Close out money market fund in Vanguard IRA?

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Topic Author
Stumptowngal
Posts: 81
Joined: Fri Jul 24, 2020 3:12 pm

Close out money market fund in Vanguard IRA?

Post by Stumptowngal »

Several years ago I merged a couple IRAs into an existing rollover Vanguard IRA mutual fund account as part of simplifying prior to retirement. Vanguard transitioned it into a brokerage account with the Vanguard Federal Money Market settlement fund being added.

The Vanguard Prime Money Market fund (now VMRXX Cash Reserves Federal Money Market fund) was a holdover in the Vanguard IRA with about $70,000 sitting in it. RMDs will start in 2023.

Questions:

Is there any need/advantage to keeping the VMRXX in addition to the settlement money market fund?

If not, should the $ in the VMRXX be exchanged to the settlement fund or do people not keep that amount of money in a settlement fund?
A mostly 4 fund portfolio of Vanguard mutual index funds exits across the Vanguard IRA plus a Vanguard taxable account (still on the mutual fund platform) with selling being infrequent.

Is the IRA settlement fund money included in the calculations for determining the required RMD amount?

Thanks so much for any feedback given. A whole new world was opened up when I discovered this forum a few years ago and it has been so valuable. Just wish I had know about it sooner.
bloom2708
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Re: Close out money market fund in Vanguard IRA?

Post by bloom2708 »

I think Prime and Federal are pretty darn close to the same.

Settlement account does count to your IRA balance. Think of the IRA as the bucket. What you put in the bucket matters not much to the IRA.

Is there any opportunity to fix your asset mix? Maybe some to a bond index and some to settlement.
sycamore
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Re: Close out money market fund in Vanguard IRA?

Post by sycamore »

Stumptowngal wrote: Wed Dec 08, 2021 3:25 pm Is there any need/advantage to keeping the VMRXX in addition to the settlement money market fund?
No, the settlement fund is good enough. Their actual holdings are going to be similar enough. Back in the old days the Prime MMF's holdings were more in "corporate paper" and had higher returns compared to government short term bonds. Not so much anymore.
Stumptowngal wrote: Wed Dec 08, 2021 3:25 pm If not, should the $ in the VMRXX be exchanged to the settlement fund or do people not keep that amount of money in a settlement fund?
A mostly 4 fund portfolio of Vanguard mutual index funds exits across the Vanguard IRA plus a Vanguard taxable account (still on the mutual fund platform) with selling being infrequent.
This question is really the "what should my asset allocation be?" question.

Some people want a separate allocation for the "cash" asset. Other people consider "cash" and money-market funds to be just another kind of "fixed income" or "bond" asset but with a very, very short duration.

There's no right answer for everyone. Some people try to match their fixed income assets to their liabilities, for example:
- $X in cash (high yield savings account or money market fund) for 12 months of spending;
- $Y in short-term bonds for the car or roof replacement coming in 24 months;
- $Z in intermediate-term bonds for house purchase in 10 years
- the rest of $ in intermediate or long-term bonds for retirement 15 years down the road

Others hold a single intermediate-term bond fund for all their portfolio's fixed income exposure. They don't even count their near-term cash needs (3, 6, 12 months or whatever) as part of their portfolio.
Stumptowngal wrote: Wed Dec 08, 2021 3:25 pm Is the IRA settlement fund money included in the calculations for determining the required RMD amount?
Every asset in the IRA - whether settlement fund, ETF, mutual fund, stocks or bonds - counts toward your IRA value and therefore used for the RMD calculation.
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tetractys
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Re: Close out money market fund in Vanguard IRA?

Post by tetractys »

I only keep cash in taxable accounts. I don’t keep any cash at all in any of my IRA accounts unless it’s transitory. Are there any reasons to keep cash in an IRA?
Broken Man 1999
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Re: Close out money market fund in Vanguard IRA?

Post by Broken Man 1999 »

When the settlement accounts were established, I rid myself of all other MM accounts to simplify our portfolio management.

We keep virtually nothing in the way of cash, and what tiny difference there would be in interest is negliable to our portfolio.

Not worth having a separate MM account, the settlement accounts serve our needs just fine.

For those keeping large amounts of cash, a MM account could be worthwhile.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
delamer
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Re: Close out money market fund in Vanguard IRA?

Post by delamer »

tetractys wrote: Wed Dec 08, 2021 4:45 pm I only keep cash in taxable accounts. I don’t keep any cash at all in any of my IRA accounts unless it’s transitory. Are there any reasons to keep cash in an IRA?
Yes, if your target asset allocation includes cash.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
exodusNH
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Re: Close out money market fund in Vanguard IRA?

Post by exodusNH »

Stumptowngal wrote: Wed Dec 08, 2021 3:25 pm Several years ago I merged a couple IRAs into an existing rollover Vanguard IRA mutual fund account as part of simplifying prior to retirement. Vanguard transitioned it into a brokerage account with the Vanguard Federal Money Market settlement fund being added.

