81 yr old -need simple investment strategy

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Topic Author
Smith
Posts: 15
Joined: Sat Jul 11, 2020 8:12 am

81 yr old -need simple investment strategy

Post by Smith »

First post here. I’m helping my 81 yr old parent w/moving IRA and non IRA $ into Vanguard. We must keep this very simple. She lives off her $1000/mo SSI, owns house, no debt. She has $150k in IRA, 200K nonIRA, plus home. She’s in good health. Her $12,000/yr SSI + her RMD + interest=$22,000/yr for tax purposes.
Her $ has been w/advisor charging crazy monthly fees at Charles Schwab. We are moving fully into Vanguard. I’ve read to keep 5-10% in high yield savings w/check writing privileges. Maybe another 5-10% in 1 yr CDs maturing every 6 mos. This leaves the $150k IRA and about $150k in non-IRA to plug into Vanguard, but where? Thank you for your simple suggestions in advance.
lakpr
Posts: 6220
Joined: Fri Mar 18, 2011 9:59 am

Re: 81 yr old -need simple investment strategy

Post by lakpr »

With a $22k per year income, she is barely above the 10% bracket. So the usual considerations about the tax-efficiency etc. can be safely thrown out the window.

I suggest VTINX (Vanguard Target Retirement Income Fund), which is a blend of 30% stocks and 70% bonds for both the IRA and non-IRA portions. One fund, nothing could be simpler than that. The 30% allocation to equities will ensure that her portfolio will keep abreast with inflation.

I am not sure if you and your mother are open to doing Roth conversions, since I see at least $30k per year room for doing Roth conversions of her IRA portion. Come 2026, the 12% bracket will disappear and become 15% bracket ... which argues for paying taxes now and have tax-free withdrawals after 2026. But that is a tax bite of still 12% of $150k, or $18k spread over 5 years. If nothing else, it would spare her heirs some grief.
Last edited by lakpr on Sat Jul 11, 2020 10:28 am, edited 1 time in total.
dbr
Posts: 33842
Joined: Sun Mar 04, 2007 9:50 am

Re: 81 yr old -need simple investment strategy

Post by dbr »

lakpr wrote: Sat Jul 11, 2020 9:59 am With a $22k per year income, she is barely above the 10% bracket. So the usual considerations about the tax-efficiency etc. can be safely thrown out the window.

I suggest VTINX (Vanguard Target Retirement Income Fund), which is a blend of 30% stocks and 70% bonds for both the IRA and non-IRA portions. One fund, nothing could be simpler than that. The 30% allocation to equities will ensure that her portfolio will keep abreast with inflation.

I am not sure if you are your mother are open to doing Roth conversions, since I see at least $30k per year room for doing Roth conversions of her IRA portion. Come 2026, the 12% bracket will disappear and become 15% bracket ... which argues for paying taxes now and have tax-free withdrawals after 2026. But that is a tax bite of still 12% of $150k, or $18k spread over 5 years. If nothing else, it would spare her heirs some grief.
I agree TR Income is a good choice or one of the conservative LifeStrategy funds. Probably I would also agree with the $50K or maybe only half that in cash for convenience if a large expense comes along, like something on the house. I would not bother with CDs.
Topic Author
Smith
Posts: 15
Joined: Sat Jul 11, 2020 8:12 am

Re: 81 yr old -need simple investment strategy

Post by Smith »

Yes I like the Target Vanguard, as well. Thanks for the affirmation. Interesting about the converting to Roth. Would the goal be to convert the entire $150k to Roth before the tax bracket hike? Is there an annual limit on that? And she is a nut about earning interest on her savings, but maybe I can show her a high yield savings is as good as a 1 yr CD.
sycamore
Posts: 1335
Joined: Tue May 08, 2018 12:06 pm

Re: 81 yr old -need simple investment strategy

Post by sycamore »

Smith, welcome to the forum!

A "bucket" system makes sense to a lot of people. One bucket of a savings+checking account, another bucket for mid-term expenses (say in CDs), another bucket for stocks+bonds for longer term. But there's some complexity in all that - have to decide when to spend from one bucket vs another, when to refill, etc. As lakpr suggests, the Target Retirement Income Fund is a good all-in-one. That would work fine with a regular checking account.

The Vanguard LifeStrategy Income Fund is similar but with a lower stock allocation (only 20%).

One option is to consider an annuity, specifically a Single Premium Immediate Annuity (SPIA). I've read here on bogleheads that can be a helpful financial tool for certain circumstances. Try https://www.immediateannuities.com/ and enter age, gender, state, and say $50,000 as the funding amount to see what kind of monthly payment that would generate. The general idea is to help provide more guaranteed income beyond Social Security. For sure it's something to learn and understand fully before buying.
lakpr
Posts: 6220
Joined: Fri Mar 18, 2011 9:59 am

Re: 81 yr old -need simple investment strategy

Post by lakpr »

Smith wrote: Sat Jul 11, 2020 10:10 am Yes I like the Target Vanguard, as well. Thanks for the affirmation. Interesting about the converting to Roth. Would the goal be to convert the entire $150k to Roth before the tax bracket hike? Is there an annual limit on that? And she is a nut about earning interest on her savings, but maybe I can show her a high yield savings is as good as a 1 yr CD.
Assuming your mother is single, and assuming up to 85% of her social security income is taxable, the calculations shake out like this:

Top of 12% taxable income bracket for a single = $40,125
Standard deduction for a single = 12,400
Senior standard deduction (>65 years) = $1,300
Total = $53,825 per year income, yet stay in the 12% bracket.

For your mother, 85% of social security = $10,200; RMD + interest = $10k, so that's $20,200 income
Room for Roth conversion = $53,825 - $20,200 = $33,625 for 2020. I suggest be conservative and do Roth conversions only up to $33k, to leave room for any unexpected income that could crop up.

