Helping with mother's finances after father's passing

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Reamus294
Posts: 102
Joined: Wed Jul 24, 2019 8:54 am

Helping with mother's finances after father's passing

Post by Reamus294 »

My father passed away several months ago, and I am helping my mother. She is taking care of her budget and has good spending habits. She doesn’t understand anything about investing and it is pretty overwhelming for her. Not sure if this should be in the personal finance or personal investing forum with the tax questions, so I guessed. I have been a long-time lurker here, and was introduced to the boglehead way by my father with the little book.

Age: Mother is 69 yo. Relatively healthy with her older siblings still living and in good health. Parents lived to 80.

No Debt

Retired and Not Working

Retirement Accounts
$650k
Updated 60% tIRA / 30% Roth & 10% Brokerage
75% Stocks / 25% Bonds - Sliced and Diced in 12 different index funds
Everything has been transferred to her name (was split before) and she should have received the stepped up cost basis from my understanding of a discussion with Vanguard.

Updated-Not eligible for social security.

She also receives a lifetime pension (covers about a third of expenses), but without getting into too many specifics about budget, she needs her retirement accounts (650K) to produce $1,800 a month ($21,600 annual). Running this through the fire calc and using basic calculators I feel pretty comfortable that she won’t run out of money. 3.3% withdrawal rate at age 69.

They never needed to pull from the retirement accounts before so that is why it is aggressive on the stocks. I’d like to move this all over to a life strategy fund (leaning towards the 40% stocks, 60% bonds or may split so it is closer to 30% stocks, 70% bonds). I know I will lose some tax efficiency, but would like to make this as simple as possible for my mother, me and my sibling who can assist.

Now for the questions.

Does this withdrawal strategy seem good assuming over age 70.5? Not sure if she should use a monthly or yearly withdrawal.
  • RMD from tIRA
  • Brokerage
  • tIRA
  • Roth
Is this all she will be taxed on?
  • Pension
  • All of tIRA
  • Brokerage Dividends (even if reinvested?)
  • Capital Gains on Brokerage and any Roth taken
Anything to consider when transferring to Life Strategy fund?
  • Slowly over a year, or all at once?
  • Vanguard should keep track of all of the cost basis, so there shouldn’t be any tax surprises, right?
  • Any other tax implications with this rebalancing?
Last edited by Reamus294 on Sat Aug 17, 2019 8:36 am, edited 2 times in total.
billfromct
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Joined: Tue Dec 03, 2013 9:05 am

Re: Helping with mother's finances after father's passing

Post by billfromct »

What about SS?

Was your father collecting SS?

Who was the higher wage earner?

If your father was the higher wage earner, have you looked into survivor benefits?

bill
Last edited by billfromct on Fri Aug 16, 2019 6:24 pm, edited 1 time in total.
fru-gal
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Location: New England

Re: Helping with mother's finances after father's passing

Post by fru-gal »

Just a few quick thoughts -

No social security?

Note that the higher her taxes (driven by trad ira withdrawals) the more social security is taxed.

80 is pretty young as a life expectancy.

I don't think roth withdrawals are taxable except there's some stuff like how young one is, when contributions were made within five years, etc. I think your Mom is home free with this, but check the rules.
megabad
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Re: Helping with mother's finances after father's passing

Post by megabad »

Reamus294 wrote: Fri Aug 16, 2019 4:55 pm Does this withdrawal strategy seem good assuming over age 70.5? Not sure if she should use a monthly or yearly withdrawal.
  • RMD from Taxable tIRA
  • Brokerage
  • Taxable - tIRA
  • Roth
I think I would drain the TIRA up to the top of the 12% bracket every year at a minimum (I actually might do more). If you have room in the 15% LTCG bracket after this I would then do brokerage up to the top of it. Then Roth. Just my general preference but I don't have your exact numbers.
Topic Author
Reamus294
Posts: 102
Joined: Wed Jul 24, 2019 8:54 am

Re: Helping with mother's finances after father's passing

Post by Reamus294 »

There is no social security. Her job didn’t contribute and the amount of her pension doesn’t allow her to receive my father’s.
muddlehead
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Joined: Mon Sep 22, 2008 2:03 pm

Re: Helping with mother's finances after father's passing

Post by muddlehead »

