Inherited tIRA all in HAINX

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Sylliec
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Inherited tIRA all in HAINX

Post by Sylliec »

Hello Boglesheads,
I recently inherited (as a non-spouse) about $80,000 in a tIRA held at Schwab all of it in HAINX (Harbor International). I believe I can take distributions based on my life expetancy (I am 52 y.o.) as the original account holder (my Dad) was already taking his RMDs (he was 92 when he died). So Scwabs calculator has my first distribution at about $2,500. So assuming I will be taking a couple of thousand dollars out per year for many years is HAINX a good investment?
Inherited traditional IRA at Schwab
Target retirement age: 63 / State of CA (pre-reform) employee
Expected pension: Calpers 2% @ 55 $5,500 per month gross (80% of current). Because there will be no health insurance or pension contribution deducted from my expected pension payments my net pay will be closer to 90% of my current net pay.
Mortgage % 4.25%
Current 401k/457 Roth (All through State of CA) No employer match / Not maxed out invested in Large Cap Index / Medium Cap Index / Small Cap Index (33% each) managed by Blackrock Investments No tickers that I could find. Total operating expenses (management fees plus expense reimbursement) = .08%, .08%, .06% respectively.
Last edited by Sylliec on Wed Feb 21, 2018 3:20 pm, edited 2 times in total.
Spirit Rider
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Re: Inherited tIRA all in HAINX

Post by Spirit Rider »

Sorry for your loss.

If you don't mind my asking, what year did he pass away and had he taken his RMD for the year? If not you will have to take his RMD (quite large based on his age) for that year, taxable to you.

Then by 12/31 of the year following the year of death and every year, you will have to take RMDs. The RMD divisor will depend on whether he owned this IRA or it was an inherited IRA to him.

If he owned the IRA, the divisor will be based on your age in the year following the year of death and decreased by one each year. If he inherited the IRA you will use his divisor and decrease it by one each year.

You should consider the asset allocation of your entire portfolio as a whole when determining what to place in the Inherited IRA. Generally, you should have your lowest returning and lowest volatility assets there. This will minimize your RMDs, their tax liability and risk to the portfolio. Allowing higher returning assets elsewhere to accumulate undisturbed.

Bogleheads believe in low cost index funds. This would suggest a total bond market index fund or possibly an intermediate Treasury index fund. However, that would only be true if the amount of the inherited IRA does not exceed thesize of your fixed income portion of your total portfolio. That is why it is necessary to know that information to give a complete recommendation.
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Re: Inherited tIRA all in HAINX

Post by Sylliec »

Spirit Rider wrote: Wed Feb 21, 2018 2:42 am
If you don't mind my asking, what year did he pass away and had he taken his RMD for the year? If not you will have to take his RMD (quite large based on his age) for that year, taxable to you.

You should consider the asset allocation of your entire portfolio as a whole when determining what to place in the Inherited IRA. Generally, you should have your lowest returning and lowest volatility assets there. This will minimize your RMDs, their tax liability and risk to the portfolio. Allowing higher returning assets elsewhere to accumulate undisturbed.

Bogleheads believe in low cost index funds. This would suggest a total bond market index fund or possibly an intermediate Treasury index fund. However, that would only be true if the amount of the inherited IRA does not exceed thesize of your fixed income portion of your total portfolio. That is why it is necessary to know that information to give a complete recommendation.
Thank you. My Dad’s IRA was his own (not inherited) and he died in 2017. He had not taken his 2017 RMD so we (me and my sibs) had to. Actually my sister took her portion in one lump sum distribution thereby fulfilling the year of death RMD requirement for everybody. (I did not find that out until after I took my portion of the RMD).

When you ask about my portfolio I do not really have one per-se. I am a state employee expecting a pension (and social security), have a small 410k tradional/457 Roth ($100,000), have a roughly $80,000 mortgage with about 8 yrs left, am expecting about $300,000 inheritance in the near future (which I will put in a savings account until I learn and figure out what to do with), have about $1,500 in credit card debt. So the inherited IRA will be a annual bonus/birthday gift which I plan to be not accountable for. I have no children by the way.
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Re: Inherited tIRA all in HAINX

Post by ruralavalon »

Welcome to the forum :) .