The aim is not necessarily to convert the entire IRA to Roth IRA, but it wouldn't hurt either to complete the full Roth conversion by 12/31/2025. There is no annual limit for Roth conversion, just a willingness to pay taxes on the amount of conversion. But I would NOT suggest she cross over into the 22% bracket, even by a single dollar. It is not worth it and likely the additional 10% cannot be recovered if you pay it now.
User avatar
vineviz
Posts: 8042
Joined: Tue May 15, 2018 1:55 pm

Re: 81 yr old -need simple investment strategy

Post by vineviz »

lakpr wrote: Sat Jul 11, 2020 9:59 am With a $22k per year income, she is barely above the 10% bracket. So the usual considerations about the tax-efficiency etc. can be safely thrown out the window.

I suggest VTINX (Vanguard Target Retirement Income Fund), which is a blend of 30% stocks and 70% bonds for both the IRA and non-IRA portions. One fund, nothing could be simpler than that. The 30% allocation to equities will ensure that her portfolio will keep abreast with inflation.
I absolutely concur.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Topic Author
Smith
Posts: 15
Joined: Sat Jul 11, 2020 8:12 am

Re: 81 yr old -need simple investment strategy

Post by Smith »

Ok, this Converting an elderly person’s Trad. IRA to Roth is completely new to me. So if she converted $30k a yr, she’d pay taxes on the entire 30k, right? So around $3000 in taxes. Should she convert any of her non-IRA money into this same Roth bucket? And as for annuities, she abhors any idea of “life insurance” type investments. This is a woman who has never made over minimum wage in her life, raised her family w/not a dime of support from ex-husband, but has been extremely careful and frugal. She would run from any insurance/annuity agent that came her way. I’m still shocked she invested with Schwab in these ETFs with insane wrap fees.
sycamore
Posts: 1335
Joined: Tue May 08, 2018 12:06 pm

Re: 81 yr old -need simple investment strategy

Post by sycamore »

Smith wrote: Sat Jul 11, 2020 12:55 pm Ok, this Converting an elderly person’s Trad. IRA to Roth is completely new to me. So if she converted $30k a yr, she’d pay taxes on the entire 30k, right? So around $3000 in taxes.
Sounds about right. Suggest using an online tax calculator to get a more accurate estimate. Here's one that I've used before: https://www.mortgagecalculator.org/calc ... ulator.php
Smith wrote: Sat Jul 11, 2020 12:55 pm Should she convert any of her non-IRA money into this same Roth bucket?
By non-IRA money I assume you mean a taxable account. She can't convert that to a Roth. Theoretically she could contribute to a Roth but you need earned income (like a paycheck; dividends and SS don't count) to do that.
Smith wrote: Sat Jul 11, 2020 12:55 pm And as for annuities, she abhors any idea of “life insurance” type investments. This is a woman who has never made over minimum wage in her life, raised her family w/not a dime of support from ex-husband, but has been extremely careful and frugal. She would run from any insurance/annuity agent that came her way. I’m still shocked she invested with Schwab in these ETFs with insane wrap fees.
Understood about the annuities.

Good thing you're getting her out of the wrap fees!
User avatar
Stinky
Posts: 5869
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: 81 yr old -need simple investment strategy

Post by Stinky »

Smith, welcome to the Forum! And good for you for helping your mother escape to Vanguard.

What is the non-IRA taxable account invested in? Do you plan to move that investment over to Vanguard, or sell at Schwab and transfer cash?

If you plan to sell, do you have any idea what the cost basis is? There might be some capital gains tax, depending on the current cost basis.
It's a GREAT day to be alive - Travis Tritt
L82GAME
Posts: 364
Joined: Sat Dec 07, 2019 9:29 am

Re: 81 yr old -need simple investment strategy

Post by L82GAME »

vineviz wrote: Sat Jul 11, 2020 10:41 am
lakpr wrote: Sat Jul 11, 2020 9:59 am With a $22k per year income, she is barely above the 10% bracket. So the usual considerations about the tax-efficiency etc. can be safely thrown out the window.

I suggest VTINX (Vanguard Target Retirement Income Fund), which is a blend of 30% stocks and 70% bonds for both the IRA and non-IRA portions. One fund, nothing could be simpler than that. The 30% allocation to equities will ensure that her portfolio will keep abreast with inflation.
I absolutely concur.
+1, across Trad. and Taxable accounts. KISS. I don't agree, necessarily, with ROTH Conversions. First, ask yourself why contemplate conversions? She's in a low marginal bracket, as is. Are you/she concerned about an inheritance for you/siblings? Or, is the goal to have her cover her costs for life and therefore not impinge on your financial resources? If the latter, using her retirement resources to convert to ROTH seems specious.
“Simplicity is the ultimate sophistication.” - Lao Tzu
Topic Author
Smith
Posts: 15
Joined: Sat Jul 11, 2020 8:12 am

Re: 81 yr old -need simple investment strategy

Post by Smith »

Now I understand that any new $ going toward IRA is based on “earned” income. So that’s out. Her goal is to not burden us kids and to provide for herself until death. So maybe converting to Roth at her age is only to benefit her 2 heirs. Good point. At the rate she spends money there could be a bit left for us, but maybe not enough to make the conversion worthwhile.
Her non-IRA is in Schwab ETFs and its gonna be ugly moving those from the agent. I dread it as he’s a savvy salesman. Should I convert to cash at Schwab first, then transfer to Vanguard TR? We really must use the KISS method or I’ll implode.
And now I’m wondering about her 30k - 50k cash savings, should I keep a separate savings or just dump that in the Vanguard fund knowing she can withdraw for expenses if needed?
L82GAME
Posts: 364
Joined: Sat Dec 07, 2019 9:29 am

Re: 81 yr old -need simple investment strategy

Post by L82GAME »

