New Widow Questions

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LBR
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Joined: Mon Sep 13, 2021 3:18 pm

New Widow Questions

Post by LBR »

My husband, who was in his 50s, passed away recently. He managed our retirement accounts and spoke highly of this forum. I hope you may be able to help with some of my questions.

I am in my early 50s and would like to be able to access the funds in his retirement accounts before 59.5 without having to pay the 10% penalty. What is the correct term for that option?
• With that option, would Vanguard allow me to name my own beneficiaries?
• Will I have the option to merge all of the accounts (401(k)s, SEP IRA, and SEP brokerage IRA all with Vanguard) into one? If so, pros/cons?
• Do I need to do this within a certain period of time?
• If I keep everything with Vanguard, are the funds protected in the unlikely event Vanguard would fail?

I read the wiki on windfalls, and I’m starting to read other sections and forum posts. As I work on figuring everything out, I’m considering hiring a fee-based, fiduciary CFP/CFA to help me with this initially (asset allocation, etc.).

Based on the very limited reading I’ve done, I think the answer to this is no, but I’d like to ask to make sure I don’t miss anything while I learn more: assuming an appropriate asset allocation, is there any market situation in which I should consider getting out?

I’d sincerely appreciate any advice you could provide. Thank you in advance.

LBR
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dual
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Re: events that require unfreezing credit

Post by dual »

With the usual disclaimer that I have not done this and I'm not an expert on tax law, it looks like you may be eligible for one of the exemptions to penalties for withdrawing before age 59 1/2. It is worth paying a CPA to give you an opinion on this.
Disability or death If you're disabled, you can withdraw IRA funds without penalty. If you pass away, there are no withdrawal penalties for your beneficiaries.
https://www.schwab.com/ira/understand- ... and-under
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JoeRetire
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Re: New Widow Questions

Post by JoeRetire »

LBR wrote: Mon Sep 13, 2021 4:08 pm My husband, who was in his 50s, passed away recently.
So sorry for your loss.
I am in my early 50s and would like to be able to access the funds in his retirement accounts before 59.5 without having to pay the 10% penalty. What is the correct term for that option?
substantially equal periodic payments (SEPP)
Is this something you need to do in order to pay your expenses?
With that option, would Vanguard allow me to name my own beneficiaries?
Yes. You can always name your own beneficiaries.
If I keep everything with Vanguard, are the funds protected in the unlikely event Vanguard would fail?
Protected if Vanguard fails? Some, perhaps not all.
see: https://www.investopedia.com/articles/i ... s-bust.asp
As I work on figuring everything out, I’m considering hiring a fee-based, fiduciary CFP/CFA to help me with this initially (asset allocation, etc.).
That makes sense. But seek a fee-only advisor, not fee-based.
Based on the very limited reading I’ve done, I think the answer to this is no, but I’d like to ask to make sure I don’t miss anything while I learn more: assuming an appropriate asset allocation, is there any market situation in which I should consider getting out?
Probably not due to any "market situation". Speak with your advisor, after you choose one.

Good luck.
Just remember: it's not a lie if you believe it.
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willthrill81
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Re: New Widow Questions

Post by willthrill81 »

My condolences.

There are other options for gaining penalty-free access to tax-advantaged funds prior to age 59.5. Roth contributions can be withdrawn penalty-free at any time. Another option, one I'm planning on using in my own early retirement, is the Roth conversion ladder, discussed well here.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
exodusNH
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Joined: Wed Jan 06, 2021 8:21 pm

Re: New Widow Questions

Post by exodusNH »

LBR wrote: Mon Sep 13, 2021 4:08 pm My husband, who was in his 50s, passed away recently. He managed our retirement accounts and spoke highly of this forum. I hope you may be able to help with some of my questions.

