What to put inherited money into?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
lgb
Posts: 103
Joined: Fri Mar 01, 2019 9:46 am

What to put inherited money into?

Post by lgb »

Having a hard time deciding what to do with some money inherited noted below. Married age 45, own business which does well, but there is always a underlying risk that it could dry up. We don't live extravagant life - 100K a year salary covers most of our expense and allows us to live without much concern/worries.

We mostly have:
Cash:
Cash available in Business Bank (but used to pay payables and wait for receivables to come in):
400K
Cash available in Personal Bank:
100K
~500K Total

Retirement Investments:
275K Simple IRA Retirement
125K 401K IRARetirement
20K ROTH IRA
~420K Total

Kids College: (Starting this year and in a couple more years for the other - State schools likely)
34K
21K
~55K Total

Paid for House:
230K


Will be adding to the picture the following - that we don't know what to invest it in to keep it simple:

Inherited Retirement Accounts
100K Inherited IRA (managed funds with custodian)
45K Inherited IRA (money market and single stocks)
5K Inherited ROTH IRA (managed funds with custodian)
150K Total

Investment Accounts
40K Brokerage Account (managed funds with custodian)
40K Total

Cash and sale of House Proceeds
90K Total

Spouse would like to have this money be a bit more 'available' (not locked up in retirement) and we've never had a regular taxable investment Brokerage account until this Inherited account coming into the picture, just retirement accounts. I also believe the Inherited Retirement accounts are actually a bit more available due to the 10% early withdrawal penalty for withdrawing not coming into the picture due to the inheritance occurring from a death that happened last year (not this year) with the SECURE act provisions not kicking in until this year 2020.

Kind of overwhelmed with all the varying accounts and concerned about it growing but also preserving the inherited amounts - but concerned how to do it during the current period of time with a lot of the uncertainty of things going on.

Any input or advice is appreciated! Needing some guidance or paths to consider!
mhalley
Posts: 8678
Joined: Tue Nov 20, 2007 6:02 am

Re: What to put inherited money into?

Post by mhalley »

It looks like you have plenty of cash on hand, so I would just invest the inherited ira like it is part of your aa for retirement. First thing you want to do is get it away from the custodian who is most likely charging huge fees.
runner540
Posts: 1327
Joined: Sun Feb 26, 2017 5:43 pm

Re: What to put inherited money into?

Post by runner540 »

The spouse who actually inherited needs to determine if they want to commingle it with joint assets or keep it separate.
Living Free
Posts: 568
Joined: Thu Jul 19, 2018 7:31 pm

Re: What to put inherited money into?

Post by Living Free »

If you are not filling up your retirement accounts to the max, then use this money to pay for living expenses and put more of your income into you and your spouse's retirement accounts. If your income is $100k then Roth IRA is a nice option for both your and your spouse, as you'd be in lower tax brackets (max 12% I think). Roth contributions can be withdrawn at any time tax and penalty free.
User avatar
Kenkat
Posts: 6888
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: What to put inherited money into?

Post by Kenkat »

Since the death occurred in 2019, I would definitely take advantage of the stretch feature and have your spouse take RMDs from the inherited IRAs based on her life expectancy / RMD table. For the 40k and 90k (130k) portion of the inheritance, you could invest that according to you investment plan if you have one. If you don’t, that a whole ‘nother subject. I will say though that you could put the 130k into equities and invest in bonds and other income type investments in the IRAs to get to your target allocation. You could take the RMDs each year and roll them into the taxable account so that would gradually build over time.
Topic Author
lgb
Posts: 103
Joined: Fri Mar 01, 2019 9:46 am

Re: What to put inherited money into?

Post by lgb »

Living Free wrote: Tue May 05, 2020 11:02 am If you are not filling up your retirement accounts to the max, then use this money to pay for living expenses and put more of your income into you and your spouse's retirement accounts. If your income is $100k then Roth IRA is a nice option for both your and your spouse, as you'd be in lower tax brackets (max 12% I think). Roth contributions can be withdrawn at any time tax and penalty free.
That was the original intent of the ROTH's until we started to make more than allowed to continue to contribute, however I think we're able to 'live' off about $100K... so I can't really contribute to the ROTH further (might be able to in future years here if Covid results in revenue downturns or worse for the business)
Topic Author
lgb
Posts: 103
Joined: Fri Mar 01, 2019 9:46 am

Re: What to put inherited money into?

Post by lgb »

runner540 wrote: Tue May 05, 2020 10:55 am The spouse who actually inherited needs to determine if they want to commingle it with joint assets or keep it separate.
Others have mentioned such things, but I feel like if you're doing that you're basically predicting your future divorce, or once stated out loud that it is a thought you'd be assuring your divorce. :sharebeer
SS Rambo
Posts: 194
Joined: Wed Jan 29, 2020 10:55 am

Re: What to put inherited money into?

