Help with Inherited IRA

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Topic Author
nesdog
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Joined: Thu Dec 07, 2017 8:20 pm

Help with Inherited IRA

Post by nesdog »

My SIL passed away recently. My wife is the beneficiary of her two teacher accounts. We already have money in Fidelity and Vanguard.
Does it make sense to add a third investment company or just split these between Fidelity and Vanguard? We have some concerns about safety, and not putting too much in one place. The amount would represent about 35% of our total nest egg.

We don't need the money right away and are thinking about putting much of it in CD's for FDIC protection. We will invest small amounts in various other funds.

Thanks...
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minesweep
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Re: Help with Inherited IRA

Post by minesweep »

Vanguard safety addresses investor concerns that holding all their investments at Vanguard, an investment management company, may put their life's savings at risk.

Vanguard (and every other US-regulated mutual fund company) does not hold funds directly. Funds are held by 3rd party custodians.

Investors who remain uncomfortable holding all of their assets in Vanguard may hold their funds with alternative custodians.
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livesoft
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Re: Help with Inherited IRA

Post by livesoft »

How old are you all?
How is your current retirement money invested? Unless you are using CDs now, I would suggest that you invest the IRA in the same kind of things for retirement. You can transfer over to Vanguard or Fidelity and do not need to use the same place your SIL used. Do not split the money between institutions as that will cause RMD headaches. Be sure to understand the RMD (required minimum distribution) for an inherited IRA and follow those rules.
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Topic Author
nesdog
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Re: Help with Inherited IRA

Post by nesdog »

I'm 64. Our other tax advantaged accounts are blended in the usual ways; mix of stock and bond mutual funds. (roughly 55% stocks-35% bonds, etc.)

We are aware of the RMD's and will use the stretch option.

The thought on CD's was to purchase them through VG/FI rather than directly through the banks. This would become part of the cash component of our portfolio so we aren't looking for big returns.
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livesoft
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Re: Help with Inherited IRA

Post by livesoft »

Just remember that with the RMDs, you will withdraw money each year, so you will have to make sure any CD money can be withdrawn as it matures. Plus the dollar amount of the RMD will change each year. That seems like a hassle, so ...

Personally, I would not use CDs. For each of our inherited IRAs, the money is invested 100% in a single bond fund and the rest of our portfolio was adjusted to maintain our desired asset allocation. That is, we did not treat our inherited IRAs any differently than our other IRAs.
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Topic Author
nesdog
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Re: Help with Inherited IRA

Post by nesdog »

Thanks for the feedback. It's much appreciated!

Once we get the accounts opened, we'll take a harder look at how to best treat the funds.
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kate1234
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Re: Help with Inherited IRA

Post by kate1234 »

We transferred ours over to Vanguard so that nearly all of our accounts are in the same place. Helps with simplicity, which is one of our goals.
Alan S.
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Re: Help with Inherited IRA

Post by Alan S. »

nesdog wrote: Thu Dec 07, 2017 8:27 pm My SIL passed away recently. My wife is the beneficiary of her two teacher accounts. We already have money in Fidelity and Vanguard.
Does it make sense to add a third investment company or just split these between Fidelity and Vanguard? We have some concerns about safety, and not putting too much in one place. The amount would represent about 35% of our total nest egg.

We don't need the money right away and are thinking about putting much of it in CD's for FDIC protection. We will invest small amounts in various other funds.

Thanks...
You might consider doing the direct rollover of one account to Fido and the other to VG if that would be helpful in reaching the split you want between those two firms. In most cases, it would not make sense to introduce a third custodian. She has the option to do the direct rollovers to either an inherited TIRA or an inherited Roth IRA, but the Roth rollover would be taxed. She will have annual RMDs either way.

Her first beneficiary RMD is due by 12/31/2018 using the account balance on 12/31/2017 and wife's age on 12/31/2018 to get the divisor. There is no reason not to use brokered CDs in these accounts if she wishes, but depending on the terms of the CDs she needs to keep enough in liquid assets such as a bond fund to fund the RMDs. That will avoid the hassle and expense of having to sell part of a CD on the secondary market to fund the RMD. Recently, brokered CDs offered by these firms are more competitive in yield than they used to be compared with direct bank CDs, and they are covered by the FDIC.

