Recent inheritance + mix of retirement funds + 5 years from retirement = confusion

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blackburnian
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Recent inheritance + mix of retirement funds + 5 years from retirement = confusion

Post by blackburnian » Wed Jul 12, 2017 6:01 am

Hello Bogleheads,

I’m posting here because I have a complicated set of investments that I’m having trouble getting a handle on, especially resulting from a recent inheritance after my mother’s death. Profuse thanks in advance to anyone who wades through this and is willing to offer advice. List of specific Q’s is at the end.

Emergency funds: Have 1+ years in savings/money mkt
Debt: None
Salary: About $75,000
Tax Filing Status: Single
Tax Rate: 25% federal; 5.1% state
State of Residence: MA
Age: 59.9
Desired asset allocation: 50% stocks, 50% bonds
Desired international: 10-20% of stocks

Total portfolio: about $1.8 million, mostly in taxable

Current retirement assets

I. 403b at TIAA-CREF: 4 different accounts (All TIAA traditional at 3% guaranteed, most are currently paying 4%)

403b(1) (current employer)
(as of this year, contributing $24,000/yr, will continue for 5 more years; new contributions going to non-lifecycle funds)
(5% of total portfolio)

Funds:
TLFIX: TIAA-CREF Lifecycle Index 2015 Fund-INSTL (ER 0.1) 81% of account
TIEIX: TIAA-CREF Equity Index Fund-INSTL (ER 0.05) 6%
TCIEX: TIAA-CREF Intl Equity Index Fund-INSTL (ER 0.06) 1.5%
TBIIX: TIAA-CREF Bond Index Fund-INSTL (ER 0.12) 1.5%
TIAA Traditional 10 %

403b(2) current employer retirement plan: employer contributes 10% of my salary, will be vested in 1 year (contributions will continue until retirement)
(1% of total portfolio)

TLFIX TIAA-CREF Lifecycle Index 2015 Fund-INSTL (ER 0.1) 48% of acct
TIEIX TIAA-CREF Equity Index Fund-INSTL (ER 0.05) 21%
TCIEX TIAA-CREF Intl Equity Index Fund-INSTL (ER 0.06) 5%
TBIIX TIAA-CREF Bond Index Fund-INSTL (ER 0.12) 1%
TIAA Trad 25%

403b(3) former employer (1% total portfolio)
7 individual funds (about 50/50 AA), including 38% in TIAA Trad.

403b(4) former employer (1% total portfolio)
8 individual funds (about 25/75 AA), including 68% in TIAA Trad.

II. Roth IRA at TIAA-CREF (6% total portfolio)
(contributing $6500/yr, will continue to do so for 5 more years)

TRSCX TIAA-CREF Social Choice Equity Fund-RTMT (ER 0.44) 12% of act.
QCEQRX CREF Equity Index R1 (ER 0.61) 6%
TRCVX TIAA-CREF Large-Cap Value Indx Fund-RTMT (ER 0.31) 4%
TRIEX TIAA-CREF Intl Equity Index Fund-RTMT (ER 0.31) 4%
TBIRX TIAA-CREF Bond Index Fund RTMT (ER 0.37) 13%
QCBMRX CREF Bond Market R1 (ER 0.68) 8%
TIKRX TIAA-CREF Inflation-Linked Bond Fund RTMT (ER 0.52) 5%
QREARX TIAA Real Estate (ER 0.85) 6%
TCLTX TIAA-CREF Lifecycle 2020 Fund RTMT (ER 0.65) 28%
TIAA Trad 14%


III. Taxable (1) at TIAA-CREF (6% total portfolio)

TINRX TIAA-CREF Equity Index Fund Ret.: ER 0.34, 38% of account
TIERX TIAA-CREF International Equity Ret: ER 0.78, 6%
TCLCX TIAA-CREF Large-Cap Value Ret.: ER 0.73, 8%
TBILX TIAA-CREF Bond Index Fund Ret.: ER 0.46, 31%
TCILX TIAA-CREF Infl-Linked Bond Ret.: ER 0.58, 8%
TCREX TIAA-CREF Real Estate Ret.: ER 0.82, 9%