69 yrs old plus 25 = 94. If you did nothing and placed the 650k under the mattress and took from the pile 22k per year, it would last, are you ready, 29 years. What would I do if she was my Mom? I'm a zero market guy at that age. I, myself, have enough money to live off of cd interest. Of course, I'm leaving stock market gains on the table. Don't care. Couldn't be happier. I'd ladder cd's. 10 yr right now is 2.5% / 5 yr 2.25% and so on. I am very, very conservative, I know. To each his own. Good luck.
Topic Author
Reamus294
Posts: 102
Joined: Wed Jul 24, 2019 8:54 am

Re: Helping with mother's finances after father's passing

Post by Reamus294 »

megabad wrote: Fri Aug 16, 2019 5:34 pm
Reamus294 wrote: Fri Aug 16, 2019 4:55 pm Does this withdrawal strategy seem good assuming over age 70.5? Not sure if she should use a monthly or yearly withdrawal.
  • RMD from Taxable tIRA
  • Brokerage
  • Taxable - tIRA
  • Roth
I think I would drain the TIRA up to the top of the 12% bracket every year at a minimum (I actually might do more). If you have room in the 15% LTCG bracket after this I would then do brokerage up to the top of it. Then Roth. Just my general preference but I don't have your exact numbers.
That makes sense. I think she will be close to the tax brackets.
Housedoc
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Location: Alabama

Re: Helping with mother's finances after father's passing

Post by Housedoc »

Check and see if pension is exempt from state income tax. My state does not tax a Defined Pension Benefit. Every dollar helps.
MathWizard
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Re: Helping with mother's finances after father's passing

Post by MathWizard »

My condolences on your father's passing.

ROTH should be non-taxable.

The year your father passed, she can file MFJ, but after that she will have single status.

You may wish to look at

Code: Select all

http://i-orp.com

this can suggest withdrawals from the various categories with considerations for taxes and RMDs.
It is useful for planning anyway.

Some things to consider: These are

If your father passed in 2019, and if this is not too complicated, you may consider using this year to max out the 12% bracket,
converting any excess for living expenses to ROTH and use taxable to pay the taxes on this. This is because next year,
she will only have 12.2K + 1.65K for a standard deduction ($1,650 for over 65), and above that the top of the 12% bracket is $39,475
so an AGI of just over $53K will put her in the 22% bracket. The conversion also lowers later RMDs by reducing the taxable IRA.

This year, an AGI of about $100K would be about the top of the 12% bracket for MFJ for a couple who are over 65.

Special case QCDs , but only if she already gives to charity, like a church pledge.
Once she turns 70.5, and if she gives to charity, you may want to see if the charity is certified to take Qualified Charitable Distributions
from a taxable IRA (basically, it need to be a 501(c)(3), which I believe all or almost all churches are, and many non-profit civic organization are).
and if they will accept the check directly from the IRA, and the IRA will send the check there. (Both true in my case.)

This can satisfy the RMD requirements of the tax deferred IRA, and since she never touches the money, it is not taxable, and you
don't have to itemize. It does need to be the first distribution of the year to satisfy or partially satisfy the RMD requirement.

This is not a major item, but many older people continue giving to their church, and if she were giving say $1,000/yr and was
going to continue, this would like save her 12% of that (once she turns 70.5) so it would save $120 in taxes per year.
cherijoh
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Location: Charlotte NC

Re: Helping with mother's finances after father's passing

Post by cherijoh »

Reamus294 wrote: Fri Aug 16, 2019 4:55 pm Retirement Accounts
$650k
60% Taxable / 40% Roth & Brokerage
I think you are mistakenly using "taxable" to describe a traditional IRA/401k. Taxes are owed when you make withdrawals, but this is NOT considered a taxable account. I think you are labeling the actual taxable account as brokerage (which is okay). But I wouldn't lump Roth in with it. (FYI- You'll get better advice if you use standard terminology).

Please split out the assets as 3 categories:
Taxable/Brokerage
Traditional tax-advantaged (t-IRA, traditional 401k)
Roth
Reamus294 wrote: Fri Aug 16, 2019 4:55 pm She also receives a lifetime pension (covers about a third of expenses), but without getting into too many specifics about budget, she needs her retirement accounts (650K) to produce $1,800 a month ($21,600 annual). Running this through the fire calc and using basic calculators I feel pretty comfortable that she won’t run out of money. 3.3% withdrawal rate at age 69.
Have you accounted for taxes? If she needs $1800/mo after paying taxes, you need to gross this amount up to cover the taxes and plug that number into the retirement calculator. (You also need to account for taxes with the pension). Firecalc does NOT do this for you.
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delamer
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Re: Helping with mother's finances after father's passing

Post by delamer »

She might as well take dividends/capital gains from the brokerage account and spend those. As you noted, she will pay tax on then regardless.

