Question regarding AA of inherited Beneficiary IRA

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scientific american
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Joined: Thu Mar 07, 2019 9:54 pm
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Question regarding AA of inherited Beneficiary IRA

Post by scientific american » Sun Mar 10, 2019 1:02 am

Hi BH community! Long time reader but first time poster. Just want to start by saying how awesome this community is and how much you guys helped me when I first started investing a few yrs ago as I started my career. Now I have a question regarding the asset allocation of an inherited Beneficiary IRA from my mother who passed away a few yrs ago. The AA of this IRA is currently roughly 80%/20% equity/bonds w/ a balance of about 580K. My question is, should I adjust the stock/bond AA of this IRA to what I would want an IRA AA to be during retirement (closer to 60/40 or 50/50) since I'm already required to take RMDs? What I mean is, since I'm already forced to draw from this IRA every year even though I've got a while to go before retirement, should I adjust the AA to have increased bond fund holding to minimize sequence of returns risk for possible recessions and bear markets down the road?

Here is my own overall financial situation:
I'm 34 yrs old, single, no kids, well paying stable job (clinical lab scientist at major academic hospital), frugal lifestyle, no debt, no mortgage, no rent (moved back to parents home when mother was ill to help out and rent from their rental properties is currently paying down the mortgage...yes, I'm extremely fortunate). My own investments include Roth IRA, employer 403b, taxable investments in vanguard and fidelity funds and ETFs. Currently maxing out 403b and Roth while most after tax income (~85%) is being allocated to my vanguard funds. The total overall AA of my own investments are also about 80/20 stocks to bonds (I'll probably be adjusting this closer to 70/30 soon).

I know that I should consider my entire portfolio for asset allocation so if you guys think it is indeed prudent to adjust the Beneficiary IRA to a less volatile asset allocation, should I also adjust my own investments accordingly to maintain an overall 70/30 asset allocation? Sorry for the lengthy question and thank you in advance! :beer

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Re: Question regarding AA of inherited Beneficiary IRA

Post by Skiandswim » Sun Mar 10, 2019 6:35 am

My approach for an inherited IRA was consistent with BH Wiki for Tax- efficient fund placement ... _placement . Examine overall asset allocation, then adjust by placing least tax-efficient investment in tax-deferred space (e.g. bond allocation). If your tax-deferred balances are greater than your overall bond allocation target, I would prioritize bonds for the Inherited IRA before other tax-deferred accounts. The lower long term bond growth may minimizes RMD taxable income over time, while still providing portfolio risk mitigation.

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Re: Question regarding AA of inherited Beneficiary IRA

Post by averagedude » Sun Mar 10, 2019 7:02 am

Seems like you are thinking this out well. I do think it would be smart to look at all of your investments when choosing your AA. If you decrease your AA in your inherited account for RMD purposes, then you should increase your AA in your other accounts for you to have your desired asset allocation, assuming there are no tax implications.

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