Sorry for your loss.

Sylliec wrote: Wed Feb 21, 2018 1:38 am Hello Boglesheads,
I recently inherited (as a non-spouse) about $80,000 in a tIRA held at Schwab all of it in HAINX (Harbor International). I believe I can take distributions based on my life expetancy (I am 52 y.o.) as the original account holder (my Dad) was already taking his RMDs (he was 92 when he died). So Scwabs calculator has my first distribution at about $2,500. So assuming I will be taking a couple of thousand dollars out per year for many years is HAINX a good investment?
Harbor International Institutional (HAINX) ER 0.72% is a decent actively managed international stock fund, which invests in stocks of larger companies primarily in developed markets, the expense ratio is higher than I would want.

It's likely better to have a more diversified investment, with a lower expense ratio.

What fund firm is this inherited traditional IRA with?

Sylliec wrote: Wed Feb 21, 2018 12:42 pm
Spirit Rider wrote: Wed Feb 21, 2018 2:42 am
If you don't mind my asking, what year did he pass away and had he taken his RMD for the year? If not you will have to take his RMD (quite large based on his age) for that year, taxable to you.

You should consider the asset allocation of your entire portfolio as a whole when determining what to place in the Inherited IRA. Generally, you should have your lowest returning and lowest volatility assets there. This will minimize your RMDs, their tax liability and risk to the portfolio. Allowing higher returning assets elsewhere to accumulate undisturbed.

Bogleheads believe in low cost index funds. This would suggest a total bond market index fund or possibly an intermediate Treasury index fund. However, that would only be true if the amount of the inherited IRA does not exceed thesize of your fixed income portion of your total portfolio. That is why it is necessary to know that information to give a complete recommendation.
Thank you. My Dad’s IRA was his own (not inherited) and he died in 2017. He had not taken his 2017 RMD so we (me and my sibs) had to. Actually my sister took her portion in one lump sum distribution thereby fulfilling the year of death RMD requirement for everybody. (I did not find that out until after I took my portion of the RMD).

When you ask about my portfolio I do not really have one per-se. I am a state employee expecting a pension (and social security), have a small 410k tradional/457 Roth ($100,000), have a roughly $80,000 mortgage with about 8 yrs left, am expecting about $300,000 inheritance in the near future (which I will put in a savings account until I learn and figure out what to do with), have about $1,500 in credit card debt. So the inherited IRA will be a annual bonus/birthday gift which I plan to be not accountable for. I have no children by the way.
Will your pension and Social Security be enough to cover all of your annual expenses in retirement?

It's often better to coordinate investments among all of your accounts.

Is there an employer match offered in the 401k/457 plans? Are you contributing enough to get the full employer match every year? What funds are you using in your traditional 401k and Roth 457 accounts? What funds are offered in the traditional 401k and Roth 457 plans? Please give fund names, tickers and expense ratios.

Is the 457 plan with a governmental employer?

What is you expected retirement age?

What is the interest rate on your mortgage note?

You can simply add this to your original post using the edit button (the pencil icon, near the upper right of your original post), it helps a lot if all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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Sylliec
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Re: Inherited tIRA all in HAINX

Post by Sylliec »

HAINX is .72% cost versus my 401K/457 .08% / .06%?? :annoyed
Is .72% high?
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grabiner
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Re: Inherited tIRA all in HAINX

Post by grabiner »

It doesn't matter what the IRA is currently invested in. The IRA is $80,000, and you should choose the best way to invest the $80,000, consistent with the rest of your investments.

