Received Inheritance After Retirement

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mtheaded1
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Received Inheritance After Retirement

Post by mtheaded1 »

I am 67 years old and retired 2 years ago. My wife is 64 and still working. She owns her own business as a landscape designer. Both of my parents passed away in the last two years and the estate will be settled before the end of the year. We are going to inherit apporximately $450,000 before the end of this year. We are fortunate enough to already have enough in our retirement accounts (spread across 3 funds - Total Market, S&P 500 and Bonds) to live comfortably and we are in the process of building our retirement house. With this inheritance and the recent sale of our last home, we will be able to build our new (and final) home with no mortgage. However, we will still probably have an additional $250,000 leftover to invest somewhere. Since my current Vanguard accounts are all retirement accounts and I'm already retired I don't think I can mix these newly acquired funds with those accounts. I would like to invest the money in more funds but not sure how to proceed? Should I open up other non-IRA accounts to invest these in? Should I be drawing off these new accounts and leaving my retirement fund accounts alone until forced to withdraw from them? What is a better tax strategy? Should I just call Vanguard and ask them? It seems like too much money to just leave in a money market account!

I'm throwing this out there while I still have a few months to decide how to proceed and hoping for some sound advice!

Thanks all!
cadreamer2015
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Re: Received Inheritance After Retirement

Post by cadreamer2015 »

My understanding is that you can only contribute to retirement accounts like IRAs, 401ks etc. if you have employment income. Money is fungible, of course, so it might make sense for your wife to maximize her retirement contributions while she is still working, as long as you are comfortable with money you receive in the inheritance essentially going into her personal retirement account. Of course you could view it as living off the inherited assets for a couple of years while your wife maximizes her retirement contributions and receives relatively low cash compensation.

After maximizing available contributions to retirement accounts, your inherited assets will be what is often called a "taxable" account, to distinguish it from a tax-deferred or non-taxable retirement account (e.g. regular IRA or Roth IRA). I would just invest whatever leftover cash you have in a taxable account at whatever asset allocation called for in your Investment Policy Statement (IPS). If you don't have an IPS, perhaps now would be a good time to write one.

In terms of the order in which to use assets, I've looked in the Bogleheads wiki and haven't found anything (which may say more about my search ability than anything else). The simple advice I used to see was to withdraw from taxable accounts first to let tax-deferred and tax-free accounts grow. What makes more sense to me is to do a projection of your income and income taxes in retirement. If you use your taxable accounts first (and they have relatively little capital gains) and then start withdrawing from tax-deferred accounts, your income may jump when you exhaust the taxable accounts. I'd look at my spending requirement and what I'd likely be withdrawing from tax-deferred accounts plus other taxable income in a steady state 2-5 years in the future. Then I'd manage my withdrawals from my tax-deferred accounts to "fill up" my low tax brackets early in retirement. For example if you file MFJ and would be in the 22% bracket or higher once you start withdrawing from your tax deferred accounts I'd make sure I at least filled up my 12% bracket in the early years of retirement.
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livesoft
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Re: Received Inheritance After Retirement

Post by livesoft »

Some of your inheritance may be in the form of inherited IRAs, so you will need to understand the rules with those.

Some of your inheritance may be in the form of cash, stocks, mutual funds in a so-called taxable account. Such money can just be invested into your asset allocation in a tax-efficient or even just given away easily.

I would suggest that you attach zero sentimental value to any of the existing holdings if it turns out that you inherit stocks and mutual funds whether they come to you in inherited IRAs or in a taxable account. Just switch everything to your existing asset allocation with the kinds of investments you already have.
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Wiggums
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Re: Received Inheritance After Retirement

Post by Wiggums »

Traditionally, many have suggested withdrawing first from taxable accounts, then tax-deferred accounts, and finally Roth accounts where withdrawals are tax-free. The goal is to allow tax-deferred assets to grow longer and faster.

Having said that, I think it’s really important to consider the tax implication as part of your withdrawal strategy.

And your particular situation, you need to see how this inheritance will be given to you. In other words, will it be cash or an IRA or something else.
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gwe67
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Re: Received Inheritance After Retirement

Post by gwe67 »

I assume that only you actually inherited the money, not you and your wife.

Read this before proceeding:

https://www.fabiomerrill.com/blog/2018/ ... ng-assets/
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Topic Author
mtheaded1
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Joined: Thu Sep 17, 2020 12:21 pm

Re: Received Inheritance After Retirement

Post by mtheaded1 »

The inheritance will be all cash. All assets are being liquidated prior to distribution to myself and my siblings. Sorry I forgot to mention that!
retired@50
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Re: Received Inheritance After Retirement

Post by retired@50 »

mtheaded1 wrote: Thu Sep 17, 2020 1:32 pm The inheritance will be all cash. All assets are being liquidated prior to distribution to myself and my siblings. Sorry I forgot to mention that!
In that case (all cash) most Bogleheads would choose a tax efficient stock index fund in a taxable account. If that throws off your asset allocation by over-weighting stock index funds, then you could do an exchange in a retirement account to acquire more bond index funds by selling some stock index funds inside the retirement account.

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retiredjg
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Re: Received Inheritance After Retirement

Post by retiredjg »

mtheaded1 wrote: Thu Sep 17, 2020 1:32 pm The inheritance will be all cash. All assets are being liquidated prior to distribution to myself and my siblings. Sorry I forgot to mention that!
They could be all cash and still be inside an IRA. This is something you need to know.
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BolderBoy
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Re: Received Inheritance After Retirement

Post by BolderBoy »

mtheaded1 wrote: Thu Sep 17, 2020 12:39 pmI'm throwing this out there while I still have a few months to decide how to proceed and hoping for some sound advice!
There is a lot to consider and you've not provided enough info to consider it all. Two things you should think about:

1) taking SS at age 70
2) maximizing all the Roth conversions you can.

The inheritance (especially since it will be coming in, in cash) can help position you for both #1 & #2.
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Brianmcg321
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Re: Received Inheritance After Retirement

Post by Brianmcg321 »

If your wife is still working you can both max out your IRAs if you have that much income.

Other than that just open a regular account and stick it into VTSAX. Use as needed.

Or, add solar panels to the roof of your new home and buy yourselves a couple of new Teslas.
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terran
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Re: Received Inheritance After Retirement

Post by terran »

Since this will be your first time with non-retirement account investments take a look at https://www.bogleheads.org/wiki/Tax-eff ... _placement.
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