Retired, what to do with a new chunk of money?

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Topic Author
sonoferu
Posts: 18
Joined: Wed Oct 14, 2015 9:46 am

Retired, what to do with a new chunk of money?

Post by sonoferu » Sat Nov 16, 2019 1:00 pm

I've had my IRA and wife's IRA at Vanguard for about 5 years. All in index funds, total roughly $500K, 50/50 stocks/bonds.

Her father died in 2012 and she put a big chunk of her share into an LLC, along with one of her sisters, to buy out the other siblings' shares in her dad's house. Now she is going to let that sister buy her out of it, and she will come out with about $120K. I know we will have to allow for long term capital gains on the LLC, but still we should end up with well over $100K in cash.

I like our IRA's in index funds and just leave them there. So I want something like that. But this money can't go into those accounts, it's all after-tax money. I want it in index funds but what kind of account should I open? From briefly looking at Roths, I see we can't contribute more than $7000 this year. I presume it's the same for later years?

So what would you suggest? Simple, set it and forget it.

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ruralavalon
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Location: Illinois

Re: Retired, what to do with a new chunk of money?

Post by ruralavalon » Sat Nov 16, 2019 1:18 pm

sonoferu wrote:
Sat Nov 16, 2019 1:00 pm
I've had my IRA and wife's IRA at Vanguard for about 5 years. All in index funds, total roughly $500K, 50/50 stocks/bonds.

Her father died in 2012 and she put a big chunk of her share into an LLC, along with one of her sisters, to buy out the other siblings' shares in her dad's house. Now she is going to let that sister buy her out of it, and she will come out with about $120K. I know we will have to allow for long term capital gains on the LLC, but still we should end up with well over $100K in cash.

I like our IRA's in index funds and just leave them there. So I want something like that. But this money can't go into those accounts, it's all after-tax money. I want it in index funds but what kind of account should I open? From briefly looking at Roths, I see we can't contribute more than $7000 this year. I presume it's the same for later years?

So what would you suggest? Simple, set it and forget it.
The post title says "retired". Do either of you have earned income from employment. You need earned income in order to be eligible to contribute to Roth IRAs.

What is your tax bracket, both federal and state? What is your tax filing status? There are income limits for contributing to Roth IRAs.

If not currently employed then the new account will have to be a taxable brokerage account. Use a low cost provider like Vanguard. In general it's usually best to use very tax-efficient stock index funds. Wiki article, "Tax-efficient Fund Placement" . Examples include Vanguard Total Stock Market Index Fund (VTSAX) ER 0.04% and Vanguard Total International Stock Index Fund (VTIAX) ER 0.11%.

Bond funds are not tax-efficient and ordinarily should be held in a tax-advantaged account, preferably in a tax-deferred account like a traditional 401k or traditional IRA.

If you are in a high tax bracket and she wants balanced fund, then a possibility for her to consider is Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX), with a moderately conservative 50/50 asset allocation.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

mhalley
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Re: Retired, what to do with a new chunk of money?

Post by mhalley » Sat Nov 16, 2019 1:20 pm

A regular brokerage account at fidelity, vanguard or Schwab. I like the fidelity cma account if you are going to be spending money, see the fidelity as a one stop shop thread. The 3 fund portfolio works fine in a taxable account. Substitute munis for total bond if in high tax bracket, or skip the bonds if you don’t want any in taxable. Review managing a wind fall in the wiki. Spend some of it on something nice like a vacation.
viewtopic.php?f=2&t=266538
https://www.bogleheads.org/wiki/Managing_a_windfall

sycamore
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Re: Retired, what to do with a new chunk of money?

Post by sycamore » Sat Nov 16, 2019 1:33 pm

mhalley wrote:
Sat Nov 16, 2019 1:20 pm
A regular brokerage account at fidelity, vanguard or Schwab. I like the fidelity cma account if you are going to be spending money, see the fidelity as a one stop shop thread. The 3 fund portfolio works fine in a taxable account. Substitute munis for total bond if in high tax bracket, or skip the bonds if you don’t want any in taxable. Review managing a wind fall in the wiki. Spend some of it on something nice like a vacation.
viewtopic.php?f=2&t=266538
https://www.bogleheads.org/wiki/Managing_a_windfall
+1, I've not had a windfall but that wiki article has sensible suggestions about taking your time and coming up with a plan.

If you make charitable contributions, I wonder if you can donate a part of the LLC equity and thereby not get taxed on its sale? Never had an LLC stake so not sure if you can donate them like regular equity mutual funds/stocks/ETFs.

delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: Retired, what to do with a new chunk of money?

Post by delamer » Sat Nov 16, 2019 3:33 pm

Remember that this is your wife’s inheritance.

