Help with Inherited IRA RMD

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MDfan
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Help with Inherited IRA RMD

Post by MDfan » Tue Jan 23, 2018 10:37 am

As a novice investor, I have a question about the appropriate way to take the RMD from an inherited IRA when that $ is primarily invested in mutual funds at Schwab. Right now, we have to take about a $9600 RMD for 2018 and the balance of the IRA is allocated as follows (as of today):

VTSMX - 55.76%
VBMFX - 23.09 %
VGTSX - 10.53%
SCHZ (Schwab U.S. Aggregate bond) - 9.38%
Cash - 1.23% (about $3400 in cash).

I planned to have about a 65-35 stock to bond portfolio so the allocations definitely need to be adjusted. Should I just sell off the appropriate amounts of the various funds to get to the allocations I want and then use some of that cash to take the RMD? How about on an ongoing basis? Is it better to just keep an amount in cash for the RMD or is it better to just sell funds at the end of each year to reach that RMD amount? Any suggestions on the allocations (between stock, int'l stock & bonds) would also be appreciated. I hope this makes sense.

Jack FFR1846
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Re: Help with Inherited IRA RMD

Post by Jack FFR1846 » Tue Jan 23, 2018 10:41 am

AA depends completely on what you have in the rest of your portfolio. Is this inheritance a major percentage of everything you have saved or is it a smaller amount. If this were mine and not a huge percentage, I'd sell it all, take out the RMD, then buy back in to a single ETF and readjust the my IRA for proper AA.

My entire portfolio has only my IRA with all assets for rebalancing. The rest of my accounts each has only one fund.
Bogle: Smart Beta is stupid

fposte
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Re: Help with Inherited IRA RMD

Post by fposte » Tue Jan 23, 2018 11:20 am

As Jack says, AA depends on what else is going on in your portfolio. However, since there are no tax consequences and, I would imagine, no fees involved in exchanging assets within an IRA at Schwab (there aren't at Vanguard), there's no advantage to keeping cash just to have it available for RMDs. If you want a version of a three-fund portfolio within the account itself, I'd just go with a balanced fund or target date fund and call it a day.
Last edited by fposte on Tue Jan 23, 2018 11:46 am, edited 1 time in total.

investordoc
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Re: Help with Inherited IRA RMD

Post by investordoc » Tue Jan 23, 2018 11:41 am

Agree with the above advice on this being part of your overall AA. Question I have is how did you arrive at the RMD amount? Inherited IRAs are a different animal than other IRAs that you need to take RMDs at age 70 1/2. Make sure you are using the proper calculator and do not use the value of your other IRAs in the calculation. If in doubt call Schwab and ask them how much you need to withdraw.
It is what it is until it isn't anymore

MDfan
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Re: Help with Inherited IRA RMD

Post by MDfan » Tue Jan 23, 2018 12:36 pm

Definitely used the right calculator for the inherited IRA RMD. This is a smaller chunk of our portfolio (which is primarily in my TSP and my wife's 401k/403B). Plan to retire at 62 in about 6 years. It's maybe about 15% of our total portfolio which is roughly about 65/35 stocks and bonds.

I think if I sell the Vanguard Funds at Schwab, there is a commission (around $75 or so if I remember right). Could you explain in a little more detail the suggestion " sell it all, take out the RMD, then buy back in to a single ETF and readjust the my IRA for proper AA." Are you saying it would be easier to have this IRA in a single fund and then adjust the rest of our holdings? Is there a fund you recommend?

fposte
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Re: Help with Inherited IRA RMD

Post by fposte » Tue Jan 23, 2018 4:50 pm

I would be uninclined to keep funds in an IRA in drawdown that will cost me $75 every time I pull an RMD; I would be uninclined to rebalance within an account that cost me $75 every time I tried to rebalance.

There's reasonable argument for prioritizing low-volatility assets such as bonds in an account currently generating RMDs; switching the whole account to the Schwab bond index and having a higher stock allocation in other locations would therefore be one possibility to consider, and it would probably save you quite a few of those $75s. If you're determined to keep a three-fund approach in there, I'd crunch the numbers to see how much money you're really saving by choosing Vanguard funds over Schwab given that fee, especially if you want to rebalance within the account.

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Flobes
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Re: Help with Inherited IRA RMD

Post by Flobes » Tue Jan 23, 2018 5:58 pm

MDfan wrote:
Tue Jan 23, 2018 10:37 am
As a novice investor, I have a question about the appropriate way to take the RMD from an inherited IRA when that $ is primarily invested in mutual funds at Schwab...

