Inherited IRA and SECURE act

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csei21
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Joined: Mon May 04, 2020 8:53 pm

Inherited IRA and SECURE act

Post by csei21 »

Hi all,

I am a non eligible designated beneficiary and have inherited a traditional qualified IRA from my parents. The Secure Act mandates that I empty the account in 10 years with no RMDs required. Which asset allocation strategy would you use in the inherited account? I am thinking of keeping it in bonds - does BND only make sense? Or is a Life Strategy fund recommended over a 10 year period? Or another blend of funds/ETFs?

I plan to withdraw 10% per year to evenly distribute over the allowed period.

The money will be reinvested once it is withdrawn into a typical 3 fund portfolio in a taxable account. I plan to withdraw 10% per year.

I will maxing out my 401k contributions at work (right now is 100% Vanguard Target Date Fund)
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David Jay
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Location: Michigan

Re: Inherited IRA and SECURE act

Post by David Jay »

I would put 5 years in BND (no money intended for withdrawal within 5 years should be in stocks) and 5 years in an LS fund that matches your overall Asset Allocation.

Move 10% from LS to BND each of the next 5 years.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
NotWhoYouThink
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Joined: Fri Dec 26, 2014 4:19 pm

Re: Inherited IRA and SECURE act

Post by NotWhoYouThink »

I'd put it all in a balanced or life strategy fund that matches your overall asset allocation. You have to take it out because those are the rules, but no reason otherwise to be protective of it near term.
otinkyad
Posts: 254
Joined: Wed Jun 01, 2016 5:35 pm

Re: Inherited IRA and SECURE act

Post by otinkyad »

I’m trying to understand both the OP’s duplicate statements about withdrawing 10% per year, and David Jay’s recommendation to use BND. If the taxable account isn’t being spent, then the IRA should be in a matching AA. Am I missing something about taxes?
terran
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Joined: Sat Jan 10, 2015 10:50 pm

Re: Inherited IRA and SECURE act

Post by terran »

It's the first place I'd put my desired bond allocation, but I wouldn't invest more than my desired allocation in bonds just for the sake of avoiding stocks in the inherited IRA. So fill it up with bonds unless that means you're holding more bonds across accounts than you want to.

Rather than 10%/year you probably want to divide the remaining balance by the remaining years each year so you don't end up with a large chunk at the end (assuming you plan to keep working during that whole period).

Also, I think it's slightly more than 10 years. Maybe something like the 10th year after the year in which you inherit meaning you'd have until 2031 if you inherited this year? Double check on that though.
TheDDC
Posts: 1079
Joined: Mon Jan 08, 2018 11:11 am

Re: Inherited IRA and SECURE act

Post by TheDDC »

csei21 wrote: Mon Sep 14, 2020 9:10 pm Hi all,

I am a non eligible designated beneficiary and have inherited a traditional qualified IRA from my parents. The Secure Act mandates that I empty the account in 10 years with no RMDs required. Which asset allocation strategy would you use in the inherited account? I am thinking of keeping it in bonds - does BND only make sense? Or is a Life Strategy fund recommended over a 10 year period? Or another blend of funds/ETFs?

I plan to withdraw 10% per year to evenly distribute over the allowed period.

The money will be reinvested once it is withdrawn into a typical 3 fund portfolio in a taxable account. I plan to withdraw 10% per year.

I will maxing out my 401k contributions at work (right now is 100% Vanguard Target Date Fund)
I am in this situation now. I would cash out and DCA into VTSAX. You're GTG.

-TheDDC
Rules to wealth building: 90-100% VTSAX piled high and deep, 0-10% VIGAX tilt, 0% given away to banks, minimize amount given to medical-industrial complex
SS Rambo
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Joined: Wed Jan 29, 2020 10:55 am

Re: Inherited IRA and SECURE act

Post by SS Rambo »

Seems like you’ve already gotten a bunch of variations on the general recommendations, so I’ll add another one which I would follow.

If you ignore the temptation to break it evenly over the next ten years, if you withdraw just barely enough to fill your current marginal tax bracket to the top each year, would the final withdrawal of the remaining balance push you up two brackets? Or just one/none?

If yes, your 10%/year works fine. If no, I would at least consider maxing the deferral period (but keeping an eye on the 2026 tax bracket changes).

Food for thought.
Alan S.
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Re: Inherited IRA and SECURE act

Post by Alan S. »

The 10 year rule for IRAs inherited in 2020 ends 12/31/2030. Therefore, there are 11 tax years available to utilize to fully drain the account (2020-2030). Ways to best utilize this flexibility have already been posted.

I also would not rely on major tax changes not being introduced well before 2026, particularly if you are in a higher bracket. That was true pre Covid and is even more likely now with the exploding deficits.
Topic Author
csei21
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Joined: Mon May 04, 2020 8:53 pm

Re: Inherited IRA and SECURE act

Post by csei21 »

Thanks all- very helpful suggestions!
If you ignore the temptation to break it evenly over the next ten years, if you withdraw just barely enough to fill your current marginal tax bracket to the top each year, would the final withdrawal of the remaining balance push you up two brackets? Or just one/none?
I will talk to our CPA about whether to spread it out all 10 years or not. I file jointly and my husband is a sole proprietor of his business so his income is variable but she can help us plan. Our income will go up for the next 10 year (barring any unexpected events). Based, on her answer, I will chose one of the options suggested.
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