Help with inherited investment account

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ridgeline73
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Help with inherited investment account

Post by ridgeline73 » Thu Jan 11, 2018 8:45 pm

Hi, I need some help/advice with how to best invest an inherited IRA from my grandmother.

Here is what is in the Edward Jones account I inherited (we all had to open an account to obtain our share).

$38k in cash
$13k in stocks
$31 in mutual funds
$10k in ETF's
$10k in bonds

I don't really know what to do with it. I have spoken several times with Vanguard about moving the money there. They have recommended an 80/20 stock/bond split.

I am 44 years old. I am a public employee that has a pension available starting at age 58. At that point I get 66% of the average of my highest 5 years salary. Outside of that I have an employer funded 403b that has $4500 that my employer contributes 2% of my salary to.

I also inherited part of a farm when my grandma passed. It is currently rented and my income would be $6k / year from that farm. I would like to sell, but not sure that is an option with the other parties involved.


1) What do I do with the Edward Jones Portfolio? Do I move it to Vanguard and invest it? If so, what should it be put into?
2) What can I do with the yearly farm income to invest?
3) What do I do with the required minimum distribution every year?
4) It is imperative that all of the inherited property remain my property and do not become community property. What do I need to do to keep these assets protected?


Thanks in advance for any help or suggestions. I am pretty lost on what to do.
Last edited by ridgeline73 on Fri Jan 12, 2018 2:58 pm, edited 1 time in total.

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CAsage
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Re: Help with inherited IRA

Post by CAsage » Thu Jan 11, 2018 10:19 pm

Read the Wiki on this site about windfalls and asset allocation. What you do with it should fit in with your overall diversification plan. If you have a secure pension, more stocks are possible.

With regard to (4)... I would suggest that you carefully check the requirements of whatever state you are in. Laws vary. In general, I would suggest you open an account at a place you do not normally bank (one investment firm for the assets, and one checking account in a CU/bank to manage the payments and cash flow from the RMD and rental income back into the investment firm), and then NEVER NEVER contribute to those funds with any of your earnings or accounts from your job (for example). In CA, inheritance is not community property, but salary and earnings are. If you mix the funds (called commingling), then it can become community property. Consider writing a check from that bank to cover the taxes due on those additional funds. Note that this is just street advice, lots of my friends are divorced and we know all about community property and commingling....

And I would sell everything in that overpriced EJ account, and move it to a simple, cheap index fund at Schwab/Fidelity/Vanguard wherever, and invest it simply (read the Wiki) on 2 or 3 broad, super cheap index funds. There are many worse plans.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

ridgeline73
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Re: Help with inherited IRA

Post by ridgeline73 » Fri Jan 12, 2018 8:46 am

The move to Vanguard is already in the works. I just want to make sure what I do is right. Since I am pretty clueless, I am probably going to have them manage the portfolio.

I don't know what to do with the farm rental income or the money from the RMD. So I get a checking account it flows into and then I want to reinvest it, I can't put it in the inherited IRA, what do I put it in?

On point 4) It sounds like (In CA at least) you would recommend I pay taxes out of the inheritance on the amount of taxes the inheritance generates? If I use essentially what is community funds to pay the tax bill that jeopardizes the status of the inheritance?

Thanks again.

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BL
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Re: Help with inherited IRA

Post by BL » Fri Jan 12, 2018 9:18 am

Good ideas to keep things separate and move to a low-cost place like Vanguard. Other places might also work, especially if you don't listen to their advice on what to do with your money. V folks don't work on commission, so won't try to sell you overpriced products or management. V does have PAS that would manage your money for 0.3% if you decide you want some advice. Almost all of V funds are low-ER so that would not be a problem.

You do need to think about what % fixed income (bonds, etc.) you would be happy with. Some suggest somewhere between your age and (age - 20) for conservative to aggressive investing. So the suggested 20% is quite aggressive. Of course expecting a pension helps there as you have guaranteed fixed income in your future. The 60 stock/40 bond ratio is sometimes considered the default. Someone else says never less than 25% nor more than 75% bonds. Will you be able to sleep at night when the market drops 50%? The more bonds, the less % drop you will personally experience. So this is something that you will ultimately have to decide for yourself.