IV. Taxable (2) at Vanguard (very recent inheritance) (80% of total portfolio)
(cost basis has been stepped up to July 2016; still waiting for bank to send cost basis info to Vanguard)
(AA is 65% equities; dividents not being reinvested)

*16 individual stocks (about 50% of account), with varying unrealized losses/gains

*14 mutual funds and ETFs (largest share is in Thornburg, about 10% of account):

symbol name ER

BFRIX Black Rock Floating Income 0.69
LTMCX Thornburg Limited Term Municipal Fund C 0.96
VMRAX Vanguard Morgan Growth Fund Admiral 0.28
VWIUX Vanguard Int-Term Tax-Exempt Admiral 0.09
IVV iShares Core S&P etf 0.04
IJH iShares Core S&P mid cap etf 0.07
IJR iShares Core S&P small cap etf 0.07
AGG iShares Core US Aggregate Bond ETF 0.06
LQD iShares iBoxx Invt Grd Corp Bond etf 0.15
EFA iShares MSCI EAFE etf 0.33
IVE iShares S&P 500 Value etf 0.18
PFF iShares US Preferred Stock etf 0.47
VWO Vanguard FTSE Emerging Mkts etf 0.14
VMBS Vanguard Mortgage Backed Securities etf 0.07

Contributions
As of this year, contributing $24,000/yr to 403b(1) (the one with my current employer)
403b(2) is 100% employer contribution (10% of my salary)
Contributing $6500/yr to Roth IRA

Plans, Goals, and Notes
• AA is onerous to calculate bc of so many accounts, but I estimate roughly 50/50 now.
• I have a fee-only financial adviser whom I plan to meet with a couple of times a year. Vanguard also said I can have a free consultation with an adviser there.
• I plan to keep working and contributing to Roth IRA and 403b(1) for 5 more years, until I am eligible for Medicare. I might continue working part time after age 65.
• I plan to start taking Social Security at age 70 (would get $2400/mo)
• I currently rent but am thinking of buying a condo, which would be about $450,000. I live in an expensive area but would like to stay here.
• I have no heirs and could use up all the money in my lifetime, but I would like to leave some (or a lot) to charity.
• My expenses are moderate now, but I would like to be prepared for possible high medical costs. At the end of her life, my mother was spending $12,000/mo on home health care, which enabled her to die at home. (These funds came from my father’s annuitized TIAA, pension, and SS.)

Questions

1. 80% of my assets are in the taxable Vanguard account, which I transferred from a trust account at a bank after my mother died (the bank tried to convince me to keep the money there and pay a 1.8% management fee). I would like to sell all the individual stocks and some of the mutual funds and etfs (gradually, to keep income from capital gains from putting me over limit for contributing to Roth IRA) and create a simple 3-fund portfolio with 50/50 AA. Is this a good AA, or should I be more conservative? Should I keep any (or all) of the existing iShare funds instead of switching to Vanguard funds?

2. My investments are complicated mostly because of having several employers and because a TIAA adviser several years ago urged me to diversify into many funds. Should I just leave the smallest accounts alone, or should I simplify them?

3. I have read about how to divide up funds for tax efficiency but am not sure how it applies to my situation, since the vast majority of my funds is in taxable accounts. Thoughts?

4. I started the TIAA taxable fund a long time ago. It has high ERs. Should I liquidate it (and pay taxes) and move the funds to the Vanguard account?

5. Is there a good way to organize all these data? I have spent way too long trying to make spreadsheets (which I’m not very skilled at).

Thank you.

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Tamarind
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Re: Recent inheritance + mix of retirement funds + 5 years from retirement = confusion

Post by Tamarind » Wed Jul 12, 2017 6:56 am

First of all, I'm sorry for your loss.