I am in my early 50s and would like to be able to access the funds in his retirement accounts before 59.5 without having to pay the 10% penalty. What is the correct term for that option?
• With that option, would Vanguard allow me to name my own beneficiaries?
• Will I have the option to merge all of the accounts (401(k)s, SEP IRA, and SEP brokerage IRA all with Vanguard) into one? If so, pros/cons?
• Do I need to do this within a certain period of time?
• If I keep everything with Vanguard, are the funds protected in the unlikely event Vanguard would fail?

I read the wiki on windfalls, and I’m starting to read other sections and forum posts. As I work on figuring everything out, I’m considering hiring a fee-based, fiduciary CFP/CFA to help me with this initially (asset allocation, etc.).

Based on the very limited reading I’ve done, I think the answer to this is no, but I’d like to ask to make sure I don’t miss anything while I learn more: assuming an appropriate asset allocation, is there any market situation in which I should consider getting out?

I’d sincerely appreciate any advice you could provide. Thank you in advance.

LBR
I'm sorry for your loss.

https://www.investopedia.com/terms/s/sepp.asp (SEPP) allows you pull money out, but you will have to stick with the schedule until you're 59.5. You will pay income tax. Starting next year, you will be filing at the single rates, which have compressed brackets; i.e., you'll pay quite a bit more in taxes if the SEPP amounts are a lot more than what you really need to live.

You can merge retirement accounts of the same type (regular IRA vs Roth). The benefit is that you have them all in one place. There's no real downside. If your husband had a taxable account, that will need to remain separate.

If the funds are held in a brokerage account instead of Vanguard's older mutual fund platform (which is probably the case), you are protected up to the SIPC limits. And even beyond that, you'd probably still recover most of your holdings. Vanguard is extremely unlikely to fail.

If you do hire someone to help you, please make sure that you're not paying a percentage of the holdings as a fee (assets under management / AUM fee.) It should be a flat or hourly fee. Avoid places like Edward Jones. Before you commit to anyone, please post here and ask for help.

Generally speaking, you don't ever get out of the market unless you're pulling the funds for expenses. You cannot time the market. Even if you, by some miracle, got out at the "right time", you also have to get back in at the right time. That requires two consecutive miracles.

What you want to do is find the split between stocks and bonds that lets you sleep well at night. 50% stocks and 50% bonds is probably a reasonable place to start. But it depends on whether you need to live off this money now or can let it ride. Anything below about 30% stocks and 70% bonds probably won't keep up with even normal inflation. Anything above 70% stocks is probably too risky unless you earn a good income yourself, have or will have access to a pension, or social security will cover most of your expenses.
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WoodSpinner
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Re: New Widow Questions

Post by WoodSpinner »

LBR wrote: Mon Sep 13, 2021 4:08 pm My husband, who was in his 50s, passed away recently. He managed our retirement accounts and spoke highly of this forum. I hope you may be able to help with some of my questions.

I am in my early 50s and would like to be able to access the funds in his retirement accounts before 59.5 without having to pay the 10% penalty. What is the correct term for that option?
• With that option, would Vanguard allow me to name my own beneficiaries?

Before you are 59 1/2 you can treat the IRA as an Inherited IRA and withdraw without penalty.

After 59 1/2 you can assume the IRA as your own and lol it into your IRA.

Loosing your husband is awful but this should help you with the finances


• Will I have the option to merge all of the accounts (401(k)s, SEP IRA, and SEP brokerage IRA all with Vanguard) into one? If so, pros/cons?

I think you should be able to merge all the various IRAs into a single inherited IRA.

For the 401k I would contact the plan administrator to see what your options are. I believe it will vary by plan. I would certainly plan on rolling it into the IRA before RMDs begin at 72. This will make that process much easier.



• Do I need to do this within a certain period of time?

See above for timing suggestions.

One additional possibility is if you want to disclaim part or all of an account and allow the secondary bennificiaries to inherit. This might be advisable if you have sufficient funds and want to pass some early to your kids.

• If I keep everything with Vanguard, are the funds protected in the unlikely event Vanguard would fail?


Yes the funds are protected. In another post we could review and advise on the actual investments. Vanguard itself is safe.


