

If you are not already maxing out all your other retirement accounts then you could do something like increase your 401k payroll holdings by $1,000 a month and then take $1,000 a month out of your inherited IRA each month. They would basically cancel each other out on your taxes.

Alan S.
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Re: Strategy for investing inherited IRA with RMDs

Postby Alan S. » Sat Mar 18, 2017 10:09 pm

It wasn't totally clear whether or not you understand that your annual inherited IRA RMD divisor is reduced by 1.0 each year after determining the first year divisor from Table I. Therefore, there is no need to ever check the table again. This depletes the inherited IRA faster than getting each divisor from the table each year, but not that much faster until you get older.

Also, rolling over the inherited IRA is the wrong terminology because an inherited IRA cannot be rolled over. You can only move the account by a direct trustee transfer that is not reported to the IRS. Doing several of these transfers will be unnecessarily work intensive. To be clear, be careful when you request a transfer to be sure you are not requesting a distribution because it you ever get a check made out to you personally, it will be taxable and cannot be rolled over.

I agree there is no reason to be concerned with annual investment volatility since any stock investments will have a certain number of very good years and some very poor years. After a good year your RMD goes up, and after a bad year it goes down. At least you know what it will be come January 1st of each year.

After you inherited the account, you should have checked to see if any basis was inherited from non deductible contributions made by the decedent. In that case, you would file Form 8606 and a portion of your distributions would be non taxable each year. Also be sure that you named your own successor beneficiary on the account. If you move this account by direct transfer, check the title of the account with the new custodian to make sure it is properly titled as an inherited IRA showing both your name and the name of the decedent (in no particular order).

Aluminumfoil
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Re: Strategy for investing inherited IRA with RMDs

Postby Aluminumfoil » Sat Mar 18, 2017 10:22 pm

badbreath wrote:Roll it over all at one time no need to split it up and take up your time. I know Vanguard will take some annuities but not all need to talk to Vanguard about that.

Just invest in total stock index and total bond index. I would not do 50-50 to conservative, something like 60-40 or 70-30 to have it grow more then you can take out. What you have to do is just add this to your portfolio and it is now part of your income, taxes and long term investing.


Thanks! I know vanguard also recommends investing all at once, but because the inherited account represents 85 percent of my total net worth I thought it could be a little safer to dollar-cost-average over the next 12 months even if I ultimately get a slightly smaller return. 60-40 total stock - total bond feels about right to me, but not any international?

Aluminumfoil
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Re: Strategy for investing inherited IRA with RMDs

Postby Aluminumfoil » Sat Mar 18, 2017 10:40 pm

Alan S. wrote:
I agree there is no reason to be concerned with annual investment volatility since any stock investments will have a certain number of very good years and some very poor years. After a good year your RMD goes up, and after a bad year it goes down. At least you know what it will be come January 1st of each year.



I'm probably missing something simple. My concern is that a very good year followed by a very bad year could shrink the account because if the value per share decreases drastically in the second year, I would have to distribute a high number of shares in the second year, and I cannot contribute new dollars to the account. How would knowing what the RMD is by January 1 help me ensure that the account continues to grow faster than my distributions?

aristotelian
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Re: Strategy for investing inherited IRA with RMDs

Postby aristotelian » Sat Mar 18, 2017 11:00 pm

Aluminumfoil wrote:
Alan S. wrote:
I agree there is no reason to be concerned with annual investment volatility since any stock investments will have a certain number of very good years and some very poor years. After a good year your RMD goes up, and after a bad year it goes down. At least you know what it will be come January 1st of each year.



I'm probably missing something simple. My concern is that a very good year followed by a very bad year could shrink the account because if the value per share decreases drastically in the second year, I would have to distribute a high number of shares in the second year, and I cannot contribute new dollars to the account. How would knowing what the RMD is by January 1 help me ensure that the account continues to grow faster than my distributions?


You said 90% is invested in TIAA annuity contracts paying guaranteed 3%. The market could crash -50% and your IRA would still have 95% of its value. Unless I am missing something, you have absolutely nothing to worry about.

