Seeking advice after inheritance has changed our assets

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
Topic Author
djmbob
Posts: 427
Joined: Thu Mar 15, 2007 6:16 pm

Seeking advice after inheritance has changed our assets

Post by djmbob »

My dear mom passed away in late August at the age of 93. I am her Executor. Many of you helped me with managing her investments over the years and it made a huge difference in the inheritance for all of her 13 beneficiaries - children, grandchildren and charities!! I can never thank you enough! :beer

Following our inheritance of her various accounts, I have made exchanges from her funds to better match my allocation, sell individual stocks, etc, but have some ideas I am questioning. Here is our current snapshot:

Debt: Current 249K mortgage VA 30-year with Penfed (recently refinanced) 2.375%, Monthly pmt $990, does not have escrows. (no property tax - 100% disabled vet). Approx home value according to USAA 428K.

Tax Filing Status: MFJ

Tax Rate: 22% Federal, Standard Deduction; 5% State (with nuances: 75% of my military retirement is not taxed, up to 10K of retirement withdrawals each person not taxed (I think includes inherited Annuity), SS not taxed; exempt from state sales tax.

State of Residence: OK

Age: Him 1: 64 on 12/31/21 (next year = Medicare); Him 2: 59 on 1/13/22

Income:
Him 1 Retired Air Force, taxable monthly income 5.8K after SBP costs + VA Disability tax free 3.8K which taken together are slightly more than our current avg monthly expenses of 7.8K.

Him 2 Clergy, annual income nil, but in Doctoral program using my VA ed with avg 5K/yr tax free, he will only have his IRAs (and SS when avail) for retirement income.

Desired Asset allocation: 60/40 Currently 51/40/9 (including incoming 73K inheritance check)

Desired International allocation: 15-20%

Portfolio size: ~1.1m

Current investments:
Taxable Him 1
8% cash (includes check for 73K inheritance currently in the mail, possibly add to existing 20K Penfed Online Savings (.5% APY)
<1% Navy Fed CD (3% APY - limited to $3K)
1% Vanguard Federal MMkt
7% Vanguard Total Stock
Him 1 TSP
22% TSP G
Him 1 Roth IRA at Vanguard
4% Vanguard Total Stock
5% Vanguard Total World Stock
1% Vanguard Total Int’l
Him 1 Rollover IRA at Vanguard
5% Vanguard Total Stock (was rolled over from TSP G last year for planned conversions)
New Him 1 Inherited IRA at Vanguard
.6% Vanguard Total Stock (<8K thinking of just cashing this out and putting in Him 1 Brokerage)
New Him 1 Vanguard TransAmerica Annuity Non-Qual (5 year deferral)
4% Vanguard Total Stock
4% Vanguard Total Bond

Him 2 Roth IRA at Vanguard
3% Vanguard Total Stock
8% Vanguard Total World Stock
Him 2 Roth IRA Brokerage at Vanguard
1% Vanguard Total Stock (rolled over last year from a previous Vanguard 403b)
Him 2 Rollover IRA at Vanguard
5% Vanguard Total Stock
1% Vanguard Total World
2% Vanguard Total Int’l
5% Vanguard Total Bond
4% Vanguard Total Int’l Bond
New Him 2 Vanguard TransAmerica Annuity Non-Qual (5 year deferral)
4% Vanguard Total Stock
4% Vanguard Total Bond

Other factors:
- We plan on selling/downsizing our house next summer. New home will be ~385K. May use the incoming 73K toward that, hence the PFCU online savings destination. Should we even get a mortgage? I typically like to have mortgage so I can invest funds for better overall ROI and I feel our monthly income stream is very secure.
- Need to withdraw ~179K from both inherited Annuities over next 5 years. Thinking of ~20-25K each per year until depleted due to currently legislated future tax rate increases. Want to stay under IRMAA threshold. Not sure where to put all that. Mom’s basis was ~ 67% of her ending balance so I assume only the first one third of our withdrawals will be taxable (plus any future gains).
- Him 1 delaying SS til 70. Latest SS statement says would be ~3.3K/mo.
- No children.
- Currently have a Vanguard Charitable DAF and plan on significant QCDs when able (know it cant go into the DAF).
- Concerned about Spouse’s income & tax rate when the time comes he must file as single.

Thanks for any advice! Happy to modify original post to show recommended additional info.
Cheers,
Ray
:sharebeer
Last edited by djmbob on Sun Oct 10, 2021 6:59 am, edited 1 time in total.
User avatar
Watty
Posts: 23625
Joined: Wed Oct 10, 2007 3:55 pm

Re: Seeking advice after inheritance has changed our assets

Post by Watty »

djmbob wrote: Sat Oct 09, 2021 11:02 am - We plan on selling/downsizing our house next summer. New home will be ~385K. May use the incoming 73K toward that, hence the PFCU online savings destination. Should we even get a mortgage? I typically I like to have mortgage so I can invest funds for better overall ROI and I feel our monthly income stream is very secure.
I would just pay cash. There are lots of old threads you can look up about considering "a mortgage as a negative bond" so while it is not exact there is a lot of truth to it.

When you look at that way with a 60/40 asset allocation you would have a bit more then $400k in bonds in your portfolio but if you have a $200K mortgage you would subtract that from your bond asset allocation so that in effect you would only have $200K in bond($400K-$200K mortgage). That would give an asset allocation a lot more agressive than you intended.