Your mother left you a life changing inheritance and it's ok to take some time to sort out what you want to do. I would advise you to wait and think for at least 6 months or a year before making any large purchases, like real estate. This is standard advice with any big windfall.

The real wizards will be along but I would make the following broad suggestions (numbered for readability, not to match your questions):

1) Your proposed AA of 50/50 is just fine.

2) You may be able to retire whenever you want. No rush and we'd need more info about your expenses to assess. How do you feel about that?

3) In general, I would advise you to simplify all of your tax -advantaged accounts to make them easy to manage. They are small enough compared to your total that it would make sense to keep a single low ER fund in each (bonds for preference). You will not have to track gains or losses from these accounts. You might see if you can combine some of the old employer accounts or roll them into your current one.

4) Regarding the taxable account, you can sell any holding which has a loss, plus holdings with gains equal to the sum of all the losses, without incurring any capital gains tax. Prioritize the sale of the mutual funds with high ERs and the individual stocks, as possible. The step up in basis should mean the gains and losses are relatively small, so that'll help.

5) You may want to pick out a tax-exempt bond fund since you have far less than 50% of your money in tax-advantaged accounts. Might be worth reading a bit about while you're waiting for replies.

6) You don't need a very complicated spreadsheet once you get your holdings simplified. I have a format I like and you can PM me if you'd like a copy, or the wiki has links to a bunch of great trackers and models in spreadsheet form.

BlackStrat
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Re: Recent inheritance + mix of retirement funds + 5 years from retirement = confusion

Post by BlackStrat » Wed Jul 12, 2017 8:25 am

I'm also sorry for your loss - your mother left you a fine inheritance.

If it were me, I would simplify by converting all of the taxable funds into a small, diversified set of funds (such as the 3-fund portfolio). Since the inheritance is recent, take advantage of selling so as not to get hit with any taxable gains (or suffer losses), since you don't inherit her cost basis. Also, you can instead just load them all into a CD or money market fund temporarily until you decide which direction you'd like to take. The trick is not to wait too long before it becomes a dramatic taxable event to make a change.

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BL
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Re: Recent inheritance + mix of retirement funds + 5 years from retirement = confusion

Post by BL » Wed Jul 12, 2017 8:32 am

First, there is no hurry with most of this, so take your time to think, read, and figure it out first. Then do it step-by-step.

I can see that simplification would be a great help, but there is no rush.

Do some reading in our Wiki on Getting Started, Backdoor Roth, 3-fund portfolio, ...
Link to Amazon.com and consider Boglehead's books, Jane Bryant Quinn's How to Make Your Money Last, or find them in library.

If you have no non-Roth IRAs, you may be able to do "Backdoor Roth" if income gets too high to contribute directly. Search our Wiki.

I can see making retirement funds all bonds, except perhaps the "retirement 403b" where your employer contributes instead of a pension-is that correct? Also you might want a stock fund in Roth since you would never be taxed on gains.

The Roth and Taxable in T-C look quite messy. Look up Capital Gains/Losses before selling any in Taxable.
In inherited, look at basis and figure Capital Gains/Losses since date of death on each if possible. Sell all losers, individual stocks to match losers, and decide how much of the gainers you want to pay tax on.

Max all retirement accounts, even if you have to spend some taxable to do so.


