Inheritance Help

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Mrtrex
Posts: 44
Joined: Tue Jul 22, 2014 8:45 pm

Inheritance Help

Post by Mrtrex »

Age 46
Salary 135k been there 8 years
Wife 30k used for strictly fun and clothes for kids
3 kids 6, 11, 13
Tax 24%

401k 230k
Crypto 100k

Debt

Mortgage 390k 3.25%
Home Equity Loan 56k 7.25%
Car 28k 5%

I received
-37k non Ira/401k mutual fund
-158k ira that is converted to me have 10 years to take it all out.
-12k in cash
-10k life insurance
When the house sells I will get another 150k roughly
All funds I was the beneficiary.

I’d like to do the following
5-10k to each kid to use later in life as an adult
Pay off the HELOC

The person who passed used a local financial planner and they set account was set up under my name for the IRA funds and the mutual funds that are non Ira and the funds were transferred in.

The remaining I honesty just want to set it and forget it check on it once or twice per year. I have a vanguard account with around $60 in it and would like to put it in there. I will also need an emergency fund and I had to use mine a few years back. The financial planner does the whole family and is wanting me to keep the funds there until retirement.

Questions
1. What’s the best way to get funds to pay off the HELOC?
2. What’s the best way to get funds to the kids
3. I need an emergency fund thinking 20k best way to fund this?
4. Should I keep it with the financial planner or use vanguard?
5. There is no tax on the non Ira portion but the balance that is an Ira 158k is. What’s the best way to take this out lump some to vanguard. Keep it at the financial planner until retirement?

Thanks all let me know if I’m missing my any info.
delamer
Posts: 17697
Joined: Tue Feb 08, 2011 5:13 pm

Re: Inheritance Help

Post by delamer »

What do you see as the advantages of keeping an account with the financial planner?

Of course, s/he wants you to stay. They make money that way.

You can do a direct rollover to Vanguard of the inherited IRA. Open an account at Vanguard and then have the planner send a check to Vanguard to be deposit the new account. Or the planner may be able to do an electronic transfer via ACATS.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
User avatar
RickBoglehead
Posts: 8047
Joined: Wed Feb 14, 2018 8:10 am
Location: In a house

Re: Inheritance Help

Post by RickBoglehead »

Use the crypto to get rid of the HELOC, then rest of the crypto.
Avid user of forums on variety of interests-financial, home brewing, EVs (1005 EV), etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
User avatar
Wiggums
Posts: 7179
Joined: Thu Jan 31, 2019 7:02 am

Re: Inheritance Help

Post by Wiggums »

The IRS allows every taxpayer to gift up to $18,000 to an individual recipient in one year. There is no limit to the number of recipients you can give a gift to. There is also a lifetime exemption of $13.61 million if you wanted to exceed $18k per individual.

I would pay off HELOC at 7.25% and maybe car at 5%.

The real question is: why pay a financial guy money each year for the same portfolio? Lower fees means more money in your pocket.
Last edited by Wiggums on Tue May 14, 2024 5:34 pm, edited 1 time in total.
"I started with nothing and I still have most of it left."
Billionaire
Posts: 392
Joined: Sat Jan 04, 2014 2:05 pm

Re: Inheritance Help

Post by Billionaire »

JMHO, don't gift money to your children. You aren't a millionaire yet. Instead fund a 529 plan, plus whatever you can set aside for college.
Topic Author
Mrtrex
Posts: 44
Joined: Tue Jul 22, 2014 8:45 pm

Re: Inheritance Help

Post by Mrtrex »

The planner said I had 10 years to withdrawal the Ira and I can’t roll it into an existing Ira. He suggested take out an even amount over the 10 years but it would all be taxable. Said nothing about the ability to roll it over into an Ira just that I could take it all out as a lump some or over the course of the next Ten years but all taxable. If I could open an Ira under vanguard and roll the whole amount over and not pay taxes until retirement that would be ideal but that did not sound like an option

Note: not touching the crypto not at my goal yet. I just noted it as an asset.
RetiredAL
Posts: 3671
Joined: Tue Jun 06, 2017 12:09 am
Location: SF Bay Area

Re: Inheritance Help

Post by RetiredAL »

I have 3 grown children and 2 Grands -- 5 and 8. Last year I inherited substantial $ from my Dad. I retired 8 years ago with ample for DW and myself.