Smith wrote: Sat Jul 11, 2020 1:48 pm Now I understand that any new $ going toward IRA is based on “earned” income. So that’s out. Her goal is to not burden us kids and to provide for herself until death. So maybe converting to Roth at her age is only to benefit her 2 heirs. Good point. At the rate she spends money there could be a bit left for us, but maybe not enough to make the conversion worthwhile.
Her non-IRA is in Schwab ETFs and its gonna be ugly moving those from the agent. I dread it as he’s a savvy salesman. Should I convert to cash at Schwab first, then transfer to Vanguard TR? We really must use the KISS method or I’ll implode.
And now I’m wondering about her 30k - 50k cash savings, should I keep a separate savings or just dump that in the Vanguard fund knowing she can withdraw for expenses if needed?
  • Call Vanguard and ask for their "new accounts/onboarding" specialists. They will walk through every ETF with you and advise whether to transfer-in-kind, or sell at Schwab prior to transfer. They were great when we made a similar move of my in-laws' portfolio from Morgan Stanley.
  • Deal with the transfer from Schwab to Vanguard first. The cash question can be tackled after the dust settles. In the meantime, ask yourself how much she should have for unexpected costs that could not be covered by monthly excess cash flow (e.g., home repairs, etc.)
  • Be transparent in everything you're doing with both your mother and siblings.
“Simplicity is the ultimate sophistication.” - Lao Tzu
sycamore
Posts: 1335
Joined: Tue May 08, 2018 12:06 pm

Re: 81 yr old -need simple investment strategy

Post by sycamore »

L82GAME wrote: Sat Jul 11, 2020 1:56 pm
Smith wrote: Sat Jul 11, 2020 1:48 pm Now I understand that any new $ going toward IRA is based on “earned” income. So that’s out. Her goal is to not burden us kids and to provide for herself until death. So maybe converting to Roth at her age is only to benefit her 2 heirs. Good point. At the rate she spends money there could be a bit left for us, but maybe not enough to make the conversion worthwhile.
Her non-IRA is in Schwab ETFs and its gonna be ugly moving those from the agent. I dread it as he’s a savvy salesman. Should I convert to cash at Schwab first, then transfer to Vanguard TR? We really must use the KISS method or I’ll implode.
And now I’m wondering about her 30k - 50k cash savings, should I keep a separate savings or just dump that in the Vanguard fund knowing she can withdraw for expenses if needed?
  • Call Vanguard and ask for their "new accounts/onboarding" specialists. They will walk through every ETF with you and advise whether to transfer-in-kind, or sell at Schwab prior to transfer. They were great when we made a similar move of my in-laws' portfolio from Morgan Stanley.
  • Deal with the transfer from Schwab to Vanguard first. The cash question can be tackled after the dust settles. In the meantime, ask yourself how much she should have for unexpected costs that could not be covered by monthly excess cash flow (e.g., home repairs, etc.)
  • Be transparent in everything you're doing with both your mother and siblings.
+1 to calling Vanguard to get help from their specialists. Transferring the assets "in-kind" is preferable in general as it means you don't have to sell the assets at Schwab first thereby incurring capital gains taxes. One reason for selling at Schwab prior to a transfer is that you definitely want to sell the asset and it's cheaper to do so (no transaction fee) at Schwab. As Stinky posted, let us know what funds are in the taxable account and you'll get some suggestions about whether to keep them or not.

You may still get a call from the agent after-the-fact, and a polite "thanks we prefer low fees" should get the message across :)

A few things to be aware of regarding brokerage transfers:
1. In early 2021, she will get two 1099's for 2020, one from Schwab, one from Vanguard.

2. As part of the transfer process, any fractional shares of a fund will be liquidated and the proceeds transferred as cash. Schwab may charge a fee for transferring out assets so be on the lookout for that (maybe $75 or something).

3. BEFORE transferring, download trade confirmation statements from her Schwab account. This information is needed so you know what the basis (purchase amount) is for each of the funds. This basis information should be transferred by Schwab to Vanguard, but it's good to have it just in case. Also, she may have funds from prior to 2012 - these funds are known as "uncovered" for tax reporting purposes, and it's up to her (not the broker) to keep track of them.
User avatar
rterickson
Posts: 340
Joined: Fri May 01, 2015 3:48 pm

Re: 81 yr old -need simple investment strategy

Post by rterickson »

FWIW, Schwab has some excellent low fee index funds available, none of which require the services of an AUM "advisor".

You could just fire him and take the reins yourself and be much better off, with less work.
NancyABQ
Posts: 302
Joined: Thu Aug 18, 2016 3:37 pm

Re: 81 yr old -need simple investment strategy

Post by NancyABQ »

Personally, and this is just my opinion -- I would not be worrying about having your Mom do Roth conversions. It only benefits her heirs, and it costs her extra money. Her nest egg isn't so huge that I would feel it to be justified.

Also, if the current Traditional IRA is going to be divided among multiple heirs (your siblings?) then the actual amount they would receive is just not that big a tax event to worry about. I mean, if it's $150K IRA and there are 3 heirs, that is $50K, to be distributed over 10 years. $5K/year? Not worth worrying about tax consequences on the heirs, in my opinion.

I think she should make all her decisions based on her own financial security, given her resources.

Plus, you said you wanted to keep it simple, and the Roth conversions are a complication.

Just my opinion...
User avatar
BL
Posts: 9533
Joined: Sun Mar 01, 2009 2:28 pm

Re: 81 yr old -need simple investment strategy

Post by BL »

L82GAME wrote: Sat Jul 11, 2020 1:27 pm
vineviz wrote: Sat Jul 11, 2020 10:41 am
lakpr wrote: Sat Jul 11, 2020 9:59 am With a $22k per year income, she is barely above the 10% bracket. So the usual considerations about the tax-efficiency etc. can be safely thrown out the window.

I suggest VTINX (Vanguard Target Retirement Income Fund), which is a blend of 30% stocks and 70% bonds for both the IRA and non-IRA portions. One fund, nothing could be simpler than that. The 30% allocation to equities will ensure that her portfolio will keep abreast with inflation.
I absolutely concur.
+1, across Trad. and Taxable accounts. KISS. I don't agree, necessarily, with ROTH Conversions. First, ask yourself why contemplate conversions? She's in a low marginal bracket, as is. Are you/she concerned about an inheritance for you/siblings? Or, is the goal to have her cover her costs for life and therefore not impinge on your financial resources? If the latter, using her retirement resources to convert to ROTH seems specious.
+1
Right now, she is below the income limit where SS is taxed. It would not take much Roth conversion for her to start getting some of taxed, although probably not so much. (1/2 of SS + other income =25,000 is where the SS would begin to be taxed at 10%.) Seems like she is at 10k + (1/2 of 12k = 6k), or at 16k leaving 9k before any SS is taxed. Beyond that, she might be paying double: both on some SS and on extra income. Looks like her Standard Deduction for over age 65 will subtract about 14k of income before being taxed at 10%. So she is probably not paying any tax now.