If you are planning on putting any of the money in a joint account or an IRA in your name, be sure that she is OK with that.

I do not mean to suggest that you are trying to circumvent her wishes, but her inheritance is her property only unless she chooses otherwise.

sd323232
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Joined: Thu Jun 21, 2018 4:45 pm

Re: Retired, what to do with a new chunk of money?

Post by sd323232 » Sat Nov 16, 2019 3:48 pm

I think it's too late to keep separation between their finances, they are already married.

delamer
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Re: Retired, what to do with a new chunk of money?

Post by delamer » Sat Nov 16, 2019 3:56 pm

sd323232 wrote:
Sat Nov 16, 2019 3:48 pm
I think it's too late to keep separation between their finances, they are already married.
Not true.

An inheritance can be put into an account in the inheritor’s name only. It doesn’t have to go into a joint account with the spouse.

And many couples have separate checking, savings, and investing accounts, inheritances aside. In fact, all 401(k)s and IRAs are individual accounts.

Topic Author
sonoferu
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Joined: Wed Oct 14, 2015 9:46 am

Re: Retired, what to do with a new chunk of money?

Post by sonoferu » Mon Nov 18, 2019 9:33 am

OK, lots of posts to respond to

1. We are both retired [she is 71, I am 70], but she has a couple of part time retirement things that earn. Together, maybe $20K to $25K. So I understand she can set up a Roth with that, but limit of $7000 a year? That would be only a small amount of the total to put away somewhere.

2. We file married jointly. Last year our AGI was $67K [Social Security + her earnings], taxable $37K. So that's 15% bracket? We pulled about $25K from our IRA's to cover the gap in our spending. I paid tax on the withdrawal, and took care of the RMD. Happily, the IRA's earned more than the withdrawal, so the balance grew.

3. Never considered tax efficiency, so I will read the Wiki on that. And the one on windfall.

4. We have our separate IRA accounts, so whatever we set up, I will make it in her name. We share everything.

5. So it looks like a regular brokerage account, and unless the Wiki on tax efficiency dissuades me, I would split into 2 index funds. Currently I made it simple as I could, with Vanguard's Total Stock and Total Bond funds.

Thanks all

rixer
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Re: Retired, what to do with a new chunk of money?

Post by rixer » Mon Nov 18, 2019 10:14 am

I think you could get a balanced fund in the taxable and be okay tax wise. You're retired and won't likely be adding to it. It doesn't amount to that much tax from a balance fund of 100k. You could just count that as part of your desired income and adjust your other withdrawals.
Bonds in taxable isn't always bad for everyone. It depends on your own situation.

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ruralavalon
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Location: Illinois

Re: Retired, what to do with a new chunk of money?

Post by ruralavalon » Mon Nov 18, 2019 2:59 pm

sonoferu wrote:
Mon Nov 18, 2019 9:33 am
OK, lots of posts to respond to

1. We are both retired [she is 71, I am 70], but she has a couple of part time retirement things that earn. Together, maybe $20K to $25K. So I understand she can set up a Roth with that, but limit of $7000 a year? That would be only a small amount of the total to put away somewhere.

2. We file married jointly. Last year our AGI was $67K [Social Security + her earnings], taxable $37K. So that's 15% bracket? We pulled about $25K from our IRA's to cover the gap in our spending. I paid tax on the withdrawal, and took care of the RMD. Happily, the IRA's earned more than the withdrawal, so the balance grew.

3. Never considered tax efficiency, so I will read the Wiki on that. And the one on windfall.

4. We have our separate IRA accounts, so whatever we set up, I will make it in her name. We share everything.

5. So it looks like a regular brokerage account, and unless the Wiki on tax efficiency dissuades me, I would split into 2 index funds. Currently I made it simple as I could, with Vanguard's Total Stock and Total Bond funds.

Thanks all
1) She can contribute $7k to an IRA now for the 2019 tax year, and another $7k in January for the 2020 tax year, for a total of $14k to her IRA. She could do the same for an IRA for you, another $14k to your IRA, for a grand total of $28k.

The remainder could be put in a taxable brokerage account in her name or joint, as you prefer.

2) There no longer is a 15% tax bracket. If I understand your post correctly, you may be in the 12% tax bracket.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
sonoferu
Posts: 18
Joined: Wed Oct 14, 2015 9:46 am

Re: Retired, what to do with a new chunk of money?

Post by sonoferu » Mon Nov 18, 2019 6:36 pm

Re 15% bracket, I just did that off the top of my head. All I meant was our taxable income isn't all that much and we pay the low rate. Thanks for the correction!

And no, I don't anticipate adding to it, it's just a one-time chunk of money.

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