You will have to take distributions from the IRA, but this doesn't really affect the investments; if you don't spend the distributions, you can invest them somewhere else, such as in your 401(k), and stay in the same or similar funds. For example, if you choose to invest the IRA in Vanguard Total International Index Fund (a low-cost international fund), you can take the distribution and invest an equal amount in your 401(k) in Blackrock's international index.
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Sylliec
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Re: Inherited tIRA all in HAINX

Post by Sylliec »

grabiner wrote: Wed Feb 21, 2018 8:40 pm It doesn't matter what the IRA is currently invested in. The IRA is $80,000, and you should choose the best way to invest the $80,000, consistent with the rest of your investments.

You will have to take distributions from the IRA, but this doesn't really affect the investments; if you don't spend the distributions, you can invest them somewhere else, such as in your 401(k), and stay in the same or similar funds. For example, if you choose to invest the IRA in Vanguard Total International Index Fund (a low-cost international fund), you can take the distribution and invest an equal amount in your 401(k) in Blackrock's international index.
So sell the HAINX for a Vanguard Total International Index within the IRA. That sounds straightfoward enough. I shall do so asap.
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Re: Inherited tIRA all in HAINX

Post by livesoft »

Sylliec wrote: Wed Feb 21, 2018 11:30 pmSo sell the HAINX for a Vanguard Total International Index within the IRA. That sounds straightfoward enough. I shall do so asap.
Except the inherited IRA is held at Schwab, so the Vanguard Total International index fund would probably not be commission-free at Schwab. One may not even want to use an international fund in the IRA. One may wish to use a bond fund for instance and make adjustments elsewhere in the total portfolio to get to one's desired overall portfolio asset allocation.
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Sylliec
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Re: Inherited tIRA all in HAINX

Post by Sylliec »

livesoft wrote: Wed Feb 21, 2018 11:42 pm Except the inherited IRA is held at Schwab, so the Vanguard Total International index fund would probably not be commission-free at Schwab. One may not even want to use an international fund in the IRA. One may wish to use a bond fund for instance and make adjustments elsewhere in the total portfolio to get to one's desired overall portfolio asset allocation.
It looks like I need to go back to the Wiki and do some learning as I do not yet have a desired overall portfolio asset allocation. Thanks for pointing that out!
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Re: Inherited tIRA all in HAINX

Post by rgs92 »

Harbor International Fund went up 22.9% in 2017. So it did pretty well and I would not feel like it's anywhere near a bad or non-diversified investment. Yep, eventually an indexed portfolio is the way to go, but it's not an emergency and you can do transfers when convenient.

I would just stay a Schwab and maybe buy their ETFs for indexes, which have rock-bottom expenses, as low as Vanguard's. SCHB (broad market index) has an ER of .03% for example. They have a whole set of these ETFs. They have funds too. I wouldn't go the trouble of leaving Schwab in this case. Why bother?

The expense ratio for the Harbor fund is not out of line at all, in fact it's on the low side for international funds.
Fidelity's Diversified International fund (not a bad fund at all) has a similar ER.

Sorry about the loss in your family. Good luck.
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Sylliec
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Re: Inherited tIRA all in HAINX

Post by Sylliec »

rgs92 wrote: Thu Feb 22, 2018 1:15 am
I would just stay a Schwab and maybe buy their ETFs for indexes, which have rock-bottom expenses, as low as Vanguard's. SCHB (broad market index) has an ER of .03% for example. They have a whole set of these ETFs. They have funds too. I wouldn't go the trouble of leaving Schwab in this case. Why bother?

Sorry about the loss in your family. Good luck.
Thanks rgs92. I was wondering whether to stay at Schwab. I will also receive some cash inheritance soon (about $300k) which I previewed posted about and I wondered whether I should stick with them. I like the idea of staying.
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Re: Inherited tIRA all in HAINX

Post by livesoft »

rgs92 wrote: Thu Feb 22, 2018 1:15 amHarbor International Fund went up 22.9% in 2017. So it did pretty well ...
That looks good until you compare to Vanguard Total International Index fund with its 27.55% in 2017 return. 3-year and 5-year returns are also relatively bad for HAINX.
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Re: Inherited tIRA all in HAINX