Anyway, I would probably not bother converting to Roth since her bracket is so low. It would all be for the heirs, and don't think it is worth complicating for that. The heirs would have 10 years to cash out.

The Target Income or LS Income fund would be fine. Any cash could be left in the bank or placed in Prime Money Market, none of which pay out much of anything.

Getting away from managed account sounds like the one important thing. Call Vanguard with a list of funds in your hands to find out what to do and have them arrange it. Quite possibly everything could be transferred in kind and you won't even have to sell them. Print out the cost basis or unrealized Capital Gains in the non-IRA account as it may disappear when you close your account and it could get lost in the transition.

https://www.investopedia.com/ask/answer ... income.asp could be a starting point if you want info. If you decide to Roth-convert, try it out in a free tax program first so you know if and what effect it may have.

Thank you for looking out for your mom!
Last edited by BL on Sat Jul 11, 2020 4:41 pm, edited 1 time in total.
Topic Author
Smith
Posts: 15
Joined: Sat Jul 11, 2020 8:12 am

Re: 81 yr old -need simple investment strategy

Post by Smith »

Thanks for helping me think this thru. 2 heirs getting 7500 a year for 10 years won’t be a bit deal tax wise. I’ll print out the cost basis docs before we close acct. As for her home, I don’t think we can really do anything now and we will just let it pass thru probate court. If she put the heir’s on the title now, I’m assuming we get taxed now. We can’t afford paying any of her house taxes. I would love to pay my sibling for his half and own the house outright when she is no longer with us.
Outer Marker
Posts: 1238
Joined: Sun Mar 08, 2009 8:01 am

Re: 81 yr old -need simple investment strategy

Post by Outer Marker »

Smith wrote: Sat Jul 11, 2020 4:40 pm As for her home, I don’t think we can really do anything now and we will just let it pass thru probate court. If she put the heir’s on the title now, I’m assuming we get taxed now. We can’t afford paying any of her house taxes. I would love to pay my sibling for his half and own the house outright when she is no longer with us.
I would look at putting a quitclaim deed on the house with the city clerk in your/your siblings favor upon her death. Then, you just assume ownership with the stepped-up basis and no need for probate. Title everything else jointly or transfer on death.
PartIrish
Posts: 82
Joined: Mon Feb 23, 2015 10:39 pm

Re: 81 yr old -need simple investment strategy

Post by PartIrish »

I'm going to interject a point slightly off-topic from your questions about your mom's investments because you mentioned that she was a low-earner all of her life. I hope that if she was married for at least 10 years, she has investigated claiming spousal benefits from her ex-husband, or survivor's benefits if he is no longer living. Either could be more than her current benefit.
lakpr
Posts: 6220
Joined: Fri Mar 18, 2011 9:59 am

Re: 81 yr old -need simple investment strategy

Post by lakpr »

Smith wrote: Sat Jul 11, 2020 4:40 pm Thanks for helping me think this thru. 2 heirs getting 7500 a year for 10 years won’t be a bit deal tax wise. I’ll print out the cost basis docs before we close acct. As for her home, I don’t think we can really do anything now and we will just let it pass thru probate court. If she put the heir’s on the title now, I’m assuming we get taxed now. We can’t afford paying any of her house taxes. I would love to pay my sibling for his half and own the house outright when she is no longer with us.
Respectfully, I would still push for the Roth conversion. I assume you are in the 22% tax bracket. Why not offer to pay the tax on any Roth conversions for your mom? The tax doesn't have to be withheld from the amount being converted. If you inherit as a Traditional IRA, you will be paying 10% of the amount you will withdraw from it, that's $750 extra to Uncle Sam (10% is the difference between 12% and 22% marginal tax rate, on $7500 per person) that you and your sibling need not pay if you take action now.
User avatar
Stinky
Posts: 5869
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: 81 yr old -need simple investment strategy

Post by Stinky »

lakpr wrote: Sat Jul 11, 2020 7:40 pm Respectfully, I would still push for the Roth conversion. I assume you are in the 22% tax bracket. Why not offer to pay the tax on any Roth conversions for your mom? The tax doesn't have to be withheld from the amount being converted. If you inherit as a Traditional IRA, you will be paying 10% of the amount you will withdraw from it, that's $750 extra to Uncle Sam (10% is the difference between 12% and 22% marginal tax rate, on $7500 per person) that you and your sibling need not pay if you take action now.
+1

This is a very rational thing to do.
It's a GREAT day to be alive - Travis Tritt
JonnyB
Posts: 688
Joined: Sun Jan 19, 2020 5:28 pm

Re: 81 yr old -need simple investment strategy

Post by JonnyB »

I don't follow the Roth conversion strategy. Normally you do Roth conversions if you anticipate high retirement income in order to reduce your future RMDs and reduce your tax rate. But it sounds like she needs her annual RMDs anyway for living expenses. Why would she want to reduce them? All you are doing with Roth conversions is increasing her withdrawal rate from her traditional IRA and increasing her taxes for no purpose.
VaR
Posts: 723
Joined: Sat Dec 05, 2015 11:27 pm

Re: 81 yr old -need simple investment strategy

Post by VaR »

JonnyB wrote: Sat Jul 11, 2020 8:45 pm I don't follow the Roth conversion strategy. Normally you do Roth conversions if you anticipate high retirement income in order to reduce your future RMDs and reduce your tax rate. But it sounds like she needs her annual RMDs anyway for living expenses. Why would she want to reduce them? All you are doing with Roth conversions is increasing her withdrawal rate from her traditional IRA and increasing her taxes for no purpose.
I don't think it necessarily applies in the OPs situation, but if you're below either the threshold for 50% or 85% of your Social security being considered taxable, you can use your Roth conversions to keep your RMD income below the thresholds. If the growth rate of your IRA is above your current distribution rate, your RMD will grow over time and tend to push your income up above the 50% or 85% income threshold.