My intent is to each year gift upwards towards to gift filing point to each of my children, and a smaller amount to the grands. I am the custodian to the Grand's UTMA accounts, which were started when they were about 1.
HomeStretch
Posts: 11785
Joined: Thu Dec 27, 2018 2:06 pm

Re: Inheritance Help

Post by HomeStretch »

The inherited IRA rules are complicated so be sure to read up on them. Assuming for now that the original IRA lender died in 2024, you are the sole beneficiary and that the 10-year rule applies to you… Your inherited IRA will have annual required minimum distributions and all assets must be fully withdrawn by the end of the 10th year following the original IRA owner’s death. You also need to confirm that the original IRA owner took their 2024 RMD if they were required to do so because if they didn’t you will need to do so. Distributions from an inherited IRA are generally subject to income tax at ordinary tax rates.

If you don’t need to pay an advisor to manage the inherited accounts, you can initiate an account transfer at Vanguard or any other receiving brokerage. You can’t roll the inherited IRA into your own IRA but you can certainly open an inherited IRA at any other brokerage and transfer it away from the advisor. A account transfer is not taxable. The advisor doesn’t sound like they are giving you all the facts about your options. It’s in their best financial interest to discourage you from moving.

Consider holding off on gifting your children for now. Also consider paying off the HELOC and car loan in full to clear your debts.
Topic Author
Mrtrex
Posts: 44
Joined: Tue Jul 22, 2014 8:45 pm

Re: Inheritance Help

Post by Mrtrex »

There was some time until the RMD would be needed. You think just taking it in full then investing it would be best? Looks like taxes would be a 30k hit. I would prefer it to be under vanguard. I can do it all my self just need to know the best rout to take. My initial thought was just cash everything out then invest it but it’s a lot of taxes.
Big Dog
Posts: 4694
Joined: Mon Sep 07, 2015 4:12 pm

Re: Inheritance Help

Post by Big Dog »

pay off the car instead of gifting money to minors.

Call Vanguard about setting up an account for Inherited IRA. Once done, see if they can pull the money from the existing account electronically. You can setup automatic withdrawals for the RMD's.
Last edited by Big Dog on Tue May 14, 2024 6:38 pm, edited 2 times in total.
HomeStretch
Posts: 11785
Joined: Thu Dec 27, 2018 2:06 pm

Re: Inheritance Help

Post by HomeStretch »

I don’t see a need to cash out the inherited IRA all in one year. You can transfer it to Vanguard and take at least the RMD each year.

You should have enough cash to pay the loans from the after tax funds you are receiving - i.e., $12k cash, $20k life insurance proceeds, $37k in non-IRA mutual funds (likely very little capital gains as this likely should receive a step-up as of the date of death), $150k from the house sale proceeds.
Katietsu
Posts: 7750
Joined: Sun Sep 22, 2013 1:48 am

Re: Inheritance Help

Post by Katietsu »

Mrtrex wrote: Tue May 14, 2024 6:26 pm There was some time until the RMD would be needed. You think just taking it in full then investing it would be best? Looks like taxes would be a 30k hit. I would prefer it to be under vanguard. I can do it all my self just need to know the best rout to take. My initial thought was just cash everything out then invest it but it’s a lot of taxes.
No. This is not what is being suggested.

As far as the IRA is concerned- IF you are ready to break ties with the financial advisor:
1. Open an inherited IRA with financial advisor. I think this step has been taken.
2. Open an inherited IRA with Vanguard. Vanguard can help you roll the current inherited IRA assets into this new account. You can not withdraw or you will owe taxes. Have Vanguard help you pull the assets to them. If you do this correctly, there will be no tax consequences of this move.
3. If the deceased was of age to be subjected to a 2024 RMD, you would need to make sure either they took it out or you would need to do so.
4. You may well need to empty the IRA within 10 years. Most people who inherit a IRA do need to do this. You might wish to consult a tax professional to decide the best withdrawal plan. There could be RMDs needed over the 10 years as well.
ChiKid24
Posts: 571
Joined: Fri Aug 09, 2019 3:43 pm

Re: Inheritance Help

Post by ChiKid24 »

Mrtrex wrote: Tue May 14, 2024 6:26 pm There was some time until the RMD would be needed. You think just taking it in full then investing it would be best? Looks like taxes would be a 30k hit. I would prefer it to be under vanguard. I can do it all my self just need to know the best rout to take. My initial thought was just cash everything out then invest it but it’s a lot of taxes.
OP mentions there would be some time until the RMD is needed. If that is the case, then there is no need to withdraw or pay any taxes, at least in year 1. You essentially step into the shoes of the deceased person and will need to do RMDs when they would have needed to do them. If that isn't for another 11+ years, then no RMD is needed. However, you are likely required to liquidate the account in 10 years. There are some exceptions (if you are minor child of decedent, chronically ill or permanently disabled) which may or may not apply.