Aluminumfoil
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Re: Strategy for investing inherited IRA with RMDs

Postby Aluminumfoil » Sat Mar 18, 2017 11:03 pm

aristotelian wrote:
Aluminumfoil wrote:
Alan S. wrote:
I agree there is no reason to be concerned with annual investment volatility since any stock investments will have a certain number of very good years and some very poor years. After a good year your RMD goes up, and after a bad year it goes down. At least you know what it will be come January 1st of each year.



I'm probably missing something simple. My concern is that a very good year followed by a very bad year could shrink the account because if the value per share decreases drastically in the second year, I would have to distribute a high number of shares in the second year, and I cannot contribute new dollars to the account. How would knowing what the RMD is by January 1 help me ensure that the account continues to grow faster than my distributions?


You said 90% is invested in TIAA annuity contracts paying guaranteed 3%. The market could crash -50% and your IRA would still have 95% of its value. Unless I am missing something, you have absolutely nothing to worry about.


That is how it is invested currently. My plan is to transfer the intherited account to vanguard and invest everything with something like a 60-40 allocation.

aristotelian
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Re: Strategy for investing inherited IRA with RMDs

Postby aristotelian » Sat Mar 18, 2017 11:12 pm

Aluminumfoil wrote:
aristotelian wrote:You said 90% is invested in TIAA annuity contracts paying guaranteed 3%. The market could crash -50% and your IRA would still have 95% of its value. Unless I am missing something, you have absolutely nothing to worry about.


That is how it is invested currently. My plan is to transfer the intherited account to vanguard and invest everything with something like a 60-40 allocation.


I see. I still say don't worry it. You are using the distributions to fund your IRA with anything else going in taxable. I don't think you said how much the IRA is, but let's say it is $500K. Your 2.1% distribution this year will be $10,500, or $7875 after taxes. In a stock crash scenario, your portfolio drops to $350K. Your distribution of 2.2% will be $7700, or $5775 after taxes. Will the loss of $2k make a major difference in your finances that year? You will still have the bulk of your IRA covered.

Alan S.
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Re: Strategy for investing inherited IRA with RMDs

Postby Alan S. » Sat Mar 18, 2017 11:14 pm

Knowing the RMD amount just allows easier tax planning for the year as that income is known up front. Things like earnings or mutual fund distributions are not always predictable and can result in tax surprises or underpayment penalties. The following comments only apply to the portion of your inherited IRA invested in stocks or stock funds or other volatile investments, not the safe investments.

If your inherited IRA has a good investment year, your RMD for the following year will rise by pretty much the same %. However, if your RMD is only 3% of the balance and you have 20% gain, then your RMD will still only increase by 3% of that gain. The other 97% stays in the account.

If the IRA then has a 20% loss, your RMD for the following year will dip 20%. If you suffer a long bear market for say 3 years, and your IRA value dropped 40%, then your RMDs would also drop 40%. If you have it invested is something like CDs or ST bond funds, then the value will grow very slowly and your RMDs will also grow very slowly and be quite predictable. However, the account will not produce the growth that it should if invested too conservatively.

Therefore, losses will reduce your RMDs and gains will increase them. This is the same as any investment account without RMDs except that you are taking out less than 4% of the account value the following year. As you said, this account should continue to grow for several years as the average gains should exceed your RMDs for perhaps 30 years. If your RMD increases it is only temporary unless the account continues to grow every year and that is a good problem to have.

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celia
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Re: Strategy for investing inherited IRA with RMDs

Postby celia » Sun Mar 19, 2017 1:06 am

Aluminumfoil wrote:I am a 36 year old non-spouse beneficiary of an inherited retirement account that comprises about 85 percent of my net worth. The inherited account is currently at TIAA-Cref where 90 percent of it is invested in annuity contracts with a "guaranteed" rate of 3 percent and the remainder in two stock funds. I would like to reallocate toward equities and probably rollover all or a portion to Vanguard.