You can use Roth conversions "early" in your retirement to keep your RMDs from pushing you into the "hump" area where your effective marginal tax rate is is much higher because every dollar of income results in either $1.50 of income being taxed or $1.85.
Topic Author
Smith
Posts: 15
Joined: Sat Jul 11, 2020 8:12 am

Re: 81 yr old -need simple investment strategy

Post by Smith »

She was married 9 1/2 yrs (isn’t that sad?) so she missed out on my Dad’s higher benefits.

As for her house, I think Texas allows something called Transfer on Death document that she can have notarized and file now with Deed records (looks better than Quitclaim Deed). Looks like it would pass to us at the valuation upon death. I could offer my brother 1/2 of that value and buy him out.

She can list both of us as Equal Beneficiaries on her 3 new Vanguard accts (IRA, non-IRA, prime Money Market) and her regular checking. She does have a simple Will to that same effect.

I guess there’s no definitive answer on converting the IRA to a Roth. Yes, I’m in a higher tax bracket. I hadn’t realized beneficiaries pay taxes on inherited IRA’s just like income.
I’m going to look at her 2019 tax return today and see what her exact breakdown was and let ya’ll know.

If she keeps about 30K in the Money Market that should be fine. She always gets upset when they send her RMD and it worries her that they are taking that out of her investments. If she needed more than the 30K would she transfer out of her IRA account or Non-IRA account? Which does she use up first?
lakpr
Posts: 6220
Joined: Fri Mar 18, 2011 9:59 am

Re: 81 yr old -need simple investment strategy

Post by lakpr »

Smith wrote: Sun Jul 12, 2020 6:48 am If she needed more than the 30K would she transfer out of her IRA account or Non-IRA account? Which does she use up first?
IRA first. Pay taxes at her 10% or 12% marginal tax bracket. The taxable account gets stepped-up basis for heirs.
Outer Marker
Posts: 1238
Joined: Sun Mar 08, 2009 8:01 am

Re: 81 yr old -need simple investment strategy

Post by Outer Marker »

Stinky wrote: Sat Jul 11, 2020 8:23 pm
lakpr wrote: Sat Jul 11, 2020 7:40 pm Respectfully, I would still push for the Roth conversion. I assume you are in the 22% tax bracket. Why not offer to pay the tax on any Roth conversions for your mom? The tax doesn't have to be withheld from the amount being converted. If you inherit as a Traditional IRA, you will be paying 10% of the amount you will withdraw from it, that's $750 extra to Uncle Sam (10% is the difference between 12% and 22% marginal tax rate, on $7500 per person) that you and your sibling need not pay if you take action now.
+1

This is a very rational thing to do.
Its not without risk of being caught unexpectedly, but I converted to Roth and/or cashed out all of my mom's IRA's and retirement accounts a few days before her death. I was the sole beneficiary and had POA over all the accounts, so it was easy to administer. Much better to pay at her 22% marginal rate than mine. It becomes pretty clear at a some point that the end is near.
Topic Author
Smith
Posts: 15
Joined: Sat Jul 11, 2020 8:12 am

Re: 81 yr old -need simple investment strategy

Post by Smith »

May I ask how Vanguard is to be informed that I have POA? What needed to happen to cash out of your mom’s IRAs right before she passed? Does VANGUARD set me up online as one w/POA so that I could simple click SELL and put into cash account if she gets to that point? What proof do they need that she is alive and if stable mind? I would think that would be smart. I suppose if her health turned around and prognosis got better that would be a poor financial choice, but it seems that if she really was about to pass, this would be a good move. Any other downsides?
dbr
Posts: 33842
Joined: Sun Mar 04, 2007 9:50 am

Re: 81 yr old -need simple investment strategy

Post by dbr »

Smith wrote: Mon Jul 13, 2020 1:18 pm May I ask how Vanguard is to be informed that I have POA? What needed to happen to cash out of your mom’s IRAs right before she passed? Does VANGUARD set me up online as one w/POA so that I could simple click SELL and put into cash account if she gets to that point? What proof do they need that she is alive and if stable mind? I would think that would be smart. I suppose if her health turned around and prognosis got better that would be a poor financial choice, but it seems that if she really was about to pass, this would be a good move. Any other downsides?
You and your mother need to contact Vanguard and file a copy of the POA with them now. In my experience people can ask for an original notorized copy but sometimes they accept a facsimile copy. They may insist on her signing their own version of the POA. That signature may need to be witnessed by a notary and the original signatured documents mailed to them. They may need to speak to her. They may require an electronic signature authority by her. If in fact she is not alive and of stable mind and you transact a POA for her, that would be fraud.

But, yes, you would be set up ahead of time to be able to access and manage the account. There can be different levels of authority on the account which can require different degrees of authentication. I know at Fidelity the last and hardest step to get authorized is to change the address and access information on the account. That is presumably because at that point the grantor loses any knowledge of what has been done and can also no longer access the account to do anything, such as for example, rescind the POA. In all the cases I have POA's and/or lesser authority all the accounts are displayed on my account login at the bank, broker, etc. I discovered the other day that the ATM card on my checking account also works on the account for which I am POA.

Having a filed and active POA with the broker is only a downside if you can't be trusted. I guess another downside is the potential for the grantor to sue you if you do something they didn't want done and it ended badly.
GMT-8
Posts: 190
Joined: Fri Mar 26, 2010 5:11 pm

Re: 81 yr old -need simple investment strategy

Post by GMT-8 »

Hello,

In regard to your POA for your mother, I have recently gone through the same process when moving accounts for a 81-yr old friend who has asked me to have POA and be executor for her. Vanguard calls this process of setting up a second: "Agent Authorization".