I read the wiki on windfalls, and I’m starting to read other sections and forum posts. As I work on figuring everything out, I’m considering hiring a fee-based, fiduciary CFP/CFA to help me with this initially (asset allocation, etc.).


This is a very good idea! It can help set direction, answer your key questions and help make this transition more comfortable.

I would suggest you look for an advisor that charges by the hour or a flat fee.



Based on the very limited reading I’ve done, I think the answer to this is no, but I’d like to ask to make sure I don’t miss anything while I learn more: assuming an appropriate asset allocation, is there any market situation in which I should consider getting out?

I’d sincerely appreciate any advice you could provide. Thank you in advance.

LBR
So sorry to hear about your loss. Please feel free to reach out and we will help to the best of our abilities.

WoodSpinner
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dual
Posts: 776
Joined: Mon Feb 26, 2007 7:02 pm

Re: events that require unfreezing credit

Post by dual »

it looks like you can withdraw assets without paying the 10% penalty but you will have to pay federal and state income tax on the amount withdrawn. This website lists options and some of the pros and cons. Some questions to ask yourself: how much do you need the money right now? Do you have access to other funds that are not in a retirement plan?

https://www.herwealth.com/blog/5-facts ... m-spouse
niagara_guy
Posts: 168
Joined: Tue Feb 11, 2020 8:32 am

Re: New Widow Questions

Post by niagara_guy »

I am sorry for your loss.

I am not an expert on IRA withdrawals but I think there is a way to withdraw before 59.5 without the 10% penalty. I would seek advise from a CPA for this.

I am not going to address your other questions but I am going to give you my thoughts.


Most advisors charge high fees (1% of assets or more, plus up to 1% fund fees) and should be avoided, particularly if you have a sizable portfolio. On a million dollar portfolio you will be paying them $20,000 per year for their services (which probably won't do better than the index funds recommended here with very low fees). Please stay away from these sharks.


Find an advisor that charges by the hour which will save you money if you have sizable assets and would be my first recommendation if you need an advisor. Vanguard's PAS (Personal Advisor Services) charges 0.3%, I would only recommend this if you must have a person you can work with and can't find an advisor that charges by the hour (I have not used PAS).

The philosophy on this site (named for Mr. Jack Bogle, the founder of Vanguard and the first index fund) is to keep it simple, use index funds and keep the fees low. I think you will get great advice here.

I have used Vanguard and their index funds for 20+ years and have never used an advisor. I have occasionally used a CPA when I have questions about tax issues. I have a very nice portfolio and am comfortably retired and use the Boglehead philosophy.


Please come back and ask questions whenever you have them.
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Wiggums
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Re: New Widow Questions

Post by Wiggums »

Welcome yo the forum. Sorry for your loss.

If you're under age 59 ½, the usual age at which penalty-free withdrawals are allowed, you can take money out of an inherited account without an early-withdrawal penalty. You will, however, have to pay income tax on the amount that you withdraw.

Only surviving spouses can roll over inherited assets into their own IRAs. If you do this, the money is treated just like your own IRA. You can make contributions to the account and the withdrawal rules are the same as if you had created the account in your name originally.
Investors need to be better informed about the costs they pay. “High fund fees can be hazardous to your wealth in the same way that high calories can be hazardous for your health.”
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dodecahedron
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Re: New Widow Questions

Post by dodecahedron »

Wiggums wrote: Tue Sep 14, 2021 9:24 am Welcome yo the forum. Sorry for your loss.

If you're under age 59 ½, the usual age at which penalty-free withdrawals are allowed, you can take money out of an inherited account without an early-withdrawal penalty. You will, however, have to pay income tax on the amount that you withdraw.

Only surviving spouses can roll over inherited assets into their own IRAs. If you do this, the money is treated just like your own IRA. You can make contributions to the account and the withdrawal rules are the same as if you had created the account in your name originally.
Also very sorry for your loss. A sister widow here (eight years ago, when my late husband and I were both still in our 50s.) This forum has been enormously helpful to me in sorting everything out.

