Inherited IRA Advice and Possibly Upgrading Home Location with Inheritance

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Topic Author
novatrixs
Posts: 16
Joined: Fri Sep 21, 2012 11:14 am

Inherited IRA Advice and Possibly Upgrading Home Location with Inheritance

Post by novatrixs »

Unfortunately, my last parent passed away last month, leaving me the beneficiary of 2 traditional IRAs totally ~$400k. I rolled each IRA into inherited IRAs at their respective brokers (~200k to Fidelity, ~200k to Vanguard). Due to the Secure ACT, I will need to empty the inherited IRAs in 10 years.

Summary of my finances:
Emergency funds: 8 months
Debt: Auto Loan: 17.5k @ 2% House Loan <80k @3.875%
Tax Filing Status: Single
Tax Rate: 24% Federal, 6.37% State
State of Residence: NJ
Age: 34
Salary: ~130k
Target Asset allocation: 90%stocks 10%bonds, but am off from that target at the moment
International allocation: 10% stocks
Total Retirement Savings: ~$520k
I've already been maxing 401k and roth for a couple of years, no major debt. More in-depth finance overview can be found here. viewtopic.php?t=430711

Question 1: Fidelity or Vanguard: I'd like to combine the two inherited IRAs into a single inherited IRA at one broker. Previously, all of my non-401k accounts have been at Vanguard. Originally, I was tempted to roll the Vanguard inherited IRA into Fidelity, just for ease of bookkeeping. (No way to accidentally select my regular IRA if they're in different accounts, as well as I like having diversification in my financial institutions.) However, it took 2 weeks longer to get everything settled with Fidelity than it took for Vanguard.

Is it typical for Fidelity to have less streamlined processes than Vanguard?

Any other opinions on whether it would be better to roll everything into Fidelity or Vanguard? (I am aware of the transaction fee change with Vanguard starting in June.)

Question 2: Asset Allocation: Currently, everything is in the money market settlement accounts. I was thinking to leave 1 or 2 years distributions in MM, and then the balance in a full market index fund. Does this seem reasonable considering the account needs to be emptied in 10 years?


Question 3: I am considering possibly selling my house and purchasing a place closer to work. My current commute is pretty bad (over 4 hours round trip on in office days), and the only reason I hadn't sold years ago was my elderly parent lived with me and the house was perfectly set up for their needs.

The only problem is my current house is in a MCOL, and my work is in a HCOL area. Size equivalent homes in the HCOL would be ~$550k, and after realtor fees/moving expenses/paying off mortgage I would net an estimated $200k from my current place to put to the new house. With a new mortgage/property taxes/insurance, I'd be at higher than the 28% rule of thumb if I based it solely on my own funds. Based on my income, the only homes within my price range in the HCOL would be condos, but I inherited a number of animals from my parent that would not adapt well to apartment living. (Admittedly, it would suck for me too after a decade of living with a garage, yard and basement.)

I’m conflicted on whether it would be worth dipping into inheritance to fund the move. If I'm honest, after years of being financially responsible, I'd hate to screw it up now by becoming house poor. Plus, there are advantages to the MCOL location that would be more expensive to get the equivalent in the HCOL area. Part of me thinks I should suck up the commute for a couple more years, then find a job nearer my house.

Any thoughts on whether it wouldn't be as financially a bad decision as I'm mentally making it out to be?
FreddyC
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Re: Inherited IRA Advice and Possibly Upgrading Home Location with Inheritance

Post by FreddyC »

I’m sorry for your loss. As far as the decision to move, based on what you are describing, you seem conflicted such that you probably should just defer the decision. I think it is reasonable to make the move and eliminating that commute - especially if it is likely you will stay in the job - makes a lot of sense.
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CAsage
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Re: Inherited IRA Advice and Possibly Upgrading Home Location with Inheritance

Post by CAsage »

Long Commutes suck the joy out of life; your free time is limited and precious. Did you inherit anything besides the IRA? I would absolutely consider those new assets as available to improve your life. Take your time, shop for the most cost effective house you will love, and then draw down that Inherited IRA over 10 years to pay for it. For that IRA, MM or bond funds are appropriate - you don't want a big crash. Put all your stocks in your retirement accounts.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
nhs76
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Re: Inherited IRA Advice and Possibly Upgrading Home Location with Inheritance

Post by nhs76 »

Your universe of possibilities also could include renting a studio or 1BR apartment much closer to work for a couple of years while you settle the estate and set a new course.
123
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Re: Inherited IRA Advice and Possibly Upgrading Home Location with Inheritance

Post by 123 »

You are at a crossroads in life. You are no longer constrained by the needs of your parent.