I'm sorry I can't tell you the exact step-by-step, but it involved an IRA and second, a non-IRA account, held in a trust. We moved all the money from another institution to Vanguard, and invested the bulk of it - the IRA - in Life Strategy Moderate Growth (it's eventually for her kids).

Vanguard pulled the money for us, we gave a courtesy email to the broker at the other end AFTER the process was underway.

We spoke together with Vanguard on the phone -- a person for the IRA and several different people regarding the trust. They emailed links and forms and we filled some of the details online, and the rest in person. They required notarized signatures. We emailed copies and mailed hard copies.

There is a separate process for having log-in access to her account, and yet another process of choosing whether she gets paper or digital statements. In our case she is getting paper statements (as she is past capable/unwilling to use a computer) and I have digital statements.

Finally, you can elect to have another "trusted person" receive copies of what's happening on the accounts.

The whole process took about 2-3 weeks, 3-4 calls and 5-6 emails.

Take names and notes, and be patient. You can do much of the work without her if you need to.

Cheers,

GMT
Outer Marker
Posts: 1238
Joined: Sun Mar 08, 2009 8:01 am

Re: 81 yr old -need simple investment strategy

Post by Outer Marker »

Smith wrote: Mon Jul 13, 2020 1:18 pm May I ask how Vanguard is to be informed that I have POA? What needed to happen to cash out of your mom’s IRAs right before she passed? Does VANGUARD set me up online as one w/POA so that I could simple click SELL and put into cash account if she gets to that point? What proof do they need that she is alive and if stable mind? I would think that would be smart. I suppose if her health turned around and prognosis got better that would be a poor financial choice, but it seems that if she really was about to pass, this would be a good move. Any other downsides?
The Vanguard POA process is a bit onerous. They insist on their own "Agent" form and won't accept a generic POA (which they should IMHO). The signatures have to be notarized and witnessed. That said, if you have access to her online account, you can, in fact, cash out or convert the IRAs in a couple of clicks as a practical matter. . . .
Topic Author
Smith
Posts: 15
Joined: Sat Jul 11, 2020 8:12 am

Re: 81 yr old -need simple investment strategy

Post by Smith »

Gosh, this is a bit overwhelming, but I’ll continue on one step at a time. We just got my POA for Châles Schwab submitted today. Thanks for the advice on being patient. This forum is so helpful.
User avatar
BL
Posts: 9533
Joined: Sun Mar 01, 2009 2:28 pm

Re: 81 yr old -need simple investment strategy

Post by BL »

Think about how to make things better for your mom; please don't concentrate your attention on doing things for your benefit with her money, especially when she is dying.
Outer Marker
Posts: 1238
Joined: Sun Mar 08, 2009 8:01 am

Re: 81 yr old -need simple investment strategy

Post by Outer Marker »

BL wrote: Thu Jul 16, 2020 12:15 am Think about how to make things better for your mom; please don't concentrate your attention on doing things for your benefit with her money, especially when she is dying.
With all due respect, this is simply about prudent estate planning. OP says mom is in good health. Having a plan in advance makes it easier on everyone, and enables you to focus your attention on what matters when the time comes. That's why people have estate plans. I'm hopefully a long way off, but mine is already in place with all the essential documents to make things easy for my wife and kids. It was a comfort to me when I had open heart surgery a number of years back knowing that this was done.
User avatar
BL
Posts: 9533
Joined: Sun Mar 01, 2009 2:28 pm

Re: 81 yr old -need simple investment strategy

Post by BL »

Outer Marker wrote: Thu Jul 16, 2020 6:16 am
BL wrote: Thu Jul 16, 2020 12:15 am Think about how to make things better for your mom; please don't concentrate your attention on doing things for your benefit with her money, especially when she is dying.
With all due respect, this is simply about prudent estate planning. OP says mom is in good health. Having a plan in advance makes it easier on everyone, and enables you to focus your attention on what matters when the time comes. That's why people have estate plans. I'm hopefully a long way off, but mine is already in place with all the essential documents to make things easy for my wife and kids. It was a comfort to me when I had open heart surgery a number of years back knowing that this was done.
I agree that estate planning is good, and it is great for son to help her with that. What bothers me just a bit is when the emphasis as death approaches is on saving a few dollars for heirs when there could be aid and comfort to the dying parent instead. (Agree this is an emotional response, but I do think it is a valid concern after having seen some greedy grabs by offspring elsewhere. I don't get that vibe from the current situation currently, but don't want to encourage it too much either.)
Outer Marker
Posts: 1238
Joined: Sun Mar 08, 2009 8:01 am

Re: 81 yr old -need simple investment strategy

Post by Outer Marker »

BL wrote: Thu Jul 16, 2020 11:53 am
Outer Marker wrote: Thu Jul 16, 2020 6:16 am
BL wrote: Thu Jul 16, 2020 12:15 am Think about how to make things better for your mom; please don't concentrate your attention on doing things for your benefit with her money, especially when she is dying.
With all due respect, this is simply about prudent estate planning. OP says mom is in good health. Having a plan in advance makes it easier on everyone, and enables you to focus your attention on what matters when the time comes. That's why people have estate plans. I'm hopefully a long way off, but mine is already in place with all the essential documents to make things easy for my wife and kids. It was a comfort to me when I had open heart surgery a number of years back knowing that this was done.
I agree that estate planning is good, and it is great for son to help her with that. What bothers me just a bit is when the emphasis as death approaches is on saving a few dollars for heirs when there could be aid and comfort to the dying parent instead. (Agree this is an emotional response, but I do think it is a valid concern after having seen some greedy grabs by offspring elsewhere. I don't get that vibe from the current situation currently, but don't want to encourage it too much either.)
Its a tricky situation, particularly when it comes to Long Term Care and end of life. I viewed my mom's long term care as my responsibility, and was her financial backstop to make up the shortfall. It made sense to keep her TIRA assets that way for as long as possible. With care expenses approaching $100,000 a year her tax bracket was zero with medical deductions. But, it would not have made sense for me to inherit a TIRA in my 35% bracket. Tens of thousands would have gone unnecessarily to the IRS. After several months on hospice, and living with her on a cot in her assisted living apartment for the final two weeks, I kind of knew when it was time to do the conversion. The few minutes it took to do it on the website was inconsequential. We had a plan. . .
sycamore
Posts: 1335
Joined: Tue May 08, 2018 12:06 pm