The Vanguard Prime Money Market fund (now VMRXX Cash Reserves Federal Money Market fund) was a holdover in the Vanguard IRA with about $70,000 sitting in it. RMDs will start in 2023.

Questions:

Is there any need/advantage to keeping the VMRXX in addition to the settlement money market fund?

If not, should the $ in the VMRXX be exchanged to the settlement fund or do people not keep that amount of money in a settlement fund?
A mostly 4 fund portfolio of Vanguard mutual index funds exits across the Vanguard IRA plus a Vanguard taxable account (still on the mutual fund platform) with selling being infrequent.

Is the IRA settlement fund money included in the calculations for determining the required RMD amount?

Thanks so much for any feedback given. A whole new world was opened up when I discovered this forum a few years ago and it has been so valuable. Just wish I had know about it sooner.
Do you really need to keep $70k of cash in your IRA? It would make more sense to hold something with an actual return in the IRA and hold the cash in a bank.
Broken Man 1999
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Re: Close out money market fund in Vanguard IRA?

Post by Broken Man 1999 »

We have a good holding of Vanguard Short-term Treasury Index MF.

If I squint a bit, it is close enough to cash for our purposes.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
Topic Author
Stumptowngal
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Re: Close out money market fund in Vanguard IRA?

Post by Stumptowngal »

Thanks to all who have responded so far.

It seems like the consensus is that the money market fund in the IRA isn’t necessarily needed in addition to the settlement fund. There is a VMRXX money market fund in the taxable account also.
exodusNH wrote: Wed Dec 08, 2021 5:22 pm [quote=Stumptowngal post_id=6372729 time=<a href="tel:1638998716">1638998716</a> user_id=163742]
Several years ago I merged a couple IRAs into an existing rollover Vanguard IRA mutual fund account as part of simplifying prior to retirement. Vanguard transitioned it into a brokerage account with the Vanguard Federal Money Market settlement fund being added.

The Vanguard Prime Money Market fund (now VMRXX Cash Reserves Federal Money Market fund) was a holdover in the Vanguard IRA with about $70,000 sitting in it. RMDs will start in 2023.

Questions:

Is there any need/advantage to keeping the VMRXX in addition to the settlement money market fund?

If not, should the $ in the VMRXX be exchanged to the settlement fund or do people not keep that amount of money in a settlement fund?
A mostly 4 fund portfolio of Vanguard mutual index funds exits across the Vanguard IRA plus a Vanguard taxable account (still on the mutual fund platform) with selling being infrequent.

Is the IRA settlement fund money included in the calculations for determining the required RMD amount?

Thanks so much for any feedback given. A whole new world was opened up when I discovered this forum a few years ago and it has been so valuable. Just wish I had know about it sooner.
Do you really need to keep $70k of cash in your IRA? It would make more sense to hold something with an actual return in the IRA and hold the cash in a bank.
[/quote]

That 70k cash in the IRA money market find has been sitting there for a number of years and I can’t really remember why it was put there - pre Boglehead mindset I guess. My question now is the timing of closing out that fund. The first RMD due in 2023 will be more than the $70,000 in the money market fund. I don’t know if it’s better at this point to just let it sit there for another year and use it towards the RMD; or apply the cash to one of my other IRA index funds for a year.
RickyAZ
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Re: Close out money market fund in Vanguard IRA?

Post by RickyAZ »

You’re going to lose close to 5% in 15 months holding just cash. Stick it in Wellesley admiral shares tomorrow
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tetractys
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Re: Close out money market fund in Vanguard IRA?

Post by tetractys »

delamer wrote: Wed Dec 08, 2021 5:15 pm
tetractys wrote: Wed Dec 08, 2021 4:45 pm I only keep cash in taxable accounts. I don’t keep any cash at all in any of my IRA accounts unless it’s transitory. Are there any reasons to keep cash in an IRA?
Yes, if your target asset allocation includes cash.
As mine does, and so I keep it in a taxable account. Is there a better reason?
delamer
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Re: Close out money market fund in Vanguard IRA?

Post by delamer »

tetractys wrote: Wed Dec 08, 2021 8:37 pm
delamer wrote: Wed Dec 08, 2021 5:15 pm
tetractys wrote: Wed Dec 08, 2021 4:45 pm I only keep cash in taxable accounts. I don’t keep any cash at all in any of my IRA accounts unless it’s transitory. Are there any reasons to keep cash in an IRA?
Yes, if your target asset allocation includes cash.
As mine does, and so I keep it in a taxable account. Is there a better reason?
Does there need to be?

Many people don’t have a large enough taxable account to accommodate their cash allocation.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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tetractys
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Re: Close out money market fund in Vanguard IRA?