As for what to do, I agree with others that it would be most cost effective to open an inherited IRA account at Vanguard. Have the advisor do a direct transfer of the funds to this account. Then ditch the advisor and invest it how you see fit. I would spread out the distributions over the 10 years to minimize the tax burden. You mentioned a $30k hit. How did you get to this number? The taxes you would owe are based on what the distribution (counted as ordinary income) does to your taxable income. You might find that spreading it out over multiple years will result in the effective rate for each distribution being at a lower tax bracket.
delamer
Posts: 17697
Joined: Tue Feb 08, 2011 5:13 pm

Re: Inheritance Help

Post by delamer »

Mrtrex wrote: Tue May 14, 2024 5:59 pm The planner said I had 10 years to withdrawal the Ira and I can’t roll it into an existing Ira. He suggested take out an even amount over the 10 years but it would all be taxable. Said nothing about the ability to roll it over into an Ira just that I could take it all out as a lump some or over the course of the next Ten years but all taxable. If I could open an Ira under vanguard and roll the whole amount over and not pay taxes until retirement that would be ideal but that did not sound like an option

Note: not touching the crypto not at my goal yet. I just noted it as an asset.
You can’t roll it into an existing IRA in your name, but you can roll it into a new Inherited IRA that you set up at Vanguard. But the planner doesn’t get to charge you any fees if you do that.

It is correct that you need to withdraw it within 10 years and pay ordinary income taxes on the withdrawals.
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
Mrtrex
Posts: 44
Joined: Tue Jul 22, 2014 8:45 pm

Re: Inheritance Help

Post by Mrtrex »

So what would be the big difference to withdrawal it all now and just get it over with? My income will only go up and my wife will most likely go back to full time once all the kids are in school. 2024 may be my lowest income tax wise over the next ten years.
delamer
Posts: 17697
Joined: Tue Feb 08, 2011 5:13 pm

Re: Inheritance Help

Post by delamer »

Mrtrex wrote: Tue May 14, 2024 8:51 pm So what would be the big difference to withdrawal it all now and just get it over with? My income will only go up and my wife will most likely go back to full time once all the kids are in school. 2024 may be my lowest income tax wise over the next ten years.
Redo your 2023 taxes, but add the withdrawal of the entire inherited IRA. (Use your tax software.) How much do your taxes go up? And what is your marginal bracket?

Then try the same exercise again, but add just 1/10th of the Inherited IRA amount as the withdrawal. How much do your taxes go up? And what is your marginal bracket?

For most people, spreading the amount over 10 years will result in lower total taxes. (This is obviously an imperfect estimate, because the IRA account balance will fluctuate so you won’t be withdrawing the same amount each of the 10 years.)
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
queenofthemadhouse
Posts: 326
Joined: Fri Jun 04, 2021 5:26 pm

Re: Inheritance Help

Post by queenofthemadhouse »

So, I would max out any and all tax preferred vehicles in your own name that you aren’t maxing out already. Including whatever you can do from your wife’s income. If she has no employer plan available, she can do a traditional IRA and have it be deductible.

Then take out a corresponding amount from the inherited IRA to backfill any expenses.

Pay down the HELOC and the car with the taxable investment.

Use the cash and the life insurance to start your efund.

When the house sells, consider a 529 for the kids with a small portion, then pay off the HELOC.


If the house will sell soon, consider keeping the taxable investments and paying off the non mortgage debt with the proceeds from the house.
valleyrock
Posts: 1199
Joined: Sun Aug 12, 2018 7:12 am

Re: Inheritance Help

Post by valleyrock »

The planner doesn't sound bad and seems to know the rules (10 years to spend down the inherited IRA is correct, etc.). Is that an AUM fee or an hourly rate? If an hourly rate, it might be good to keep the planner and have them help now and later, perhaps.
Post Reply