Was the step up total or just for half of the taxable account?

I understand the appeal of a LifeStrategy fund and give your mother’s fairly low income, I don’t think you need to be too concerned about taxes. Consider putting a couple years of net expenses in cash equivalents in the brokerage account though, unless your mother has a separate savings account that you didn’t mention.

As far as frequency of withdrawals, if your mother would be more comfortable with a monthly deposit in her checking than that’s fine.

Otherwise, quarterly seems right to me.
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celia
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Re: Helping with mother's finances after father's passing

Post by celia »

Reamus294 wrote: Fri Aug 16, 2019 4:55 pm 60% Taxable / 40% Roth & Brokerage
75% Stocks / 25% Bonds - Sliced and Diced in 12 different index funds
Everything has been transferred to her name (was split before) and she should have received the stepped up cost basis from my understanding of a discussion with Vanguard.
If you put this in the standard format (see Asking Portfolio Questions), it will be easier to help you. You don't have to give every fund name, but I would need more clarification:

"Brokerage" means that the account holds stocks, bonds, mutual funds, etc. It can be a taxable brokerage account, a Roth brokerage account, or a Traditional IRA brokerage account. They all have vastly different tax characteristics. So group the holdings by type of account, then how much of the account is stocks and how much is bonds. Have all per cents add up to 100%.

Does this withdrawal strategy seem good assuming over age 70.5? Not sure if she should use a monthly or yearly withdrawal.
  • RMD from Taxable tIRA
  • Brokerage
  • Taxable - tIRA
  • Roth
What do you mean here? All withdrawals would first be from the minimum RMDs, then withdraw from the brokerage accounts until they are empty? After the brokerage accounts are empty in later years, then take minimum RMDs, then withdraw from taxable until it is empty? After the taxable is gone in later years, withdraw the minimum RMDs, then withdraw from Roth?

Tell me you don't mean that since it might give you lots of taxes, depending on what you mean by "brokerage". Again, we don't know what you mean by "brokerage" as it could have any number of tax implications.

Did your mom previously have any taxable accounts in her name only? Those accounts did not get a step-up in cost basis. So please keep those assets separate from taxable accounts that were previously your dad's.

If your dad died this year, you might consider doing Roth conversions since this is the last year your mom can file as MFJ. When filing as Single, there is half as much space in each tax bracket compared to Married, so this is her last opportunity to take advantage of the larger space in each tax bracket.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
venkman
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Re: Helping with mother's finances after father's passing

Post by venkman »

She also receives a lifetime pension (covers about a third of expenses), but without getting into too many specifics about budget, she needs her retirement accounts (650K) to produce $1,800 a month ($21,600 annual). Running this through the fire calc and using basic calculators I feel pretty comfortable that she won’t run out of money. 3.3% withdrawal rate at age 69.
I'm not recommending for or against it, but I would at least consider an immediate annuity. It would cost around half of her $650k portfolio to get a lifetime guaranteed income stream of $1800/month (non-inflation adjusted). If she annuitized ~$150k to get $900/month, that would leave a $500k portfolio to cover the other $900, which is just over 2% annually. Most any balanced portfolio is going to throw off that much in dividends, so she'd never have to worry about selling anything.

There are a bunch of different ways to structure it (a lot of people like annuity laddering); but the point is that her risk of outliving her portfolio could go from low to almost non-existent, and she'd still have a good amount of money left over.
BarbBrooklyn
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Re: Helping with mother's finances after father's passing

Post by BarbBrooklyn »

I'm so sorry for your loss.

Are you certain that mom is not eligible for spousal SS benefits? Even with WEP, my understanding is that she would be eligible for a reduced amount on dad's record. I'd check that out again.
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."
Topic Author
Reamus294
Posts: 102
Joined: Wed Jul 24, 2019 8:54 am

Re: Helping with mother's finances after father's passing

Post by Reamus294 »

Thanks for all of the clarifications and advice.

I'll get some more information about the brokerage, but I am pretty sure it is after tax dollars in there. I realize that will change the withdrawal strategy.

Her pension is a governmental pension and the amount he was receiving was too small so her pension off set that. It is taxable.

Purchasing an annuity may be something to consider to cover everything partially.

I'm trying to keep in mind what my dad would have done, which can be a little touchy too.
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