Post by tetractys »

delamer wrote: Wed Dec 08, 2021 10:57 pm
tetractys wrote: Wed Dec 08, 2021 8:37 pm
delamer wrote: Wed Dec 08, 2021 5:15 pm
tetractys wrote: Wed Dec 08, 2021 4:45 pm I only keep cash in taxable accounts. I don’t keep any cash at all in any of my IRA accounts unless it’s transitory. Are there any reasons to keep cash in an IRA?
Yes, if your target asset allocation includes cash.
As mine does, and so I keep it in a taxable account. Is there a better reason?
Does there need to be?

Many people don’t have a large enough taxable account to accommodate their cash allocation.
Their cash allocation is too big then.
delamer
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Joined: Tue Feb 08, 2011 5:13 pm

Re: Close out money market fund in Vanguard IRA?

Post by delamer »

tetractys wrote: Wed Dec 08, 2021 11:26 pm
delamer wrote: Wed Dec 08, 2021 10:57 pm
tetractys wrote: Wed Dec 08, 2021 8:37 pm
delamer wrote: Wed Dec 08, 2021 5:15 pm
tetractys wrote: Wed Dec 08, 2021 4:45 pm I only keep cash in taxable accounts. I don’t keep any cash at all in any of my IRA accounts unless it’s transitory. Are there any reasons to keep cash in an IRA?
Yes, if your target asset allocation includes cash.
As mine does, and so I keep it in a taxable account. Is there a better reason?
Does there need to be?

Many people don’t have a large enough taxable account to accommodate their cash allocation.
Their cash allocation is too big then.
Not true. Many people have the vast majority of their liquid assets tied up in tax-advantaged retirement accounts.

There was a time when the only non-tax-advantaged accounts we had were 3 month emergency fund and a few thousand dollars in stocks (gifts).

So no retirement savings in taxable. But we had a high stock allocation, a very low bond allocation, and the rest in cash equivalents. Thus, the retirement cash allocation was in tax-advantaged.

Yes,it’s good to keep retirement cash in taxable if possible. But it’s most important to stick to your preferred allocation even if the tax placement isn’t optimal.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
delamer
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Joined: Tue Feb 08, 2011 5:13 pm

Re: Close out money market fund in Vanguard IRA?

Post by delamer »

Stumptowngal wrote: Wed Dec 08, 2021 7:17 pm Thanks to all who have responded so far.

It seems like the consensus is that the money market fund in the IRA isn’t necessarily needed in addition to the settlement fund. There is a VMRXX money market fund in the taxable account also.
exodusNH wrote: Wed Dec 08, 2021 5:22 pm [quote=Stumptowngal post_id=6372729 time=<a href="tel:1638998716">1638998716</a> user_id=163742]
Several years ago I merged a couple IRAs into an existing rollover Vanguard IRA mutual fund account as part of simplifying prior to retirement. Vanguard transitioned it into a brokerage account with the Vanguard Federal Money Market settlement fund being added.

The Vanguard Prime Money Market fund (now VMRXX Cash Reserves Federal Money Market fund) was a holdover in the Vanguard IRA with about $70,000 sitting in it. RMDs will start in 2023.

Questions:

Is there any need/advantage to keeping the VMRXX in addition to the settlement money market fund?

If not, should the $ in the VMRXX be exchanged to the settlement fund or do people not keep that amount of money in a settlement fund?
A mostly 4 fund portfolio of Vanguard mutual index funds exits across the Vanguard IRA plus a Vanguard taxable account (still on the mutual fund platform) with selling being infrequent.

Is the IRA settlement fund money included in the calculations for determining the required RMD amount?

Thanks so much for any feedback given. A whole new world was opened up when I discovered this forum a few years ago and it has been so valuable. Just wish I had know about it sooner.
Do you really need to keep $70k of cash in your IRA? It would make more sense to hold something with an actual return in the IRA and hold the cash in a bank.
That 70k cash in the IRA money market find has been sitting there for a number of years and I can’t really remember why it was put there - pre Boglehead mindset I guess. My question now is the timing of closing out that fund. The first RMD due in 2023 will be more than the $70,000 in the money market fund. I don’t know if it’s better at this point to just let it sit there for another year and use it towards the RMD; or apply the cash to one of my other IRA index funds for a year.
[/quote]

One option if you decide to invest the $70K more aggressively is to do an in-kind transfer to satisfy your RMD in 2023.

You transfer shares to a taxable account to satisfy your RMD rather selling shares and withdrawing cash.

But if you need the RMD to cover expenses, this won’t work.

(Or you can sell shares and re-buy in your taxable, with a short lag).
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Topic Author
Stumptowngal
Posts: 81
Joined: Fri Jul 24, 2020 3:12 pm

Re: Close out money market fund in Vanguard IRA?

Post by Stumptowngal »

Thanks for the suggestions delamer. I wasn’t aware of the in-kind transfer option with an RMD.

Definitely some good suggestions from everyone on how to deal with the 70k in the IRA VMRXX and hope to arrive at a plan in the next few weeks.
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