Post by Mudpuppy »

ruralavalon wrote: Wed Feb 21, 2018 12:59 pm Is there an employer match offered in the 401k/457 plans? Are you contributing enough to get the full employer match every year? What funds are you using in your traditional 401k and Roth 457 accounts? What funds are offered in the traditional 401k and Roth 457 plans? Please give fund names, tickers and expense ratios.
Based on the information the OP has provided in the edit, I suspect this is the California Savings Plus Plan (CA SPP), which does not have public ticker symbols. The core investments in CA SPP are primarily private mutual funds administered for the state by contracted firms and the contracted firms change from time to time. CA SPP funds have 0.05% administration fees baked into the ER, so the 0.06% for the large cap index fund represents 0.01% from fund expenses and 0.05% administrative overhead. There's also a monthly flat administrative fee of $1.50 for CA SPP accounts.

The contracted firms for the CA SPP core investments are given an index to track. The target index for the large cap index fund is S&P 500, the target index for the mid cap index fund is S&P Mid 400, and the target index for the small-cap index fund is Russell 2000. The OP is overweighted to mid-cap and small-cap by using 1/3 of each of these index funds. I personally use 80% large cap index, 12% mid cap index, and 8% small cap index to replicate the total stock market in my CA SPP account.

For the inherited IRA, Schwab does have its own set of index funds. The OP doesn't have to use Vanguard funds. Schwab Total Stock Market Index Fund (SWTSX) has an ER of 0.03%, as does its S&P 500 Index Fund (SWPPX). There's also the Schwab International Index Fund (SWISX) with an ER of 0.06% if the OP wishes to keep the inherited IRA invested in international stocks. Schwab also has a couple of bond index funds, although not as comprehensive of a list as Vanguard has in this area.
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Re: Inherited tIRA all in HAINX

Post by Mudpuppy »

Sylliec wrote: Wed Feb 21, 2018 1:38 am Target retirement age: 63 / State of CA (pre-reform) employee
Expected pension: Calpers 2% @ 55 $5,500 per month gross (80% of current). Because there will be no health insurance or pension contribution deducted from my expected pension payments my net pay will be closer to 90% of my current net pay.
Just a quick side-note here. Since you have a little over a decade until you hit your target retirement age, you may want to have some contingency plans in place just in case any of these items change. There's a lot of existing case law that we should get whatever benefits we've accrued, but future benefits may change. In your case, I'd be most concerned about the medical insurance coverage in retirement. Several unions in charge of the CBAs have talked about this in recent years, so you might want to chat with your local union rep about what's on the horizon.

My personal contingency plan is to assume I'll only get the pension I've currently accrued and that the future pension will be reduced. I'm also not counting on the health insurance to be entirely covered in retirement. This means I have some bond investments in my retirement account AA, rather than going with a more aggressive investment stance. I also save more, just in case there's a bigger gap to cover once I do reach retirement age. For example, if the pension and benefits were unchanged, I'd only need to save about $15-17k per year to cover the gap. But if the pension and benefits change, I could need upwards of $30k per year to cover the gap. So I try to save closer to $30k per year.

So maybe rather than seeing the RMDs as fun money, you can save it in a "just in case" fund.
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Re: Inherited tIRA all in HAINX

Post by ruralavalon »

Sylliec wrote: Wed Feb 21, 2018 11:53 pm
livesoft wrote: Wed Feb 21, 2018 11:42 pm Except the inherited IRA is held at Schwab, so the Vanguard Total International index fund would probably not be commission-free at Schwab. One may not even want to use an international fund in the IRA. One may wish to use a bond fund for instance and make adjustments elsewhere in the total portfolio to get to one's desired overall portfolio asset allocation.
It looks like I need to go back to the Wiki and do some learning as I do not yet have a desired overall portfolio asset allocation. Thanks for pointing that out!
That is correct, your first step is to decide on a desired asset allocation. This should come before deciding where to keep the inherited traditional IRA and before picking funds to use.

Concerning the stock/bond allocation please see the wiki article "Asset Allocation", and the wiki article "Boglehead's Investment Philosophy".