The above from Wigguns is correct, so the usual advice to young widow[er]s who want to be able to access funds in late spouse's retirement accounts penalty free before age 59 1/2 is two phased:

Phase 1) Ask the custodian to retitle the retirement plan funds into an Inherited IRA in your name (i.e., title on the account is Mr LBR deceased [date of death] FBO Ms. LBR, where FBO stands for "For the Benefit Of". That allows you to access the funds as needed before age 59 1/2 without penalty.

Phase 2) Once you reach age 59 1/2, you might as well retitle the inherited FBO account into your own name (no longer considered "inherited") and have exactly the same options for access/eventual RMDs as your own IRA also has. In fact you could consolidate all the funds from the inherited FBO account into your own IRA at that point.

Side Note about Roth conversions: you can't do Roth conversions with your inherited FBO IRA but of course you can always do Roth conversions with your own IRA (including with funds that are moved there in phase 2.

Warning: the laws in this area are confusing and have changed several times, and a lot of random advice out in open Internet (outside this forum) is full of well-meaning but obsolete or poorly informed advice but this Bogleheads forum has some excellent sources of advice who are extremely well-informed, particularly AlanS (expert on all things IRA) and bsteiner (very experienced attorney knowledgeable about estate, tax, retirement account matters.)

Also, Mike Piper (a CPA/author with a gift for explanation who posts as Oblivious Investor) is an extremely good source of information on the eventual Social Security options you will have down the road. As a widow, you will have some SS options that others do not.

It is good to hear your late husband recommended this forum. I do not know if my own late husband (who was a finance professor) frequented this particular forum, as he died unexpectedly with no chance to give me final words of advice, but I do feel strongly that it resonates with his investment philosophy and overall approach to financial life and he would be comforted to know I am using it for guidance.

Again, my heart goes out to you. I remember feeling so overwhelmed eight years ago. When I somehow stumbled across this site, it was like a breath of fresh air. The best piece of advice I can give is: take it slow, make no big irreversible decisions at this emotionally fragile time unless absolutely necessary. Keep options open. Ask questions here and we will collectively try to help.
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ObliviousInvestor
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Re: New Widow Questions

Post by ObliviousInvestor »

LBR, I am sorry for your loss.

A few people have suggested confirmation from a CPA, so as a CPA I just wanted to confirm that this from dodecahedron is an excellent summary:
dodecahedron wrote: Tue Sep 14, 2021 10:03 am [...]the usual advice to young widow[er]s who want to be able to access funds in late spouse's retirement accounts penalty free before age 59 1/2 is two phased:

Phase 1) Ask the custodian to retitle the retirement plan funds into an Inherited IRA in your name (i.e., title on the account is Mr LBR deceased [date of death] FBO Ms. LBR, where FBO stands for "For the Benefit Of". That allows you to access the funds as needed before age 59 1/2 without penalty.

Phase 2) Once you reach age 59 1/2, you might as well retitle the inherited FBO account into your own name (no longer considered "inherited") and have exactly the same options for access/eventual RMDs as your own IRA also has. In fact you could consolidate all the funds from the inherited FBO account into your own IRA.
If it would provide you with any additional reassurance to read the law for yourself (regarding being able to take distributions before age 59.5 without penalty), you can find it at the link below, specifically the wording in (t)(2)(A)(ii).
https://www.law.cornell.edu/uscode/text/26/72#t_

dodecahedron's suggestion to take things slowly is also very good advice, in my opinion.
Mike Piper | Roth is a name, not an acronym.
nix4me
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Re: New Widow Questions

Post by nix4me »

Call Vanguard. Your husbands accounts should be rolled to you as beneficiary right? Call them.
Topic Author
LBR
Posts: 2
Joined: Mon Sep 13, 2021 3:18 pm

Re: New Widow Questions

Post by LBR »

To everyone who replied, thank you. I sincerely appreciate your help. I'm going to reread your replies, and I'm sure I'll have more questions. For now, though, I wanted to say thank you.
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