1. 80% of my assets are in the taxable Vanguard account, which I transferred from a trust account at a bank after my mother died (the bank tried to convince me to keep the money there and pay a 1.8% management fee). I would like to sell all the individual stocks and some of the mutual funds and etfs (gradually, to keep income from capital gains from putting me over limit for contributing to Roth IRA) and create a simple 3-fund portfolio with 50/50 AA. Is this a good AA, or should I be more conservative? Should I keep any (or all) of the existing iShare funds instead of switching to Vanguard funds?
50/50 is reasonable; it depends on how well you "sleep at night". Maybe more bonds when you are closer to retirement.
2. My investments are complicated mostly because of having several employers and because a TIAA adviser several years ago urged me to diversify into many funds. Should I just leave the smallest accounts alone, or should I simplify them?
Consider mostly bonds/traditional.
3. I have read about how to divide up funds for tax efficiency but am not sure how it applies to my situation, since the vast majority of my funds is in taxable accounts. Thoughts?
Municipal bonds (tax-exempt) would work in taxable as needed.
4. I started the TIAA taxable fund a long time ago. It has high ERs. Should I liquidate it (and pay taxes) and move the funds to the Vanguard account?
Get the tax information and then decide how much you are willing to pay. Yes, it is a mess. Could be moved, perhaps V would accept the funds and you could sell some later.
5. Is there a good way to organize all these data? I have spent way too long trying to make spreadsheets (which I’m not very skilled at).
Simplifying would help a lot.

Jack FFR1846
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Re: Recent inheritance + mix of retirement funds + 5 years from retirement = confusion

Post by Jack FFR1846 » Wed Jul 12, 2017 8:44 am

I'm going to paraphrase Ric Edelman because it seems he was speaking about your portfolio specifically. Ric doesn't like Life Strategy funds because people choose them for their asset allocation, update with age, rebalancing all hands off.......then screw it all up by adding other funds. If you want the Life Strategy, that should be your only fund.

Your inherited stuff can all be sold off with little cap gain, right? Well, sell it all off, transfer it all to a low cost provider and get a.....Life Strategy Fund.

Choose your next account and repeat.
Bogle: Smart Beta is stupid

Sandi_k
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Re: Recent inheritance + mix of retirement funds + 5 years from retirement = confusion

Post by Sandi_k » Wed Jul 12, 2017 1:00 pm

This is a mess. FWIW, I would rip off the bandaid fast, and simplify it all this year. Yes, you could lose your Roth eligibility this year, but you can do a backdoor Roth anyways once everything is simplified.

This is how I'd approach it:

1) Decide on brokerage. Vanguard?
2) Call them up and initiate a transfer of all accounts to them, as-is, in kind if possible. (no selling yet).
3) Decide on asset allocation. (Yes, 50/50 is fine).
4) Liquidate everything after you hit the one year and one day date of your mother's date of death (this means a long term capital gains tax rate, instead of short term). Since you have the stepped up basis from your mother's passing, capital gains over the past year are possibly 10% or so, but probably closer to 5% with the bonds included in the mix.
5) Buy Vanguard Total Stock Market with half your accounts, and Vanguard Intermediate Bond funds with the other half.

Simplicity can be a great thing.

blackburnian
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Joined: Thu May 04, 2017 12:40 pm

Re: Recent inheritance + mix of retirement funds + 5 years from retirement = confusion

Post by blackburnian » Wed Jul 12, 2017 2:12 pm

Thanks so much, all. I agree that it is now a mess. Revealing it here is a humbling experience!
A few followups, then after I make changes I'll report back.
First, I thought that capital gains on inherited stocks were classified as long-term gains, even if sold less than a year after inherited. (IRS says: "Inherited property. If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it.") I have already sold two of the stocks.
Second, yes, I realize it doesn't make sense to have a life strategy fund plus a mixture of others. I started out with the life strategy but then decided I wanted to make my own mix. I should just do one or the other and not both.
Tamarind, I will pm you for your spreadsheet.
Thanks for advice and sympathy.

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BL
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Re: Recent inheritance + mix of retirement funds + 5 years from retirement = confusion

Post by BL » Wed Jul 12, 2017 3:04 pm

Yes, they are long-term if inherited so you don't need to wait. The sooner sold the better. I would look up the gains, just to know what they are and what CG tax will be owed.

jalbert
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Re: Recent inheritance + mix of retirement funds + 5 years from retirement = confusion

Post by jalbert » Wed Jul 12, 2017 3:35 pm

A simple model would be:

All 403b and Roth accounts:
TIAA Traditional

Taxable account:
25% ishares total int'l stock index etf IXUS
75% Vanguard tax-managed balanced fund
Index fund investor since 1987.