Concerning the international allocation please see the wiki article "Domestic/International".

If you have any questions about asset allocation, just ask.

. . . . .

Schwab does offer low expense ratio total market index funds for domestic stocks and domestic bonds -- Schwab Total Stock Market Index Fund (SWTSX) ER 0.03%, and Schwab U.S. Aggregate Bond Index Fund (SWAGX) ER 0.04%.

One drawback of keeping the inherited traditional IRA at Schwab is that Schwab does not have a total international stock market index fund or ETF.

What international stock funds are offered in the 401k/457 plans? Please give fund names, index or benchmark used, and expense ratio. It may be that you will want your international stock allocation in the 401k/457 rather than in the inherited traditional IRA. About how much is currently in the 401k account and about how much is currently in the governmental 457 account? Again please simply add this to your original post using the edit button.
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Re: Inherited tIRA all in HAINX

Post by ruralavalon »

rgs92 wrote: Thu Feb 22, 2018 1:15 am Harbor International Fund went up 22.9% in 2017. So it did pretty well and I would not feel like it's anywhere near a bad or non-diversified investment. Yep, eventually an indexed portfolio is the way to go, but it's not an emergency and you can do transfers when convenient.

. . . . .

The expense ratio for the Harbor fund is not out of line at all, in fact it's on the low side for international funds.
Fidelity's Diversified International fund (not a bad fund at all) has a similar ER.

Sorry about the loss in your family. Good luck.
Harbor International Institutional (HAINX) is a decent actively managed international stock fund, but you can do much better.

For example Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) has a much lower expense ratio of 0.11%, is more diversified, and and gained 27.55% in 2017.

I agree there is no rush. First decide on a desired asset allocation and make a plan before buying new funds.
Last edited by ruralavalon on Thu Feb 22, 2018 2:14 pm, edited 3 times in total.
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Re: Inherited tIRA all in HAINX

Post by Sylliec »

Mudpuppy wrote: Thu Feb 22, 2018 1:28 pm
So maybe rather than seeing the RMDs as fun money, you can save it in a "just in case" fund.
I am a newly converted bogle-person and I have much to learn and have to change my entire outlook. Like using the RMD to help to make up for my future gap. When I read your post I thought “what gap”. You see I never looked at my futre 80% of pay as a gap of 20%, I looked at as “boy am I lucky to get 80%”. And it never occurred to me that my future benefits are at risk. Not a pleasant thought.
Thanks for the tip about the SPP asset allocation by the way. I wondered if mine was a good idea. I am reading the Bogle Investing Guide right now (from the library). I am not going to stick my head in the sand anymore. This isn’t going to be comfortable. But trolling on this forum has opened my eyes and made me realize the error of my ways. Thanks to you and all of the responders for your insights.
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Re: Inherited tIRA all in HAINX

Post by sunnywindy »

HAINX used to be a volatile but high performing fund when Hakan Castegren ran it. But, unfortunately, he died in late 2010; his replacements, while they haven't ruined the fund, it's now just an expensive index hugger, so you'd be better off selling it for something with lower fees.
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Re: Inherited tIRA all in HAINX

Post by Mudpuppy »

Sylliec wrote: Thu Feb 22, 2018 2:11 pm
Mudpuppy wrote: Thu Feb 22, 2018 1:28 pm
So maybe rather than seeing the RMDs as fun money, you can save it in a "just in case" fund.
I am a newly converted bogle-person and I have much to learn and have to change my entire outlook. Like using the RMD to help to make up for my future gap. When I read your post I thought “what gap”. You see I never looked at my futre 80% of pay as a gap of 20%, I looked at as “boy am I lucky to get 80%”. And it never occurred to me that my future benefits are at risk. Not a pleasant thought.
Thanks for the tip about the SPP asset allocation by the way. I wondered if mine was a good idea. I am reading the Bogle Investing Guide right now (from the library). I am not going to stick my head in the sand anymore. This isn’t going to be comfortable. But trolling on this forum has opened my eyes and made me realize the error of my ways. Thanks to you and all of the responders for your insights.
I'll admit that I am more cautious and perhaps more pessimistic than many of my fellow employees at my CA state agency. For example, rather than assume my pension will be 85% of my salary if I retire at 65, my spreadsheet projects both 85% and a less optimistic 60% (and my "heads-up" page only has a summary of the less optimistic projections). Likewise, I project Social Security at 35% of the amount showing on my current statement. And I also project for a range of retirement ages from 50 to 70, so I can see if I've saved enough for early financial independence from my job.