I planned to have about a 65-35 stock to bond portfolio so the allocations definitely need to be adjusted. Should I just sell off the appropriate amounts of the various funds to get to the allocations I want and then use some of that cash to take the RMD? How about on an ongoing basis? Is it better to just keep an amount in cash for the RMD or is it better to just sell funds at the end of each year to reach that RMD amount?
My Inherited IRA is set up specifically to avoid these annual decisions and maneuvers.

I guesstimated five years of RMDs. And funded a five-year CD at a credit union.

The lion's share is invested in Vanguard's Wellesley. It maintains its AA. And it does not interfere with tax-loss harvesting in my taxable account, where I hold Total Stock and Total International.

(This was formerly Wellington, which closely matches your AA goal. But Wellesley now fits better with my own total portfolio AA.)

Each year, I take distributions equal to both (Vanguard and CD) RMDs from the CD. Because it is an IRA subject to RMDs, there are no early withdrawal penalties for funds from the CD.

RMD for CD is set on auto-pilot for Dec 1. Vanguard has already notified me of RMD amount for 2018, and I'll manually withdraw it too Dec 1.

Way too easy. I do not have to think about what to sell. I'm not concerned about market changes. I do not have to rebalance. Once every five years, I find the best place to park the CD. Once a year, it takes under five minutes to mindlessly get RMD handled.

Alan S.
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Re: Help with Inherited IRA RMD

Post by Alan S. » Tue Jan 23, 2018 7:14 pm

Sounds like you are taking your entire RMD from the CD IRA at a CU and they waive the early distribution penalty not only for the RMD for the CU CD, but for the Vanguard IRA RMD as well, which could be much larger than the CD since your CD purchase was only for 5 years of RMDs.

Unless I misunderstood, this sounds like a rare CU.

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Flobes
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Re: Help with Inherited IRA RMD

Post by Flobes » Tue Jan 23, 2018 7:57 pm

Alan S. wrote:
Tue Jan 23, 2018 7:14 pm
Sounds like you are taking your entire RMD from the CD IRA at a CU and they waive the early distribution penalty not only for the RMD for the CU CD, but for the Vanguard IRA RMD as well, which could be much larger than the CD since your CD purchase was only for 5 years of RMDs.

Unless I misunderstood, this sounds like a rare CU.
^Yes, exactly.

My current BeneIRA CD is with Alliant CU.

As they explained to me, because it is an IRA that is subject to RMDs, any amount can be withdrawn without penalty so long as $1000 minimum remains for the full term of the CD. Plus they automatically handle the RMD for the CD. Withdrawals on date(s) of my choosing, sending it by manner of my choosing (check, ACH, Alliant deposit). No fees, no penalties, no problems.

And yes, ratio of Vanguard to CD is about 8 to 1.

BTW This year, I dumped RMD funds into Alliant's 1.3% savings account, which I'm using it to to pay Alliant's 3% cash-back credit card bill each month. Nice little loop.

Previously, I had the same basic RMD plan with a neighborhood bank where my mother had held one of her IRA CDs that I inherited and kept there. (That local bank then merged into a regional bank, which got bought out by a less-friendly bigger bank that imposed annual fees for holding the account. So I did not renew there, and they charged me $25 to leave.)

Alan, I'm surprised to hear this is rare to have penalty-free withdrawals from an IRA CD, as I easily stumbled into it, twice. It certainly is how Alliant works.

Alan S.
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Re: Help with Inherited IRA RMD

Post by Alan S. » Tue Jan 23, 2018 8:26 pm

Thanks. Not that rare to waive the penalty for the CD RMD amount, but I think quite rare to waive it for the RMDs of other accounts that this institution does not hold. And they probably do not even ask you to verify the existence and balances of these other accounts.

ryman554
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Re: Help with Inherited IRA RMD

Post by ryman554 » Wed Jan 24, 2018 10:02 am

fposte wrote:
Tue Jan 23, 2018 4:50 pm
There's reasonable argument for prioritizing low-volatility assets such as bonds in an account currently generating RMDs; switching the whole account to the Schwab bond index and having a higher stock allocation in other locations would therefore be one possibility to consider,
+1.

I'd stick my entire bond allocation here, since it's in an account which you have to withdraw from yearly.

Let the stuff in longer-term tax-advantaged grow more, and never have to rebalance/sell low in this account. I may even use this to fund roth conversions in other accounts.

Advice changes upon reaching age 70.

MDfan
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Re: Help with Inherited IRA RMD

Post by MDfan » Wed Jan 24, 2018 10:29 am

Thanks. I know very little about Roth conversions so I'd have to talk to someone about that. Like I said, all of our money right now(other than the inherited IRA) is tied up in my TSP and my wife's 401k. Can't do anything with that until we retire in about 6 years.

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