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Peter Foley
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Re: Recent inheritance + mix of retirement funds + 5 years from retirement = confusion

Post by Peter Foley » Wed Jul 12, 2017 3:41 pm

A basic approach might be as follows:

All TIAA-CREF 403b goes into the bond fund.

Roth goes into Large Cap Value.

All taxable get transferred to Vanguard. You could continue to hold the 3 Core S&P funds and an international fund, or go with Vanguard's version of total stock market. Add one or two bond funds, perhaps keeping a tax exempt and adding something like Total bond.

While this is more complicated than most would advise, it is relatively straightforward.

If you are serious about buying a condo you should consider paying cash.

You can probably retire in a couple years after all this gets sorted out. You are in very good shape overall.

Note: jalbert just posted while I was writing. We are on the same page but I'm trying to get your bonds in tax deferred and your stock in your Roth.

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House Blend
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Re: Recent inheritance + mix of retirement funds + 5 years from retirement = confusion

Post by House Blend » Wed Jul 12, 2017 4:04 pm

elrobin wrote:First, I thought that capital gains on inherited stocks were classified as long-term gains, even if sold less than a year after inherited. (IRS says: "Inherited property. If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it.") I have already sold two of the stocks.
That's correct. Looks like you have about one year of gains. If they are not humongous [*], I agree with Sandi_k's advice to rip off the band aid and restructure the taxable accounts into something tax-efficient and comprehensible right away.

[*] My definition of "humongous" would be that you'd rather not push your AGI above $200K. At that point, the 3.8% ACA surtax kicks in on your investment income (including capital gains). But only for amounts that are poking out above the $200K.

I'm not familiar with MA tax brackets, but if it is progressive with much higher
rates available above 5.1%, that's another concern. An extra 3.8% here and 2.7%
there and pretty soon you're talking about real money.

I would:

1. Consoldiate your VG taxable investments into Total Stock Market, Total International, and Intermediate Term Tax Exempt (VWIUX). Obviously if you are going to buy a condo, some cash needs to be held back, or you can increase the allocation to VWIUX for that purpose.

(VG does have an MA long term tax-exempt fund, but its SEC yield is about the same as the national long term fund after allowing for state taxes. So you might as well go with a diversified national fund.)

2. Move the taxable TIAA account to Vanguard and repeat #1. The ERs are too high to leave the account invested as is.

3. Transfer the Roth IRA to Vanguard. Same reason as in #2.

4. Use bond funds, TIAA Real Estate, and TIAA Traditional in the four 403(b)'s. I assume you are aware that some versions of Traditional paying higher rates have restrictions on transfers out. For example, 403(b) #2 is almost certainly one of the high rate/restricted flavors. Depending on how important this is to you (see #5), you might want to limit your use of this particular flavor of Traditional. On the other hand, the two old ones are small, so it especially makes sense IMO to make them 100% Traditional and forget about them until you are required to take RMDs. At that point you would either annuitize, or setup a contract to take out the RMDs.

5. Regarding charitable goals, something to keep in mind is that once you reach 70.5, you can make qualified charitable distributions from a traditional IRA as a way to meet RMDs without having to report the income. You cannot do this with 403(b)'s, so they would have to be rolled over. The restricted versions of TIAA Traditional are harder to rollover, so this relates back to #4.

jalbert
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Re: Recent inheritance + mix of retirement funds + 5 years from retirement = confusion

Post by jalbert » Wed Jul 12, 2017 5:17 pm

Note: jalbert just posted while I was writing. We are on the same page but I'm trying to get your bonds in tax deferred and your stock in your Roth.
Unnecessary as there are no RMDs on a taxable account. Just account for the tax drag when calculating allocation amounts (i.e. use after-tax account values when calculating allocation percentages) and the account location doesn't matter much.