When you inherit an annuity, whether in a retirement account or not, you should start by seeing what the fees/penalties are to pull the money out. I believe the fees will be higher if the annuity hasn't been held very long, but at some time there are no extra fees to do a withdrawal. Have you checked on that? Is there an account closing fee?

My RMDs are calculated based on my age, and for the next twenty years will be between 2.1% (based on my current age of 36) rising to 3.4% when I am 55. I intend to reinvestment my RMDs in my Roth IRA and any excess into a taxable brokerage account. I would like to keep as much of the investment in the inherited IRA as possible so it continues to receive pre-tax treatment.

I think you should re-consider this last statement. Wouldn't you prefer to withdraw and pay the taxes when your tax bracket is the lowest? Depending on your career trajectory, you may/may not be at a higher tax bracket when you are age 55 or 60. In addition, as long as the per cent you withdraw each year is less than the per cent of growth each year, the account value will increase and somewhere along the line the increased RMDs may push you into a higher tax bracket. Another way of saying this is, wouldn't you want the growth to occur in your taxable account so you can take advantage of lower tax rates for qualified dividends and long-term capital gains instead of having the growth be taxed at a possibly higher tax rate due to higher salary and/or investment returns? Here is a recent thread that discusses withdrawing more than the RMD in your early years: viewtopic.php?f=1&t=213127&newpost=3276976 (the part referencing being a doctor means a huge future salary should be expected)

I'm not saying you should do as I recommend in that thread, but just consider it.

One wrinkle -- I am concerned about investment volatility in the inherited account. Because each year RMDs are calculated on December 31 of the previous year, a year of high growth (when the snapshot is taken) followed by a year of a large decline (when the RMD based on the previous year's snapshot is distributed) could shrink the inherited account. Not sure how big an issue this may be.

Not an issue! You CAN take the RMDs in-kind, meaning shares of a mutual fund can be moved from the tax-deferred account to your taxable account. The value of those shares will remain the same since you still have the same total number of shares (assuming you don't withhold from the RMD for taxes).

Aluminumfoil wrote:My concern is that a very good year followed by a very bad year could shrink the account because if the value per share decreases drastically in the second year, I would have to distribute a high number of shares in the second year, and I cannot contribute new dollars to the account.

But in the third year, your RMDs would be very low, wouldn't they? I would also be glad that I could withdraw a lot more shares in-kind in the second year since the taxes will be based on the value withdrawn. If I can withdraw twice as many shares as I did the previous year for the same tax hit, I would think of it as the taxes are "on sale for half price"!
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

Aluminumfoil
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Re: Strategy for investing inherited IRA with RMDs

Postby Aluminumfoil » Sun Mar 19, 2017 9:16 am

celia wrote:
Aluminumfoil wrote:I am a 36 year old non-spouse beneficiary of an inherited retirement account that comprises about 85 percent of my net worth. The inherited account is currently at TIAA-Cref where 90 percent of it is invested in annuity contracts with a "guaranteed" rate of 3 percent and the remainder in two stock funds. I would like to reallocate toward equities and probably rollover all or a portion to Vanguard.

When you inherit an annuity, whether in a retirement account or not, you should start by seeing what the fees/penalties are to pull the money out. I believe the fees will be higher if the annuity hasn't been held very long, but at some time there are no extra fees to do a withdrawal. Have you checked on that? Is there an account closing fee?

My RMDs are calculated based on my age, and for the next twenty years will be between 2.1% (based on my current age of 36) rising to 3.4% when I am 55. I intend to reinvestment my RMDs in my Roth IRA and any excess into a taxable brokerage account. I would like to keep as much of the investment in the inherited IRA as possible so it continues to receive pre-tax treatment.

I think you should re-consider this last statement. Wouldn't you prefer to withdraw and pay the taxes when your tax bracket is the lowest? Depending on your career trajectory, you may/may not be at a higher tax bracket when you are age 55 or 60. In addition, as long as the per cent you withdraw each year is less than the per cent of growth each year, the account value will increase and somewhere along the line the increased RMDs may push you into a higher tax bracket. Another way of saying this is, wouldn't you want the growth to occur in your taxable account so you can take advantage of lower tax rates for qualified dividends and long-term capital gains instead of having the growth be taxed at a possibly higher tax rate due to higher salary and/or investment returns? Here is a recent thread that discusses withdrawing more than the RMD in your early years: viewtopic.php?f=1&t=213127&newpost=3276976 (the part referencing being a doctor means a huge future salary should be expected)

I'm not saying you should do as I recommend in that thread, but just consider it.