You have a choice between managing by PAS, buying a balanced fund that is set and forget with your preferred % bonds (Vanguard has lots of low-ER choices), or a simple 3-fund portfolio that you should check maybe once a year to balance back to preferred stock/bond ratio (AA). It depends on how hands-on you want to be. You may have to take RMD before you move it, and each following year. You can take out (sell) more than RMD but never less. You will owe tax on it.

See if co-owners would buy you out or agree to sell. That would make your life simpler. Even buying them out and then selling would be an option. There are probably emotions involved.

The Wiki has a list of recommended reading to get a better idea of investing. Dr. William Bernstein has written a 16-page pdf for new investors that has everything in a nutshell, so that might be a good start:
https://www.etf.com/docs/IfYouCan.pdf

Best wishes.

ridgeline73
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Re: Help with inherited IRA

Post by ridgeline73 » Fri Jan 12, 2018 9:29 am

So, I will have an Inherited IRA, which I am unable to add money to, and 403B through my employer that they add money to and I will not be contributing to, and I have my pension.

What should I be investing the cash rent from the farm and the RMD into?

I wish I could buy everyone out, or sell my portion, it just really isn't going to happen at this point.

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BL
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Re: Help with inherited IRA

Post by BL » Fri Jan 12, 2018 12:56 pm

Once you get the IRA set up at V or ??, open a separate regular personal account at V so you can deposit from your special checking account as you wish. The choices could be, for example: the same fund(s) you removed as RMD and buy in your personal account; a tax-efficient fund like total Stock Market or Total International Stock Market and keeping or increasing your bond funds in IRA; if high tax bracket, a tax-managed Balanced Fund composed of stock fund and municipal bond; or municipal bonds, but maybe better to increase bonds in IRA and stock funds in taxable (personal) account. Keep in mind the over-all bond % you decided on, and add to whichever has lost money whenever you have inheritance income to invest. It should be fine to choose CDs instead of some of your bonds for guaranteed (small) return.

ridgeline73
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Re: Help with inherited IRA

Post by ridgeline73 » Fri Jan 12, 2018 1:56 pm

OK, this is not an IRA I am inheriting. It is just an investment account that was part of a trust from my grandparents.

The probate attorney says I am free to do what I want with it and the taxes were paid at the time of my grandfather's death.

So it doesn't have to go into an inherited IRA. And I can continue to contribute to it with the rent proceeds from the inherited farm.

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CAsage
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Re: Help with inherited IRA

Post by CAsage » Fri Jan 12, 2018 2:23 pm

Ok (suggest fixing title of thread..). If it's not an IRA, your life is easier. You will end up with a plain old brokerage (i.e. investment) account at Vanguard. That account will hold one or more funds - an easy choice is a Target 2040 fund, or 1/3 each Vanguard Total Bond, Total Stock, and International Stock. That would be a pretty generic diversified account - the mix of stock/bond is determined by your comfort level! Don't angst over it, just pick something in the middle. The checking account will be linked to that Vanguard account, and used to deposit farm rental income and pay taxes. While the taxes on the inheritance itself are paid, it will naturally generate income in the future (like interest), and you will need to pay income taxes on the farm income and your gains from the investments. Note that I (and others...) suggested you pay the increased income tax due on your inherited investments to avoid any issues with a presumed spouse - I'm not really sure that you have to do that. But for sure, deposit no funds into either the checking or Vanguard account except from the farm.

Who does your taxes? Might be more complex now.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

ridgeline73
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Re: Help with inherited investment account

Post by ridgeline73 » Fri Jan 12, 2018 3:23 pm

I used to do them (taxes) myself. I will probably farm that out to somebody qualified now.

The biggest question I have is if I have to pay taxes on the farm income and gains from a separate account to avoid commingling the inheritance.