Re: 81 yr old -need simple investment strategy

Post by sycamore »

Outer Marker wrote: Thu Jul 16, 2020 3:34 pm ...
We had a plan. . .
+1
Making a plan ahead of time is the best way to deal with these difficult situations.
User avatar
BL
Posts: 9533
Joined: Sun Mar 01, 2009 2:28 pm

Re: 81 yr old -need simple investment strategy

Post by BL »

sycamore wrote: Thu Jul 16, 2020 3:43 pm
Outer Marker wrote: Thu Jul 16, 2020 3:34 pm ...
We had a plan. . .
+1
Making a plan ahead of time is the best way to deal with these difficult situations.
+1
Topic Author
Smith
Posts: 15
Joined: Sat Jul 11, 2020 8:12 am

Re: 81 yr old -need simple investment strategy

Post by Smith »

I appreciate the advice here. No worries about her being taken advantage of. I give her about 4 hours of my time and dedication every single day even though she’s in good health. We encourage her to Die Broke (We bought her the book and are trying to show her how!) and live fully, but she’s a penny pincher and won’t splurge in any way shape or form. It’s maddening. She gets furious when they send her RMD’s. She found out she can send this one back due to CARES ACT.
I will disregard the above negative assumption that I was in some way being selfish. It’s terrible to read that here and makes me ne et want to get on this website again. I do have other questions, but am not open to suggestions that my spending 4-5 hours a day helping her simplify and streamline all financial aspects of her life are with ill intent.
Topic Author
Smith
Posts: 15
Joined: Sat Jul 11, 2020 8:12 am

Re: 81 yr old -need simple investment strategy

Post by Smith »

Outer marker,
This is a very sound, smart plan. The notion of the possibility that I would pay 35% in inheritance taxes on money that my precious mom saved all her life would destroy her. Thank you for sharing this strategy.
toocold
Posts: 164
Joined: Sun Jul 23, 2017 9:17 am

Re: 81 yr old -need simple investment strategy

Post by toocold »

I was in a similar situation when my father passed away, and I helped my 79 year old mother with her finances. She was frustrated that she was getting all these statements from all these companies - apparently, a financial advisor periodically helped transfer her IRA and after tax funds from fidelity to these 7 year life insurance annuities to "protect her from the market".

Due to my father's passing, I used that as a trigger to consolidate all these funds to vanguard. I put it all in Wellesley - 100% with reinvested dividends. I had to work with 6 different companies. I also transferred her old 401k from fidelity. It took about 2 weeks.

Simplicity was key. A single statement. A single RMD distribution. And any single time she asked me what to do about any left over cash, I just tell her to put it in Wellesley without any specifics about AA.

Frankly she doesn't need any of the money because her SS and pension more than covers the cost of her living. I keep telling her she should spend more money but some money habits are hard to break. It was also nice to find out that your parent achieved 7 figures never ever earning more than $35k.
Last edited by toocold on Thu Jul 23, 2020 7:48 am, edited 2 times in total.
User avatar
abuss368
Posts: 22151
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!
Contact:

Re: 81 yr old -need simple investment strategy

Post by abuss368 »

Smith wrote: Sat Jul 11, 2020 8:30 am First post here. I’m helping my 81 yr old parent w/moving IRA and non IRA $ into Vanguard. We must keep this very simple. She lives off her $1000/mo SSI, owns house, no debt. She has $150k in IRA, 200K nonIRA, plus home. She’s in good health. Her $12,000/yr SSI + her RMD + interest=$22,000/yr for tax purposes.
Her $ has been w/advisor charging crazy monthly fees at Charles Schwab. We are moving fully into Vanguard. I’ve read to keep 5-10% in high yield savings w/check writing privileges. Maybe another 5-10% in 1 yr CDs maturing every 6 mos. This leaves the $150k IRA and about $150k in non-IRA to plug into Vanguard, but where? Thank you for your simple suggestions in advance.
Welcome to the forum! I would consider hiring Vanguard PAS services for the low cost 0.30% fee. They will setup and manage the account. I have family who have done this and are very happy. If anything goes wrong, and the market will pull back in the future, you will not be blamed.

It will be a rewarding experience all the way around. The older I get, the more I have come to appreciate this.
John C. Bogle: “Simplicity is the master key to financial success."
HomeStretch
Posts: 5161
Joined: Thu Dec 27, 2018 3:06 pm

Re: 81 yr old -need simple investment strategy

Post by HomeStretch »

Your and your mom’s plan to reduce fees on the accounts and simplify makes sense. For ease of change, have you considered staying in self-managed Schwab accounts especially as you have already set up the POA there (assuming it transfers over too)?

I did something similar for my parents at their request four years ago when they asked me to handle their investments/taxes and, more recently, their bill payments. Maybe you will find their set up helpful to setting up your situation...

We went to an estate attorney to have DPOAs and healthcare advance directives/POA set up. My parents had wills but not these documents. Glad they got set up when they did as one parent has since become incompetent due to dementia.

They now have (1) a checking account at a local bank for ATM/bill pay/SS deposits, and (2) Taxable account and IRAs at Vanguard. The accounts are linked to make it easy to transfer money to and from the bank and Taxable brokerage account. I set up an automatic monthly transfer for 1/12 of their net living expenses $ from the Taxable account’s MMF to the local bank. RMDs are set up to replenish the MMF. I have e-bills go to the bank’s bill pay center and everything but their credit card bills are set up for auto-pay. CC bills are paid after my parent okays them.

I am the attorney-in-fact for my parents’ DPOAs. But, we set up Full Agent Authorization for me at Vanguard as Vanguard was difficult about accepting the lawyer-drafted DPOA. My parents made me a joint owner on their local bank account but being POA is also an option. The IRS and SSA don’t accept DPOAs so there are separate forms for those agencies, if needed. My parent also completed the insurance companies forms to copy me on renewal and cancellation notices.

