Advice for a 70 year old with windfall

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MoneyKnuckleHead
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Joined: Wed Jan 31, 2018 5:53 pm

Advice for a 70 year old with windfall

Post by MoneyKnuckleHead » Wed Sep 12, 2018 4:39 pm

My father in law just received a 90k death benefit from his wife's PERS IAP. We are thinking of doing a rollover to a Vanguard Roth IRA. He's 70 years old and would like the funds to continue to grow but also wants access without penalities. He will continue to receive her PERS payouts until he dies so his current financial situation is guaranteed, plus he still has his own income.

What would the Bogleheads advise in this situation? Is a Roth the right vehicle? If so, what asset allocation would be appropriate?

MoneyKnuckleHead
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Joined: Wed Jan 31, 2018 5:53 pm

Re: Advice for a 70 year old with windfall

Post by MoneyKnuckleHead » Wed Sep 12, 2018 5:01 pm

From the PERS IAP site:

If you choose to receive the entire IAP account balance as a lump-sum payment, you may choose a cash distribution, or roll into a traditional or Roth IRA, an eligible employer plan, a 457 deferred compensation plan, the Oregon Savings Growth Plan, or another qualified plan.

Why wouldn't we be able to rollover to a Roth?

Silk McCue
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Re: Advice for a 70 year old with windfall

Post by Silk McCue » Wed Sep 12, 2018 5:17 pm

Check out this link I fo Nd on the subject. It appears that you can rollover to a Roth but it will be a fully taxable event.

https://finance.zacks.com/roll-over-per ... 10785.html
PERS retirement plans are generally pretax, meaning you haven’t paid taxes on the money you’ve been stashing away in the plan. If you’re fully vested in the pretax plan, you haven’t paid taxes on your employer’s contributions either. A Roth IRA is a post-tax retirement plan, meaning you pay taxes on your contributions when you deposit them so you can take the money out tax-free when you retire. You must pay taxes on the monies deposited into the Roth IRA, and this could amount to a hefty tax bill at rollover time if you have a nice nest egg stashed away in your PERS plan.
Cheers

jerryk68
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Re: Advice for a 70 year old with windfall

Post by jerryk68 » Wed Sep 12, 2018 5:25 pm

MoneyKnuckleHead wrote:
Wed Sep 12, 2018 4:39 pm
My father in law just received a 90k death benefit from his wife's PERS IAP. We are thinking of doing a rollover to a Vanguard Roth IRA. He's 70 years old and would like the funds to continue to grow but also wants access without penalities. He will continue to receive her PERS payouts until he dies so his current financial situation is guaranteed, plus he still has his own income.

What would the Bogleheads advise in this situation? Is a Roth the right vehicle? If so, what asset allocation would be appropriate?
You have to keep the funds in a Roth for 5 years so this does not meet his requirement of having access to the funds.

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David Jay
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Re: Advice for a 70 year old with windfall

Post by David Jay » Wed Sep 12, 2018 7:55 pm

jerryk68 wrote:
Wed Sep 12, 2018 5:25 pm
You have to keep the funds in a Roth for 5 years so this does not meet his requirement of having access to the funds.
I agree with other posters that a rollover to a Roth would require paying tax on the entire amount in one tax year.

But for clarity, if he has had a Roth (any Roth) open for 5 years and is over 59.5 (which he obviously is), all distributions are qualified. If he meets these two conditions then there is no 5 year holding period.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

MoneyKnuckleHead
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Re: Advice for a 70 year old with windfall

Post by MoneyKnuckleHead » Thu Sep 13, 2018 12:19 am

Thanks for the input! I'll just lay it out there, I'm super new to this stuff. Maybe I should back up...the scenario is this:

A 69 year old gets 90k from his wife's PERS IAP, the funding of which was pre tax. He has a 401k, but I don't think it's significant. Her retirement transfers to him, he's beyond set til death.

He'd like to avoid paying as much taxes on the lump sum as possible. Reasonable access to a quarter of the funds (if needed, while allowing the other 3/4 to grow for his 2 daughters. Hence the idea for a Roth, transferability while growing. I was under the mistaken impression that his wife had funded the IAP with post tax money.

So, what's a good strategy for this scenario?

Silk McCue
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Re: Advice for a 70 year old with windfall

Post by Silk McCue » Thu Sep 13, 2018 5:54 am

If the wife passed away in 2018 then he can file MFJ this year. Going forward he will file Single -> Higher brackets. It’s time to run some tax scenarios to determine how much income to recognize his year to fill out their current marginal bracket to the top. That could go towards a partial Roth Conversion. You also want to run scenarios for 2019 tax year when filing Single with her Pension, his income that you referenced previously and the RMDs due from all applicable sources including these inherited tax deferred funds. Depending on that analysis you may decide to convert more than to the top of this years marginal bracket if his future bracket will be permanently higher as a Single.

Beyond that the balance should be rolled into a tax deferred account to avoid excessive tax payments.

Cheers

MoneyKnuckleHead
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Joined: Wed Jan 31, 2018 5:53 pm

Re: Advice for a 70 year old with windfall

Post by MoneyKnuckleHead » Fri Sep 14, 2018 3:19 pm

Thanks Silk! I'll do that, then jump back on here for more wonderful advice for asset allocation :happy

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