It is easier, and less expensive, to find a new job closer to your present home than it is to move closer to your existing job (at a much higher expense).

If you don't see yourself keeping your current job and employer till retirement I think its time to explore your option. What career paths are open to you? Where would you like to live? Would the inheritance fund a return to school that could allow you to advance in your career or choose another career path? Taking off a year (or more) for study might be your best option.

What will make you happy? It's a big question that will take some thinking.

The inheritance can help fund a clean slate for many aspects of your life.

Usually the best investment is in yourself.

(And, of course, say nothing of the inheritance to anyone).
The closest helping hand is at the end of your own arm.
Topic Author
novatrixs
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Joined: Fri Sep 21, 2012 11:14 am

Re: Inherited IRA Advice and Possibly Upgrading Home Location with Inheritance

Post by novatrixs »

I'm tabling question 3 for now, but from the initial responses it doesn't seem like anyone would view it as unreasonable financially to use the inheritance to help purchase a house in the $550k range if I were to move to the HCOL area.

123 hit things on the head with regarding me currently being at a crossroads. My muscle of decision making based on my own wants has long sat unused, so it's going to take a while to reflect on things. Right now is not the time to make permanent decisions, but mull over options. It's hard to truly think of long term career goals when, frankly, right now I really wish I could just take a 3 month sabbatical to deal with the estate, grieve and heal. And while I realize I could probably afford it, I don't believe my career at my current company would be able to recover and I'm not ready to jettison it just yet.

Bringing this back to the topic of personal finance, any other input on questions 1 and 2?
bonesly
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Re: Inherited IRA Advice and Possibly Upgrading Home Location with Inheritance

Post by bonesly »

novatrixs wrote: Mon May 13, 2024 8:15 pm I'm tabling question 3 for now, but from the initial responses it doesn't seem like anyone would view it as unreasonable financially to use the inheritance to help purchase a house in the $550k range if I were to move to the HCOL area.
You're only 34 and have already saved $520K on a $130K/yr salary. I don't think you need the inheritance to bolster your retirement savings to meet your goals, but if you indicate your annual savings towards retirement and a guess at when you'll retire along with your expected annual expenses in retirement (plus any pension/SocSec income est.), we can run a Monte Carlo to confirm that you're own track, over-saving, or under-saving. Only in that case where you are under-saving would I view it as unreasonable to use the inheritance for non-retirement purposes. If you're on-track or over-saving already, then there should be no hesitation to use the inheritance any way you see fit and it sure seems reasonable to want a a less burdensome commute with a relocation closer to your current job (or a home upgrade where you are, with a new job in the local area, and the inheritance as a "layoff buffer").
novatrixs wrote: Mon May 13, 2024 8:15 pm Bringing this back to the topic of personal finance, any other input on questions 1 and 2?
1) I don't know if you should base your decision on a 2-week delay for one of the two fiduciaries. If you are using a brick-and-mortar office of Fidelity and need to contact their customer service fairly often, then Fidelity is likely a better pick. If you are mostly DIY and rarely if ever call customer service, then Vanguard's lower fund fees (esp. Money Market Funds) is probably the right choice. Rather than asking "is this one-time inheritance process delay difference, what I should base my decision on," consider how each firm has handled your needs and your satisfaction with that handling for all your transactions, questions, etc. prior to the inheritance (since you have had accounts with both firms for a while now).

There might be a tilt to Vanguard if you will keep 1-2 years of expenses in cash and invest the rest in a mix of stocks and/or bonds.

2) I think 1-2 years of expenses in cash is fine, but investing the remainder 100% in stocks is likely too aggressive for a 10-year time frame. That presumed time-frame assumes that you use the maximum holding period allowed for an Inherited IRA and that you are spending the withdrawals to reduce your NEW mortgage or pay off your current home upgrades. If it turns out that you're under-saving for your retirement goals, then 100% stocks seems fine (since the true time-frame is 25+ years as withdrawals from the IRA would simply be re-invested in the same stocks in a Taxable account "for retirement."). My gut feel is that you don't need to add the Inherited IRA to your retirement pot and that you should spend it on a new home (or upgrading your current home if you get a job closer to your current location), in which case the 10-year time frame is accurate and you should pick a mix of stocks & bonds appropriate for that shorter time-frame and your risk-tolerance (likely no higher than 60/40 for a 10y period).
Topic Author
novatrixs
Posts: 16
Joined: Fri Sep 21, 2012 11:14 am