You would also have a lot lower sequences of returns risk if you do not have a mortgage payment.
User avatar
Wiggums
Posts: 4334
Joined: Thu Jan 31, 2019 8:02 am

Re: Seeking advice after inheritance has changed our assets

Post by Wiggums »

My personal preference is not to have a mortgage in retirement. We hold the three fund portfolio and we reduced our AA to 65/35 in retirement even though we have two pensions. As you get older, a simply portfolio is better and we are not so focused on the future portfolio size.
User avatar
Topic Author
djmbob
Posts: 427
Joined: Thu Mar 15, 2007 6:16 pm

Re: Seeking advice after inheritance has changed our assets

Post by djmbob »

Thank you Watty and Wiggums,

Good ideas to consider to simplify. (I keep waffling over simplification issues) My spouse doesn't look at finances at all, so that would be easier on him. Since any heirs would be nieces, nephews, and charities, our ending assets aren't a big priority, and we already live very comfortably from my military pension.

Cheers,
Ray
User avatar
Wiggums
Posts: 4334
Joined: Thu Jan 31, 2019 8:02 am

Re: Seeking advice after inheritance has changed our assets

Post by Wiggums »

Your points are valid. I’d add that less accounts, less moving parts makes life easier today and for your heirs. The ending balance is really not the issue. It sounds like you are doing great. Well done.
aristotelian
Posts: 9621
Joined: Wed Jan 11, 2017 8:05 pm

Re: Seeking advice after inheritance has changed our assets

Post by aristotelian »

Personally I would rather have paid off mortgage and more aggressive stock allocation than carry mortgage with a larger bond allocation.
trueblueky
Posts: 2174
Joined: Tue May 27, 2014 3:50 pm

Re: Seeking advice after inheritance has changed our assets

Post by trueblueky »

Check with the annuity how they will distribute basis and gain. It may not be proportional.
Sandwich
Posts: 104
Joined: Thu Jul 21, 2016 8:04 pm

Re: Seeking advice after inheritance has changed our assets

Post by Sandwich »

trueblueky wrote: Tue Oct 12, 2021 4:48 pm Check with the annuity how they will distribute basis and gain. It may not be proportional.
+1

My impression is that the first funds withdrawn from a NQ annuity are considered "gains" and is taxed as ordinary income.

Thus, you may be paying higher taxes during the first part of the 5-year period until the funds considered "basis" (67%) of the annuity begin to be withdrawn.
carminered2019
Posts: 973
Joined: Fri Jun 21, 2019 7:06 pm

Re: Seeking advice after inheritance has changed our assets

Post by carminered2019 »

aristotelian wrote: Tue Oct 12, 2021 4:28 pm Personally I would rather have paid off mortgage and more aggressive stock allocation than carry mortgage with a larger bond allocation.
+1,000
mw1739
Posts: 868
Joined: Mon Mar 21, 2011 5:44 pm

Re: Seeking advice after inheritance has changed our assets

Post by mw1739 »

carminered2019 wrote: Wed Oct 13, 2021 1:37 am
aristotelian wrote: Tue Oct 12, 2021 4:28 pm Personally I would rather have paid off mortgage and more aggressive stock allocation than carry mortgage with a larger bond allocation.
+1,000
With a $100,000 government pension, I definitely wouldn't have 40% in bonds.
trueblueky
Posts: 2174
Joined: Tue May 27, 2014 3:50 pm

Re: Seeking advice after inheritance has changed our assets

Post by trueblueky »

Recommend you analyze what happens if Him1 dies first.
User avatar
Topic Author
djmbob
Posts: 427
Joined: Thu Mar 15, 2007 6:16 pm

Re: Seeking advice after inheritance has changed our assets

Post by djmbob »

Thanks all for your suggestions!
My impression is that the first funds withdrawn from a NQ annuity are considered "gains" and is taxed as ordinary income.
That is my impression, too. I just messaged TransAm asking and I will let you know what they reply.
Personally I would rather have paid off mortgage and more aggressive stock allocation than carry mortgage with a larger bond allocation.
I feel I am in a position to consider this after my inheritance and knowing I don't have any direct heirs other than spouse, who would also benefit from not having to worry about a mortgage.
With a $100,000 government pension, I definitely wouldn't have 40% in bonds.
I keep questioning my bond allocation, knowing I have a good and steady monthly income, and bouncing that against the push and pull of "I've won the game, so stop playing" is leaving me more unsure.
Recommend you analyze what happens if Him1 dies first.
I need to do that. If I go first, military pension income would drop by almost half, VA disability would probably stop, SS would be halved, and Him 2 (who has absolutely no interest in managing finances) would have several buckets of traditional IRA funds he would have to draw from. As I am nearing 65, I plan on re-doing the iORP to get an idea of what else I can do (e.g. conversions) once all the inheritance process is complete. The NQ Annuity we both inherited will put a dent in any conversion process for at least the next two years or until we get down to tax free principal withdrawals.

Thanks again!
Cheers,
Ray
User avatar
Topic Author
djmbob
Posts: 427
Joined: Thu Mar 15, 2007 6:16 pm

Re: Seeking advice after inheritance has changed our assets

Post by djmbob »

I just messaged TransAm asking and I will let you know what they reply.
TransAm replied that first out are the taxable gains, so that will be about $25K, and will leave about $50K tax free :D

Cheers,
Ray
Post Reply