Be sure she names her successor beneficiary on these inherited IRAs ASAP, and also note that if SIL was RMD age and did not complete the RMD for these plans before passing, the plan will distribute the year of death RMD balance to your wife and that amount will not be included in the direct rollovers.

It is possible that one or both of these accounts are NOT the typical 403b expected. If so, those plans may offer other options worth looking into.

Finally, if your wife happens to be doing back door Roth conversions, her inherited IRAs will not affect that process.
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Epsilon Delta
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Re: Help with Inherited IRA

Post by Epsilon Delta »

Personally I would hold all the inherited IRA accounts with a single custodian. Because of RMDs there will be a certain amount of activity and having it all in one place reduces the number of transactions, 1099s, beneficiary forms, and other chances to mess up. It may also improve the usefulness of advice from the custodian since you don't have to worry about any interactions between the different accounts.

If having all the inherited accounts at one custodian means you have more money there than you are comfortable with (and this is very much a personal preference) move some of your taxable or your own IRA money to the other.
Topic Author
nesdog
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Re: Help with Inherited IRA

Post by nesdog »

Both of the accounts are teacher related and pre-tax so we cannot take advantage of the Roth. The reason we are splitting the two is to avoid having too much exposure in any one brokerage. I spoke with VG this morning and got some instructions. Will be doing the same with Fidelilty.

Again, the answers I got from the forum are outstanding...thanks for pointing out the details and sharing your thoughts!
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DemoEngr
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Re: Help with Inherited IRA

Post by DemoEngr »

I have similar issues and find that wherever you put it it is easier when you have a joint investment (taxable) account so transfers are free and easy. We use Schwab but any will suffice. Then I can reinvest directly without money transfers.
Spirit Rider
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Re: Help with Inherited IRA

Post by Spirit Rider »

nesdog wrote: Fri Dec 08, 2017 5:19 pm Both of the accounts are teacher related and pre-tax so we cannot take advantage of the Roth.
Note: You can not do a Roth conversion of an Inherited traditional IRA, but you can due a direct rollover from an Inherited traditional employer plan (401k, 403b, 457b) to a Roth IRA.
Alan S.
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Re: Help with Inherited IRA

Post by Alan S. »

Epsilon Delta wrote: Fri Dec 08, 2017 1:14 pm Personally I would hold all the inherited IRA accounts with a single custodian. Because of RMDs there will be a certain amount of activity and having it all in one place reduces the number of transactions, 1099s, beneficiary forms, and other chances to mess up. It may also improve the usefulness of advice from the custodian since you don't have to worry about any interactions between the different accounts.

If having all the inherited accounts at one custodian means you have more money there than you are comfortable with (and this is very much a personal preference) move some of your taxable or your own IRA money to the other.
Note that the RMD for inherited IRAs from the same decedent can be aggregated as long as your wife is the first beneficiary on both and she will use the life expectancy method (not 5 year rule). The RMD divisors will then be the same. That means you could have one inherited account transferred to custodian A and never touch it, while the other account is transferred to custodian B and the total RMD amount for both is then distributed from custodian B. However, I would not recommend using this rule unless there was a clear advantage in doing so, perhaps from the way you set up the investments.
livesoft
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Re: Help with Inherited IRA

Post by livesoft »

nesdog wrote: Fri Dec 08, 2017 5:19 pm The reason we are splitting the two is to avoid having too much exposure in any one brokerage.
There may be other ways to do this. For instance, you could put the inherited IRA money at one vendor and shift existing money that you and your spouse already have to another financial institution to get the kind of split of assets that you are comfortable with.

FWIW, I have my inherited IRA at Fidelity and my spouse has hers at Vanguard. But in our cases, we need to do separate RMDs anyways. Each firm calculates for each of us the RMD that we need each need to take. I use my RMD to take my spouse out to dinner on my mom's birthday.
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samsmith
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Re: Help with Inherited IRA

Post by samsmith »

In answer to OP's original question, I would definitely add a third brokerage. I know this has been debated multiple times in the forum, but I would diversify the places where assists are housed. My first thought was Schwab , but you could also consider Merril Edge/td Ameritrade (or others). You likely would be eligible for a transfer bonus, when moving money in.
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