One wrinkle -- I am concerned about investment volatility in the inherited account. Because each year RMDs are calculated on December 31 of the previous year, a year of high growth (when the snapshot is taken) followed by a year of a large decline (when the RMD based on the previous year's snapshot is distributed) could shrink the inherited account. Not sure how big an issue this may be.

Not an issue! You CAN take the RMDs in-kind, meaning shares of a mutual fund can be moved from the tax-deferred account to your taxable account. The value of those shares will remain the same since you still have the same total number of shares (assuming you don't withhold from the RMD for taxes).

Aluminumfoil wrote:My concern is that a very good year followed by a very bad year could shrink the account because if the value per share decreases drastically in the second year, I would have to distribute a high number of shares in the second year, and I cannot contribute new dollars to the account.

But in the third year, your RMDs would be very low, wouldn't they? I would also be glad that I could withdraw a lot more shares in-kind in the second year since the taxes will be based on the value withdrawn. If I can withdraw twice as many shares as I did the previous year for the same tax hit, I would think of it as the taxes are "on sale for half price"!


Thank you! Your last point makes a lot of sense and it had never occurred to me. The collective wisdom on this board has really helped me! I have nothing to worry about from annual volatility.

Assuming 60-40 is the right asset allocation for me, do you have a view about whether I would be better off transferring the entire inherited account to vanguard with 60 in total stock and 40 in total bonds. Or whether instead I would be better off transferring only the equity portion to vanguard and keeping 40 percent in TIAA Traditional with its guaranteed rate of 3 percent. In other words, does TIAA Traditional achieve the same balancing that a bond index does?

aristotelian
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Re: Strategy for investing inherited IRA with RMDs

Postby aristotelian » Sun Mar 19, 2017 12:08 pm

Aluminumfoil wrote:
Assuming 60-40 is the right asset allocation for me, do you have a view about whether I would be better off transferring the entire inherited account to vanguard with 60 in total stock and 40 in total bonds. Or whether instead I would be better off transferring only the equity portion to vanguard and keeping 40 percent in TIAA Traditional with its guaranteed rate of 3 percent. In other words, does TIAA Traditional achieve the same balancing that a bond index does?


It is really six of one, half dozen of the other. For guaranteed return, you cannot beat TIAA. Vanguard Total Bond Market will outperform TIAA from time to time. Many folks on this board use TIAA as their core bond position.

Aluminumfoil
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Re: Strategy for investing inherited IRA with RMDs

Postby Aluminumfoil » Sun Mar 19, 2017 2:39 pm

aristotelian wrote:
Aluminumfoil wrote:
Assuming 60-40 is the right asset allocation for me, do you have a view about whether I would be better off transferring the entire inherited account to vanguard with 60 in total stock and 40 in total bonds. Or whether instead I would be better off transferring only the equity portion to vanguard and keeping 40 percent in TIAA Traditional with its guaranteed rate of 3 percent. In other words, does TIAA Traditional achieve the same balancing that a bond index does?


It is really six of one, half dozen of the other. For guaranteed return, you cannot beat TIAA. Vanguard Total Bond Market will outperform TIAA from time to time. Many folks on this board use TIAA as their core bond position.