Post by SS Rambo »

lgb wrote: Tue May 05, 2020 11:23 am
Living Free wrote: Tue May 05, 2020 11:02 am If you are not filling up your retirement accounts to the max, then use this money to pay for living expenses and put more of your income into you and your spouse's retirement accounts. If your income is $100k then Roth IRA is a nice option for both your and your spouse, as you'd be in lower tax brackets (max 12% I think). Roth contributions can be withdrawn at any time tax and penalty free.
That was the original intent of the ROTH's until we started to make more than allowed to continue to contribute, however I think we're able to 'live' off about $100K... so I can't really contribute to the ROTH further (might be able to in future years here if Covid results in revenue downturns or worse for the business)
IRAs are only a small piece of the total annual retirement contribution space. Have you maxed out each spouse’s employer plan ($57k each usually)? What about HSAs, 529s, solo 401ks? If you agree with funneling the $100k into qualified accounts, making out the IRAs is only the first (small) step.
Topic Author
lgb
Posts: 103
Joined: Fri Mar 01, 2019 9:46 am

Re: What to put inherited money into?

Post by lgb »

SS Rambo wrote: Tue May 05, 2020 12:00 pm
lgb wrote: Tue May 05, 2020 11:23 am
Living Free wrote: Tue May 05, 2020 11:02 am If you are not filling up your retirement accounts to the max, then use this money to pay for living expenses and put more of your income into you and your spouse's retirement accounts. If your income is $100k then Roth IRA is a nice option for both your and your spouse, as you'd be in lower tax brackets (max 12% I think). Roth contributions can be withdrawn at any time tax and penalty free.
That was the original intent of the ROTH's until we started to make more than allowed to continue to contribute, however I think we're able to 'live' off about $100K... so I can't really contribute to the ROTH further (might be able to in future years here if Covid results in revenue downturns or worse for the business)
IRAs are only a small piece of the total annual retirement contribution space. Have you maxed out each spouse’s employer plan ($57k each usually)? What about HSAs, 529s, solo 401ks? If you agree with funneling the $100k into qualified accounts, making out the IRAs is only the first (small) step.

We both have a Simple IRA Plan - that we do max what is allowed there recently in the past few years since our income has increased (not to 57K, so I assume the Simple doesn't allow as high of an amount as some other qualified retirement options, but we weren't looking to change that presently (maybe we should, but it would require some convincing of others to make that type of change to the Business retirement account type)

Don't know about HSA's...
We do have 529 College plans - that is what the College Investments are in presently
Don't know about solo 401K's...

So you're thought is we're not putting enough into our Simple Retirement Plan? I feel like we just 'inherited' a lot of Retirement accounts :o
runner540
Posts: 1327
Joined: Sun Feb 26, 2017 5:43 pm

Re: What to put inherited money into?

Post by runner540 »

lgb wrote: Tue May 05, 2020 11:41 am
runner540 wrote: Tue May 05, 2020 10:55 am The spouse who actually inherited needs to determine if they want to commingle it with joint assets or keep it separate.
Others have mentioned such things, but I feel like if you're doing that you're basically predicting your future divorce, or once stated out loud that it is a thought you'd be assuring your divorce. :sharebeer
If you are the beneficiary, easy, you want to commingle. If your spouse is, he/she at least needs to be informed of their rights. If you are both on the same page, there will be no problem.
It also matters for estate planning.
Topic Author
lgb
Posts: 103
Joined: Fri Mar 01, 2019 9:46 am

Re: What to put inherited money into?

Post by lgb »

mhalley wrote: Tue May 05, 2020 10:49 am It looks like you have plenty of cash on hand, so I would just invest the inherited ira like it is part of your aa for retirement. First thing you want to do is get it away from the custodian who is most likely charging huge fees.
I agree - they were in managed accounts with 1 of the larger 3 custodians - and actually that is one of the question I was getting at - is after deciding what could be done with this Inherited money in the various buckets they are in, what could we invest it in to follow a basic BH principle to keep it simple.

Probably should grieve some more before doing anything I suspect. :)
hudson
Posts: 3550
Joined: Fri Apr 06, 2007 9:15 am

Re: What to put inherited money into?

Post by hudson »

lgb,
If the holdings are with a good brokerage like Vanguard or Fidelity, I might leave them.

Some brokerages, banks, or other types of companies are making big profits off of your holdings. These companies will delay transfers as long as possible. I would get the accounts under my control quickly. I would never get advice from these folks. To transfer, do it from Vanguard, Fidelity, or another trustworthy brokerage. If possible, don't send it from the current holder.

I personally would put any inherited money in very safe fixed income....maybe read Larry Swedroe's bond book and William Bernstein's Ages, book 1.
If you want to buy equities, do your homework first. I like the idea that inheritances stay very safe.
delamer
Posts: 10677
Joined: Tue Feb 08, 2011 6:13 pm

Re: What to put inherited money into?

Post by delamer »

lgb wrote: Tue May 05, 2020 11:41 am
runner540 wrote: Tue May 05, 2020 10:55 am The spouse who actually inherited needs to determine if they want to commingle it with joint assets or keep it separate.
Others have mentioned such things, but I feel like if you're doing that you're basically predicting your future divorce, or once stated out loud that it is a thought you'd be assuring your divorce. :sharebeer
Disagree; I kept my inheritance in my name only and we are still together 4 years later. It is possible to make joint decisions about how the money will be spent but to keep the money separate, as we’ve done.