If TIAA Real Estate is included, then Tiaa Traditional in all tax-deferred accounts and Tiaa Real Estate in Roth.
Index fund investor since 1987.

retiredjg
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Re: Recent inheritance + mix of retirement funds + 5 years from retirement = confusion

Post by retiredjg » Thu Jul 13, 2017 9:42 am

The reason you are so confused is that you have too many funds. It's completely nuts to have a small slice of your portfolio split up into several funds. Shame on the person who led you in that direction. That is remedied relatively easily.

My idea is similar to others that have been suggested. Please note that the percentages represent a portion of the entire portfolio.

Taxable 86%
40% US Stock (could be a mix of what you have and Vanguard's Total STock)
10% International (could be a mix of what you have and Vanguard's Total International)
36% Bonds (type to be determined)


403b(1) 5% (current employer)
5% TIAA Traditional


403b(2) 1%
1% TIAA Trad


403b(3) 1% former employer
1% Traditional


403b(4) 1%
1% Traditional


Roth IRA at TIAA-CREF6%
6% Traditional (or could put stock fund here if you prefer stocks in Roth IRA)




• AA is onerous to calculate bc of so many accounts, but I estimate roughly 50/50 now.
As you can see, it does not have to be onerous. Even if you end up having several funds or stocks in taxable, if you look at the percentages as percentage of portfolio, it is easy.


1. 80% of my assets are in the taxable Vanguard account, which I transferred from a trust account at a bank after my mother died (the bank tried to convince me to keep the money there and pay a 1.8% management fee). I would like to sell all the individual stocks and some of the mutual funds and etfs (gradually, to keep income from capital gains from putting me over limit for contributing to Roth IRA) and create a simple 3-fund portfolio with 50/50 AA. Is this a good AA, or should I be more conservative? Should I keep any (or all) of the existing iShare funds instead of switching to Vanguard funds?
The 50/50 idea is fine. Doing it over several years is fine if you want. I'd probably give up the Roth IRA for one year and just pull the bandaid off. Yes, if you don't mind more funds, you can keep some of what you have.

2. My investments are complicated mostly because of having several employers and because a TIAA adviser several years ago urged me to diversify into many funds. Should I just leave the smallest accounts alone, or should I simplify them?
You should simplify them.

3. I have read about how to divide up funds for tax efficiency but am not sure how it applies to my situation, since the vast majority of my funds is in taxable accounts. Thoughts?
Even if all your tax-advantaged accounts are put into bonds, some of your bonds will have to be housed in the taxable account. In the 25% bracket, it is never clear if the bonds should be taxable or tax-exempt and it may not matter a lot because what is better many change from time to time. Some people would suggest all Total Bond Market Index I'd probably use half Total Bond and half Vanguard Intermediate Term Tax Exempt Fund.

4. I started the TIAA taxable fund a long time ago. It has high ERs. Should I liquidate it (and pay taxes) and move the funds to the Vanguard account
I would. This would reduce your number of accounts and also lower your costs.

5. Is there a good way to organize all these data? I have spent way too long trying to make spreadsheets (which I’m not very skilled at).
If you calculate each holding as percent of the portfolio, it is easy to add them up and know what you have. No spreadsheet is needed although some people like to use one. Even if you use a spreadsheet, consider the percentage of the portfolio, not the account.

As you hold things right now, many of your holdings would be less than even a half of one percent. You can see how un-useful and cumbersome that is.


It seems possible you may have a pension coming. If you do, you might be able to retire right now if you wanted. If your expenses are low, you might be able to retire even without a pension. Does that interest you?

retiredjg
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Re: Recent inheritance + mix of retirement funds + 5 years from retirement = confusion

Post by retiredjg » Thu Jul 13, 2017 9:52 am

*16 individual stocks (about 50% of account), with varying unrealized losses/gains
Seel anything you have that has a loss. You can use the losses to offset the gains (meaning if you sell $1000 in losses and $1000 in gains, there is no tax on the federal level).