Even if TIAA Traditional and VBTLX perform the same over a long time horizon, I wonder whether the combo of 60 parts VTSAX and 40 parts VBTLX is better over shorter time periods. The only time since 2002 that VBTLX had a negative return (of (2)), VTSAX had a positive return of 34, in 2013. Also the two years since 2002 that VTSAX had a negative return (2008 (37); 2002 (21)), VBTLX had returns greater than 3, of 5 in 2008 and 8 in 2002. So does the negative correlation between VTSAX and VBTLX make VBTLX a better hedge for any money that might be distributed and not reinvested in the short or medium term?

aristotelian
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Re: Strategy for investing inherited IRA with RMDs

Postby aristotelian » Sun Mar 19, 2017 2:45 pm

Aluminumfoil wrote:
Even if TIAA Traditional and VBTLX perform the same over a long time horizon, I wonder whether the combo of 60 parts VTSAX and 40 parts VBTLX is better over shorter time periods. The only time since 2002 that VBTLX had a negative return (of (2)), VTSAX had a positive return of 34, in 2013. Also the two years since 2002 that VTSAX had a negative return (2008 (37); 2002 (21)), VBTLX had returns greater than 3, of 5 in 2008 and 8 in 2002. So does the negative correlation between VTSAX and VBTLX make VBTLX a better hedge for any money that might be distributed and not reinvested in the short or medium term?


Yes, theoretically. Not always, but more likely. Note also that the most non-correlative component of VBTLX is the Treasuries. If you are looking purely for a hedge that is more likely to produce positive returns during a bear market, consider VBTLX/TIAA with a tilt toward VSIGX (Intermediate Government) or VFITX (Intermediate Treasuries).

See this thread I started recently on the same topic.

viewtopic.php?t=212012

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Re: Strategy for investing inherited IRA with RMDs

Postby Aluminumfoil » Sun Mar 19, 2017 3:08 pm

aristotelian wrote:
Aluminumfoil wrote:
Even if TIAA Traditional and VBTLX perform the same over a long time horizon, I wonder whether the combo of 60 parts VTSAX and 40 parts VBTLX is better over shorter time periods. The only time since 2002 that VBTLX had a negative return (of (2)), VTSAX had a positive return of 34, in 2013. Also the two years since 2002 that VTSAX had a negative return (2008 (37); 2002 (21)), VBTLX had returns greater than 3, of 5 in 2008 and 8 in 2002. So does the negative correlation between VTSAX and VBTLX make VBTLX a better hedge for any money that might be distributed and not reinvested in the short or medium term?


Yes, theoretically. Not always, but more likely. Note also that the most non-correlative component of VBTLX is the Treasuries. If you are looking purely for a hedge that is more likely to produce positive returns during a bear market, consider VBTLX/TIAA with a tilt toward VSIGX (Intermediate Government) or VFITX (Intermediate Treasuries).

See this thread I started recently on the same topic.

viewtopic.php?t=212012


Thank you! I read that thread with much interest but some of it was hard for me to understand. If I were to divide my 40 percent fixed income portion between TIAA Traditional and the Vanguard bond funds you mention, how do you think best to allocate? I noticed PJW also mentioned VICSX (intermediate corporate).

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celia
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Re: Strategy for investing inherited IRA with RMDs

Postby celia » Mon Mar 20, 2017 4:00 am

Aluminumfoil wrote:Assuming 60-40 is the right asset allocation for me, do you have a view about whether I would be better off transferring the entire inherited account to vanguard with 60 in total stock and 40 in total bonds. Or whether instead I would be better off transferring only the equity portion to vanguard and keeping 40 percent in TIAA Traditional with its guaranteed rate of 3 percent. In other words, does TIAA Traditional achieve the same balancing that a bond index does?

I don't have any comment on the 60/40 asset mix, but if it seems right for you, go for it.

What I really want to comment on is if you don't move everything to one place, you will have 2 custodians calculating the RMDs for you each year. You are allowed to take the total of the RMDs from either account or split it between the two accounts. But have you considered the mechanics of what you would do? Would you be withdrawing in-kind and putting the withdrawal into a taxable account at each place or putting it in your checking account as cash, or ???

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Re: Strategy for investing inherited IRA with RMDs

Postby aristotelian » Mon Mar 20, 2017 6:29 am

Aluminumfoil wrote:
Thank you! I read that thread with much interest but some of it was hard for me to understand. If I were to divide my 40 percent fixed income portion between TIAA Traditional and the Vanguard bond funds you mention, how do you think best to allocate? I noticed PJW also mentioned VICSX (intermediate corporate).