+1 to the suggestions to use one Target Date fund (we are using a LifeStrategy Fund which is similar). For simplicity, I have stopped using CDs for better yield.

I opted not to do Roth conversions yet. My parents (mid to late 80s) have started to have higher medical/dementia assistance expenses which have reduced their taxable income to zero. Although if we do it in the future, the suggestion to have the children pay the taxes (as the Roth conversions would be for our benefit, not theirs) would make it easier on my parents as seeing lower balances in their IRAs would worry them as they don’t have a lot. But I think their care will eat up their IRAs and Roth conversions will be unnecessary.

I send them two monthly Excel summaries: (1) a Net Worth Statement which lists all accounts/asset balances, and (2) a Bill Payment Summary which lists the beginning bank balance, each payment made during the month and each income item which all add up to the ending bank balance. I attach PDFs of all bank/brokerage statements, tax returns, etc. My parent finds it much easier to look at the 2 Excel sheets.

I keep a folder with their information, financial reports, tax returns, etc. My siblings (who are also named as successors on the DPOAs and one has Vanguard Agent Authorization) know where the folder is in case I am unable to perform my duties. I am as transparent as possible (luckily have great siblings). Siblings know I am a joint checking account holder and the end plan is to use the account to pay estate bills, funeral expenses, etc. then gift each sibling the remainder, if any, in equal shares.
Topic Author
Smith
Posts: 15
Joined: Sat Jul 11, 2020 8:12 am

Re: 81 yr old -need simple investment strategy

Post by Smith »

I’m doing all these the above mentioned duties for her and have tried to streamline and simplify, as well. It’s become like a part time job and I’m hoping not to get burnt out.

Her accountant mentioned that “she could have taken an extra $8000 in 2019 out of IRA tax free (on top of her RMD)”. We didn’t know anything about this! She only pays him a small free every April to do her simple taxes and won’t pay him for advising during the year so I will have to figure this. My question is: must this be done in the calendar year? So I will have to guesstimate her SSI + Cap Gains and Div - Standard Déduction
Then check where the 10% tax bracket starts and figure out how much more she can take from IRA (on top of the RMD paid every May)?
Do I do this at the end of December?
Is there a formula for this?
Ugh! TIA
MrJedi
Posts: 343
Joined: Wed May 06, 2020 11:42 am

Re: 81 yr old -need simple investment strategy

Post by MrJedi »

That's more or less the idea. The social security income is the tricky part since only part of it is taxable (if any).

If the IRA income is not needed, anything above the RMD can be used for Roth conversion. If there is any room to Roth covert at 0%, that's a win for all parties if 5 year rule isn't an issue. Or at least withdraw to taxable if there is 0% tax availability.
Last edited by MrJedi on Fri Jul 24, 2020 10:50 am, edited 1 time in total.
HomeStretch
Posts: 5161
Joined: Thu Dec 27, 2018 3:06 pm

Re: 81 yr old -need simple investment strategy

Post by HomeStretch »

Yes, that’s what you’d need to do.

I use TurboTax in December to do estimated Federal and state returns for the current tax year for my parents. If there is any room to do additional IRA withdrawals (or Roth conversions) without paying taxes, I do so for them. I schedule this by mid-December to insure it is completed by December 31.

This is optimizing. If you don’t have the bandwidth to do it or your relative won’t pay the tax accountant to do it it’s not the end of the world if she doesn’t take advantage of space at 0%.

It’s gets easier as time goes on to handle the financial affairs. Best of luck.
Topic Author
Smith
Posts: 15
Joined: Sat Jul 11, 2020 8:12 am

Re: 81 yr old -need simple investment strategy

Post by Smith »

So how can I determine how much of her $12,000 a year total SSI will be taxed? Where’s the formula?
And what’s the difference between transferring this Tax Free TIRA money into a Roth vs her taxable investment account? Is it always best to go into a Roth with this type of money? For her? For heirs?
Thanks for patiently explaining this, it’s confusing!
HomeStretch
Posts: 5161
Joined: Thu Dec 27, 2018 3:06 pm

Re: 81 yr old -need simple investment strategy

Post by HomeStretch »

Smith wrote: Fri Jul 24, 2020 9:12 am So how can I determine how much of her $12,000 a year total SSI will be taxed? Where’s the formula?
Link to BH wiki on SS taxation:
https://www.bogleheads.org/wiki/Taxatio ... y_benefits
And what’s the difference between transferring this Tax Free TIRA money into a Roth vs her taxable investment account? Is it always best to go into a Roth with this type of money? For her? For heirs?
In general, it is more advantageous tax-wise to save in a Roth account than a Taxable account as Roth accounts grow tax free. Especially if taxes on a Roth conversion are paid from a Taxable account rather than by withholding tax on the conversion.

If this your relative’s first Roth IRA, for the amount of money you are talking about I don’t think Roth versus Taxable matters significantly to an 81 year old who needs to be 86 before she can withdraw tax free (she might need the money sooner). There is a 5-year clock before earnings are tax free. Depending on the marginal tax rates of heirs, Roth might be preferable to them (if any money is left in the estate). If her estate beneficiary is a qualified charity that doesn’t pay taxes, she’s better off not converting.
Topic Author
Smith
Posts: 15
Joined: Sat Jul 11, 2020 8:12 am

Re: 81 yr old -need simple investment strategy

Post by Smith »

That SSI calculator is confusing as heck. I guess I’ll just try TurboTax in mid December by pulling her cap gains/div/interest statements and her SSI totals.
And the 5 yr waiting period on a new Roth seems nuts for an 81 yr old. We will no longer even consider a Roth.
Thanks for this info!
HomeStretch
Posts: 5161
Joined: Thu Dec 27, 2018 3:06 pm

Re: 81 yr old -need simple investment strategy

Post by HomeStretch »

At least you know that a Roth conversion is a future option in case there is a time it makes sense to utilize it for heirs in a high tax bracket.
Post Reply