BFRIX Black Rock Floating Income 0.69
LTMCX Thornburg Limited Term Municipal Fund C 0.96
VMRAX Vanguard Morgan Growth Fund Admiral 0.28
VWIUX Vanguard Int-Term Tax-Exempt Admiral 0.09
IVV iShares Core S&P etf 0.04
IJH iShares Core S&P mid cap etf 0.07
IJR iShares Core S&P small cap etf 0.07
AGG iShares Core US Aggregate Bond ETF 0.06
LQD iShares iBoxx Invt Grd Corp Bond etf 0.15
EFA iShares MSCI EAFE etf 0.33
IVE iShares S&P 500 Value etf 0.18
PFF iShares US Preferred Stock etf 0.47
VWO Vanguard FTSE Emerging Mkts etf 0.14
VMBS Vanguard Mortgage Backed Securities etf 0.07

I'd sell the blue ones first and the greens ones next as they are the least useful to you and higher cost. Of course, you would sell anything with a loss as well. The others can be sold as time permits or even worked into your portfolio long term.

blackburnian
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Re: Recent inheritance + mix of retirement funds + 5 years from retirement = confusion

Post by blackburnian » Thu Jul 13, 2017 11:10 am

Thanks to everyone, again, for your thoughtful advice. The generosity of people on this board is truly mind-bogling (I mean boggling!)

In answer to a few questions:
I won't have a pension--just the 403b that my employer contributes 10% of my salary to.
Do I want to retire soon? I've only been in my current job for 2 years; I need to stay 1 more year to be vested in the retirement account. After that, we'll see. I like working but might switch to a (even) lower-paid, more fulfilling occupation.
I had been reluctant to sell everything all at once because I didn't want to give back the $65,000 {correction: $6,500} I have already contributed to the Roth for the year (and I don't know how to but will figure it out.) But I can see it is probably worth doing it just to get everything straightened out.
I know there are different opinions on what to put in a Roth. I'll see what the financial adviser says, too.
I will report back once it's done.

Merci beaucoup!
Last edited by blackburnian on Thu Jul 13, 2017 1:11 pm, edited 1 time in total.

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House Blend
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Re: Recent inheritance + mix of retirement funds + 5 years from retirement = confusion

Post by House Blend » Thu Jul 13, 2017 11:41 am

elrobin wrote:I had been reluctant to sell everything all at once because I didn't want to give back the $65,000 I have already contributed to the Roth for the year (and I don't know how to but will figure it out.)
Presumably that's $6,500.

One way to work around this is to recharacterize the Roth IRA contribution to a traditional IRA. Then convert it to a Roth IRA. This is a variation on the "Backdoor Roth IRA" (see the wiki). Assuming you do decide to move the Roth to Vanguard, I would do the steps in this order:

1) Ask TIAA to recharacterize your 2017 Roth IRA contribution to traditional IRA.
They will have to open a trad IRA for you as well. It willl end up with some amount not equal to $6500 in it. (Probably greater.) Doesn't matter.
2) After the dust settles, transfer both to Vanguard.
3) Convert 100% of the traditional IRA to Roth IRA. It won't be $6500. A few dollars of the transaction may be taxable. Doesn't matter. (This is actually the easiest step and can be done online at Vanguard in a few mouse clicks.)
4) Remember to file Form 8606 with your 2017 taxes, both to report the fact that you made a non-deductible trad IRA contribution, and that you did a Roth conversion.

retiredjg
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Re: Recent inheritance + mix of retirement funds + 5 years from retirement = confusion

Post by retiredjg » Thu Jul 13, 2017 4:02 pm

If you do not wish to use the "back door" method (recharacterize and convert to Roth), you could go ahead and just leave the 2017 Roth contribution in place and stay under the limit. Remember to leave a buffer zone in case you have income you've forgotten about (like maybe a refund on your state income taxes - easy to forget).

Skip the 2018 Roth IRA contribution and do the rest of the selling in 2018.

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