Like I said, it is really six of one, half dozen of the other. You can go 100% TIAA Traditional, or 50/50. They are all good options. If you like the simplicity of TIAA Traditional, just stay there. If you want to have everything at Vanguard, Total Bond Market is a fine option. The likely long term difference in your total return is maybe 1 or 2%, and it is impossible to know which will be better.

If you are looking for positive returns in a bear market, I would stay away from corporate, which has gone negative in a bear market due to default risk (companies going bankrupt and unable to pay their debt).

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Re: Strategy for investing inherited IRA with RMDs

Postby Aluminumfoil » Mon Mar 20, 2017 7:34 am

celia wrote:
Aluminumfoil wrote:Assuming 60-40 is the right asset allocation for me, do you have a view about whether I would be better off transferring the entire inherited account to vanguard with 60 in total stock and 40 in total bonds. Or whether instead I would be better off transferring only the equity portion to vanguard and keeping 40 percent in TIAA Traditional with its guaranteed rate of 3 percent. In other words, does TIAA Traditional achieve the same balancing that a bond index does?

I don't have any comment on the 60/40 asset mix, but if it seems right for you, go for it.

What I really want to comment on is if you don't move everything to one place, you will have 2 custodians calculating the RMDs for you each year. You are allowed to take the total of the RMDs from either account or split it between the two accounts. But have you considered the mechanics of what you would do? Would you be withdrawing in-kind and putting the withdrawal into a taxable account at each place or putting it in your checking account as cash, or ???


If I split the 40 fixed income between total bonds at vanguard and TIAA Traditional, I think my plan would be to take the RMDs in kind from the stock portion of vanguard to fill up the Roth IRA and remainder in taxable account. (To achieve this overall mix, vanguard might actually be something like 70/30 stocks/bonds and TIAA would be 100 percent TIAA Traditional.) If I were able to keep the TIAA Traditional in the inherited account and all the bonds in vanguard without distributing any of those I would do that, but I was not aware that would be an option.

I'm open to any suggestion if you think there might be a better or more tax efficient plan. Your earlier point about it maybe being a blessing for me to transfer stocks out of inherited account into Roth or taxable while I am in lower tax bracket makes a lot of sense to me now (although I don't know if I will ever be in much higher tax bracket.)

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Re: Strategy for investing inherited IRA with RMDs

Postby celia » Mon Mar 20, 2017 1:58 pm

You may already know this but, for the record, you cannot withdraw from an Inherited IRA and put it in a Roth. I want to clarify this since you have said it several times, and possibly you are not aware. I also want other readers to know that you can't do this.

What you CAN do is withdraw in-kind (move shares) from the Inherited IRA to taxable (and pay taxes on the withdrawal for that year). That money is then considered the same as if it had come from your wages, a gift, a lottery, whatever. There is no need to keep it separated from money that came from other sources, unless you have a specific goal for it or want to keep former inherited assets separate from joint money, (if you are married and living in a community property state). Then, as long as you or your spouse has wages for the year, you can contribute money to your Roth from your taxable account. Maybe you want to think of the previous withdrawal as going into the Roth, but that is not the correct way to look at it. I know that Roth contributions have to be made in "cash" or a money market fund but I don't know if that includes shares of mutual funds held at Vanguard. Since shares can change value each day, you may have to specify $5,500 of fund A to go from your taxable account to your Roth (assuming shares can be moved) rather than xxx shares of fund A.

It is ok to have:
20% in the annuity in your Inherited IRA at TIAA-Cref,
20% in bond funds in your Inherited IRA at Vanguard and
60% in stock funds in your Inherited IRA at Vanguard.
You can withdraw your total RMD from any one asset you choose. Like you are thinking, I would first withdraw from the stock funds to keep the Inherited IRA from growing so fast. If/when stocks/taxes are "on sale", I would certainly withdraw more than the RMD.

You can learn more about overall portfolio tax-efficiency here:
https://www.bogleheads.org/wiki/Tax-eff ... _placement
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.


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