I don't save to the point of depriving myself though. I love to have lunch at Panera, one of the food trucks outside work, or one of the local restaurants, even though that's far more expensive than bringing my own lunch. And if I need something for one of my hobbies or a tech device, I'll get those. I do ask myself if it is a "need" or a "want" though, just to avoid excessive frivolity. So I don't feel the urge to upgrade to the latest cell phone just because, but I would upgrade if my cell phone was starting to have issues (or in the case of my last one, just up and dies entirely).

Edit: I should also add that if it turns out I've saved too much, there's always philanthropic efforts that could be supported. Better to have saved too much and decide how to give it away than to have saved too little and have to pinch pennies during one's twilight years.
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Re: Inherited tIRA all in HAINX

Post by Mudpuppy »

ruralavalon wrote: Thu Feb 22, 2018 1:28 pm What international stock funds are offered in the 401k/457 plans? Please give fund names, index or benchmark used, and expense ratio. It may be that you will want your international stock allocation in the 401k/457 rather than in the inherited traditional IRA.
I'm not the OP, but I am a fellow California Savings Plus Program (CA SPP) account holder. They do not give us the same level of detail on fund composition that you would see from a public fund prospectus. Here is all they give us on the private mutual funds used in the core investment lineup, which is essentially a summary sheet: https://www.savingsplusnow.com/iApp/tcm ... x.jsp#tab2. There is also the state's IPS which gives the basic parameters for each fund (e.g. benchmarks): https://nationwidefinancial.com/media/p ... 5CA-CA.pdf

One does have the option in CA SPP to open a self-directed brokerage account: https://www.savingsplusnow.com/iApp/tcm ... ccount.jsp. This is run through Schwab and there is a set of low-cost, no transaction fee funds to choose from (the OneSource funds), including the Schwab index funds. I haven't personally gone this route, primarily because it's unclear what exactly would trigger the cashiering fees. I don't want to get a fraction of a percent of higher return during accumulation then lose it all to distribution fees at the end.
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Re: Inherited tIRA all in HAINX

Post by ruralavalon »

Mudpuppy wrote: Fri Feb 23, 2018 11:30 am
ruralavalon wrote: Thu Feb 22, 2018 1:28 pm What international stock funds are offered in the 401k/457 plans? Please give fund names, index or benchmark used, and expense ratio. It may be that you will want your international stock allocation in the 401k/457 rather than in the inherited traditional IRA.
I'm not the OP, but I am a fellow California Savings Plus Program (CA SPP) account holder. They do not give us the same level of detail on fund composition that you would see from a public fund prospectus. Here is all they give us on the private mutual funds used in the core investment lineup, which is essentially a summary sheet: https://www.savingsplusnow.com/iApp/tcm ... x.jsp#tab2. . . .
. . . . .
The Northern Trust International Index Fund, ER 0.12%, offered in the 401k/457 plans tracks the MSCI ACWI Ex-U.S. Investable Market Index, which is a very diversified international index covering stocks of both larger and smaller companies in both emerging and developed markets.

I would suggest using that fund in the 401k/457 plans rather than the less diversified Schwab Index Fund (SWISX) in the inherited IRA with Schwab.

It's often best to coordinate investments among all of your accounts.

What are the relative sizes of the accounts? Like this:
IRA @ Schwab, xx%
Traditional 401k, yy%
Roth 457, zz%
Total = 100%

Duo you have an asset allocation (stock/bond mix, domestic/international stock mix) that you want to aim for?

Again please simply add this to your original post using the edit button.
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