In addition, an Inherited IRA will be in the name of the inheritor only.
Topic Author
lgb
Posts: 103
Joined: Fri Mar 01, 2019 9:46 am

Re: What to put inherited money into?

Post by lgb »

hudson wrote: Tue May 05, 2020 2:38 pm lgb,
If the holdings are with a good brokerage like Vanguard or Fidelity, I might leave them.

Some brokerages, banks, or other types of companies are making big profits off of your holdings. These companies will delay transfers as long as possible. I would get the accounts under my control quickly. I would never get advice from these folks. To transfer, do it from Vanguard, Fidelity, or another trustworthy brokerage. If possible, don't send it from the current holder.

I personally would put any inherited money in very safe fixed income....maybe read Larry Swedroe's bond book and William Bernstein's Ages, book 1.
If you want to buy equities, do your homework first. I like the idea that inheritances stay very safe.
In this case it is going from one of the two you mention into the exact same custodian. We previously already helped (while they were still alive) get them out of their previous brokerage scenario where they were getting rocked with excessive charges. With the extra goal of if/when they would pass - it would make it simper to inherit into a known good/preferred/trustworthy custodian.

I debate whether to keep it ultra safe like you say and I will check out those books (once libraries back open or if Audio/EBook) - or to just lump it into the same growth, aggressive growth, growth and income, international like most of our existing retirement accounts (where I feel like we lack Fixed Income (Bonds?) - but if Bonds could be sketchy right now to 'enter into' - that is some of the uneasiness I have. Or to try some basic BH approach.
Topic Author
lgb
Posts: 103
Joined: Fri Mar 01, 2019 9:46 am

Re: What to put inherited money into?

Post by lgb »

delamer wrote: Tue May 05, 2020 2:50 pm
lgb wrote: Tue May 05, 2020 11:41 am
runner540 wrote: Tue May 05, 2020 10:55 am The spouse who actually inherited needs to determine if they want to commingle it with joint assets or keep it separate.
Others have mentioned such things, but I feel like if you're doing that you're basically predicting your future divorce, or once stated out loud that it is a thought you'd be assuring your divorce. :sharebeer
Disagree; I kept my inheritance in my name only and we are still together 4 years later. It is possible to make joint decisions about how the money will be spent but to keep the money separate, as we’ve done.

In addition, an Inherited IRA will be in the name of the inheritor only.
I guess that is true, it would be in the Inheritor's spouses name only.

I was just presuming you'd set your spouse as a beneficiary of these Inherited accounts - and if spouse not available it would secondly go to a Trust we have setup for the Kids.
delamer
Posts: 10677
Joined: Tue Feb 08, 2011 6:13 pm

Re: What to put inherited money into?

Post by delamer »

lgb wrote: Tue May 05, 2020 3:18 pm
delamer wrote: Tue May 05, 2020 2:50 pm
lgb wrote: Tue May 05, 2020 11:41 am
runner540 wrote: Tue May 05, 2020 10:55 am The spouse who actually inherited needs to determine if they want to commingle it with joint assets or keep it separate.
Others have mentioned such things, but I feel like if you're doing that you're basically predicting your future divorce, or once stated out loud that it is a thought you'd be assuring your divorce. :sharebeer
Disagree; I kept my inheritance in my name only and we are still together 4 years later. It is possible to make joint decisions about how the money will be spent but to keep the money separate, as we’ve done.

In addition, an Inherited IRA will be in the name of the inheritor only.
I guess that is true, it would be in the Inheritor's spouses name only.

I was just presuming you'd set your spouse as a beneficiary of these Inherited accounts - and if spouse not available it would secondly go to a Trust we have setup for the Kids.
Sure, the owner can set up the beneficiaries however s/he wishes.

But you can’t jointly own any type of IRA (“I” standing for “Individual”). If my husband inherits one of his parents’ IRAs, it will be his, not ours, legally.
Last edited by delamer on Wed May 06, 2020 9:33 am, edited 2 times in total.
Living Free
Posts: 568
Joined: Thu Jul 19, 2018 7:31 pm

Re: What to put inherited money into?

Post by Living Free »

lgb wrote: Tue May 05, 2020 11:23 am
Living Free wrote: Tue May 05, 2020 11:02 am If you are not filling up your retirement accounts to the max, then use this money to pay for living expenses and put more of your income into you and your spouse's retirement accounts. If your income is $100k then Roth IRA is a nice option for both your and your spouse, as you'd be in lower tax brackets (max 12% I think). Roth contributions can be withdrawn at any time tax and penalty free.
That was the original intent of the ROTH's until we started to make more than allowed to continue to contribute, however I think we're able to 'live' off about $100K... so I can't really contribute to the ROTH further (might be able to in future years here if Covid results in revenue downturns or worse for the business)
Oh ok, I thought from your post that your income was ~$100k per year, which if married filing jointly would not preclude making Roth IRA contributions, as the limit there is closer to $200k per year. Even if it is above the limit then you could consider doing the backdoor Roth IRA for the spouse who does not have any simple/sep/traditional IRA in his/her name (I see that there is a 275k simple IRA that one of you has).
Post Reply