I think I am good with putting the money in a vanguard target retirement 2035 account and just letting it sit for the next 15 years. Is that a good option? Or is that going to be too conservative for right now?

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CAsage
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Re: Help with inherited investment account

Post by CAsage » Fri Jan 12, 2018 8:32 pm

Target 2035 is probably fine. You should check with a lawyer on the tax-payment question; I don't think it matters, since even in a community property state half your income does belong to you! Kind of depends on how much of an issue this turns out to be.... Unsure. Check state law.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

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BL
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Re: Help with inherited investment account

Post by BL » Sat Jan 13, 2018 10:25 am

If it was in an IRA, a Target date fund would be fine, as you could always sell and buy a more suitable one with no tax concerns if the stock/bond ratio change doesn't suit you.

In a regular account, you may owe taxes if you change the funds. That would be the advantage of using the components in Target fund (I would skip international bonds and just add that to bonds) instead. 1/3 each of the three would work fine (consider municipal bonds if higher tax bracket). Then you could sell just the amount you wanted to minimize tax. I would plan to just add to bonds with extra money when stocks are doing well. You could check once a year to see if things are in balance according to your age and preferences. Allowing it to swing 5-10% either way means you would rarely need to re-balance.

The only tax-advantaged single fund I know of is the Tax-managed balanced fund. That has about 1/2 stocks/bonds and kicks out tax-free bond interest.

ccieemeritus
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Re: Help with inherited investment account

Post by ccieemeritus » Sat Jan 13, 2018 11:52 am

It sounds like you are suffering from some information overload here. As a result you have talked with vanguard several times but not moved the account.

I think the original vanguard suggestion is good. Just move the account over and go 80/20. Have vanguard help with the paperwork.

A low cost target fund is fine too.

Reading the thread update, this is a taxable account. The cost basis will be based on the value on day of death (warning: I am not a tax professional). So making this move before the prices rise significantly will help minimize taxes.

ridgeline73
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Re: Help with inherited investment account

Post by ridgeline73 » Sat Jan 13, 2018 6:13 pm

Information overload would be correct :)

Unless someone tells me this is a bad move I plan to transfer it over to the 2035 Target Retirement Fund.

That way I can put it there and not worry about it. I don't understand the tax implications, so if this is a bad move please feel free to chime it.

Also found out Friday I have $25k in life insurance headed my way that I plan to add to the fund.

Thank you all for your help. I really do appreciate it.

****Edit*****

What I am reading is suggesting that Target Funds are not tax efficient. I just need something I can put the money in and leave it be for 15 years (continuing to add farm rental income to it). I am all ears. I plan to move the money this week. Just need a good solution that makes sense for my situation.

THanks.

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CAsage
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Re: Help with inherited investment account

Post by CAsage » Sat Jan 13, 2018 8:51 pm

Is your tax bracket high enough that you are worried about taxes? Are you willing to go in once a year and rebalance (move money) from one asset to another? Note that they have very easy ways to do this online, and you are going to be making deposits anyway. You can always start out with the Target date fund, and then change in a year. Or two. Or look into tax-managed funds. If your income is high enough, municipal or tax-free bond funds are available, but they pay less than corporate taxable bond funds....

So, like everything, it depends!
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

ridgeline73
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Re: Help with inherited investment account

Post by ridgeline73 » Sun Jan 14, 2018 10:55 am

I doubt my tax is high enough.....I make $110k/year. Wife is probably $10-15k working part time.

I don't mine going in once per year and re balancing if it is a fairly straight forward process and more advantageous scenario than a target fund.

ridgeline73
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Re: Help with inherited investment account

Post by ridgeline73 » Sun Jan 14, 2018 6:44 pm

reading....reading.....reading.

Do I really need bonds in a taxable account?

Could I do 65% in VTSAX or VFIAX and 35% in VTIAX and roll with that?

Or should I do 60/30/ and 10% in some sort of bond fund like VBTLX. I ready different things, but in general to avoid that in a taxable account.

Is it too risky to have a stock only taxable account? Is there something else I should be considering?

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