Re: Inherited IRA Advice and Possibly Upgrading Home Location with Inheritance

Post by novatrixs »

bonesly wrote: Tue May 14, 2024 11:27 am I don't think you need the inheritance to bolster your retirement savings to meet your goals, but if you indicate your annual savings towards retirement and a guess at when you'll retire along with your expected annual expenses in retirement (plus any pension/SocSec income est.), we can run a Monte Carlo to confirm that you're own track, over-saving, or under-saving. Only in that case where you are under-saving would I view it as unreasonable to use the inheritance for non-retirement purposes. If you're on-track or over-saving already, then there should be no hesitation to use the inheritance any way you see fit and it sure seems reasonable to want a a less burdensome commute with a relocation closer to your current job (or a home upgrade where you are, with a new job in the local area, and the inheritance as a "layoff buffer").
Retirement goals in a perfect world would be to have an option of retiring at 55. I've been maxing my 401k and roth for the past couple of years (will need to evaluate this year whether I will still be able to contribute to the roth due to income max), so a total of $30k on my part. Work adds another $11k to my 401k. In retirement, I'd ideally like to spend $5k/month in today's dollars (enough to enjoy plus save up for big expenses/trips). Current estimates for SS at full retirement age are $3500/month, but a whole lot of assumptions go into that estimate.

Based on the above scenario, I'm sure I'd be fine, however, I haven't completely discounted taking a few years off from my career at some point in the next decade to have children. If that happened, I'd be fine pushing back on the retirement age as trade-off, but it lends a lot of uncertainty financially.
bonesly wrote: Tue May 14, 2024 11:27 am I don't know if you should base your decision on a 2-week delay for one of the two fiduciaries. If you are using a brick-and-mortar office of Fidelity and need to contact their customer service fairly often, then Fidelity is likely a better pick. If you are mostly DIY and rarely if ever call customer service, then Vanguard's lower fund fees (esp. Money Market Funds) is probably the right choice. Rather than asking "is this one-time inheritance process delay difference, what I should base my decision on," consider how each firm has handled your needs and your satisfaction with that handling for all your transactions, questions, etc. prior to the inheritance (since you have had accounts with both firms for a while now).
I'm not necessarily making the decision based off a one-off interaction, I just have never had any previous experiences with Fidelity so don't know if it's typical. I'm mostly DIY, hadn't called Vanguard since I initially set up my account in college until I needed to deal with the estate. I turn to the forum members here at bogleheads when I'm looking for advice. :)

The zero expense ratio funds at Fidelity look interesting though. I could always just keep both inherited IRAs open and keep the cash/MM allocation in the Vanguard one and stock/bond ratios in the Fidelity if that would be beneficial, just looking to hear pros and cons from people.
bonesly
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Location: WA

Re: Inherited IRA Advice and Possibly Upgrading Home Location with Inheritance

Post by bonesly »

novatrixs wrote: Tue May 14, 2024 5:28 pm I've been maxing my ... roth for the past couple of years (will need to evaluate this year whether I will still be able to contribute to the roth due to income max)...
As long as you don't have any Trad IRA balances (no such accounts or balances are $0.00), then you can still contribute to a Roth IRA even if you're over the direct contribution income limits. Indirect contribution through a Backdoor Roth legally circumvents the direct contribution income limits. Something to consider to maintain the maximum contributions to both 401k and Roth IRA.
novatrixs wrote: Tue May 14, 2024 5:28 pm The zero expense ratio funds at Fidelity look interesting though. I could always just keep both inherited IRAs open and keep the cash/MM allocation in the Vanguard one and stock/bond ratios in the Fidelity if that would be beneficial, just looking to hear pros and cons from people.
The expense ratio on the ZERO funds really can't be beat. I'm not fond of them because Vanguard generally has lower fees for all their funds and the ZERO funds are offered on a very small number of indexes by Fidelity as a gimmick to compete with Vanguard (if John Bogle's firm didn't exist neither would these ZERO funds at Fidelity). However, they're a loss-leader in that that it is not a zero cost to Fidelity to run these funds and so even though they lose money on them, their likely goal is to attract new clients with "ZERO expenses!?!" and then direct them into advisor-managed accounts (which most here know is significantly higher cost than a similar portfolio at Vanguard). As long as they trick enough new investors into switching to higher-cost AUM managed setups, they can keep fishing for new suckers (er, clients) with ZERO bait.

While I don't like the gimmick, I have no personal experience with Fidelity, yet everything I've read from others is that while they're generally not cheaper than Vanguard, their customer service is superior by a large margin. Thus why I emphasized that if you want a local office and/or a lot of attention from CS reps, then Fidelity is likely the way to go. If you want rock-bottom fees (aside from Fido ZERO funds, for as long as they're profitable to Fido), then Vanguard is likely the way to go.

Hopefully others will chime in with pros and cons. Good luck with your decision! :D
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