[05/2022 Update - Portfolio Review] Spouse received inheritance - what next?

[fish71]

My wife recently inherited some $ from her father. Everything is currently in multiple Equitable accounts. The advisor was an old-time friend of my FIL, and I've known him for a number of years as well. From a fiduciary standpoint, I do believe he'd act with our best interest in mind.

These are the current holdings:

• $215k in a 501(c)(3) retirement annuity (currently invested in an "Equivest" account...around 8 different funds. The allocation mix is 80/20)

• $34k in a group IRA. (same as above investment wise)

• $145k in a 'brokerage' IRA. Not sure why it's deemed brokerage, but my guess is it's because the investment options are not limited (investment mix covers roughly 8-10 funds...80/20 investment mix)

• $52k brokerage account...mixture of some stocks, income funds, some cash

For the two IRAs, we will begin taking a RMD next year, and both need to be fully withdrawn over 10 years. At this point, we're planning to withdraw an equal amount each year and then reinvest. I leery of waiting until year 10 and taking a massive tax hit. How to invest the RMDs? not sure.

We do not have to take a RMD from the 501(c)(3).

I am 50, my wife is 47. I currently have $165k in my 401k. All of it is invested in the Vanguard Employee Benefit Index Fund. I also have a small Roth IRA at T-Rowe Price ($5k - Capital Appreciation Fund). There is also $20k in an employer credit union account. Retirement wise, I'm targeting somewhere between 62 and 67. I'll have a pension which will be worth approx. $50k a year. My wife is not employed.

We're not sure where to start. While I trust the Equitable advisor, I also don't want to get killed in fees in the long run. I'm new to the forum and the Boglehead investment philosophy. I love the idea of simplicity...but it seems too simple . Our primary goal is to grow this money for retirement.

I have so many questions...
- If we move the money...do we go with Vanguard or Fidelity?
- Should we use those firms' advisory services? Can we use them initially until things are settled...and then just manage ourselves? Ideally after setup, should there be much additional management?

I'll continue to dig through this site to learn, but I appreciate any insight you can provide.



1/2022 UPDATES

It took some time putting all of this together. I've finished up "The Bogleheads' Guide to Investing", read through some of the Wiki pages, and continue to read through various forum posts.

Our current portfolio is comprised of a 401k, a small Roth, and multiple accounts my wife inherited from her father last summer. All of her inheritance is in various Equitable accounts and they have since been transferred to her as beneficiary. All accounts are detailed below and all percentages represent each investment's portion of our entire asset portfolio (per the guidelines).

Total Household Income
$137,000 (single income)

Emergency funds:
6 months currently in a credit union account earning .90%.

Debt/Financial Obligations:
- No credit card debt
- Mortgage balance $117,000; recently refinanced to 2.5% and home was appraised at $172,000.
- Car loan balance of $17,500. Interest rate is 1.99%.
- Cash flowing 2 college educations and a private high school education at an approximate total cost of $35,000 annually.

Tax Filing Status:
Married Filing Jointly

Tax Rate:
22% Federal
4.95% State

State of Residence:
Illinois

Age:
Me: 50
Wife: 47

Desired Asset allocation:
80% stocks
20% bonds

Desired International allocation:
15% There are varied opinions on this forum. These seemed like a reasonable percentage.

Current Portfolio Info
Portfolio size - $628,000
_______________________________________________________________

My Retirement Accounts

Employer 401k
$170,000 (70% Large Cap Equity; 30% Balanced)...all in a traditional 401k. A Roth option is available.
- Company contributes $1,200 annually
- I'm contributing $7,800 annually

19.04% Large Cap Equity Portfolio (.008%)
8.16% Balanced Portfolio (.02%)

Available Funds (ticker symbols not available except for one)

• Stable Value Portfolio; The portfolio currently invests all its assets in the Vanguard Retirement Savings Trust II (.25%)
• Short-Term Bond Portfolio; Vanguard Short-Term Bond Index Fund; Institutional Plus Class Shares (VBIPX) (.04%
• Bond Portfolio; Vanguard Institutional Total Bond Market Index Trust (.016%)
• Balanced Portfolio; Vanguard Custom Balanced Index Portfolio; Large Cap Equity Portfolio - 60% and Bond Portfolio - 40% (.02%)
• Large Cap Equity Portfolio; Vanguard Employee Benefit Index Fund - S&P 500 index (.008%)
• Small/Mid Cap Equity Portfolio; Vanguard Institutional Extended Market Index Trust (.04%)
• International Equity Portfolio; Vanguard Institutional Total International Stock Market Index Trust (.06%)
• Target Funds - 2035, 2040, 2045, 2050 (.045%)

T. Rowe Price Roth IRA
$5,540
.88% Capital Appreciation Fund (PRWCX) (.69%)
- Not currently contributing to this.

Pension
Based on current work history, I've accrued an annual benefit of $35,510. Assuming I work until 62 and assuming conservative pay increases, I'd have an annual benefit of $58,000 at age 62. Retiring at age 65, it would increase to $64,776. My spouse would receive 75% of these amounts annually upon my death.

Social Security Benefits
To this point, my wife has not accrued enough credits to be eligible to receive her own SS benefits. However, she will still receive a percentage of the benefits I'd receive at full retirement (up to 50% dependent on when she begins taking SS).

My current benefit projections:
$25,992 @ 62
$33,528 @ 65
$38,628 @ 67
$47,892 @ 70

My wife's projections (% of $38,628):
$13,519 @ 62 (35%)
$19,314 @ 65 (50%)


Wife's Inheritance Accounts
Equitable LPL Brokerage taxable account
$50,000

.30% Insured Cash Account - $1908.16

.07% IDACORP INC (IDA) – 4 shares worth $445.8
.55% NISOURCE INC (NI) – 127 shares worth $3474.72
.84% XCEL ENERGY INC (XEL) – 78 shares worth $5274.36

.21% PUTNAM HIGH YIELD CL A (PHYIX) - $1304.38 (1.04%)
.30% FRANKLIN HIGH INCOME CL A1 (FHAIX) - $1904.65 (.78%)
.33% FRANKLIN HIGH YIELD TAX FREE INCOME CL A1 (FRHIX) - $2071.69 (.64%)
.63% FRANKLIN STRATEGIC INCOME CL A (FRSTX) - $3962.59 (.88%)
.85% FRANKLIN DYNATECH CL A (FKDNX) - $5330.48 (.85%)
1.08% FRANKLIN FEDERAL TAX FREE INCOME CL A1 (FKTIX) - $6761.82 (.63%)
3.20% FRANKLIN INCOME CL A1 (FKINX) - $20092.54 (.61%)

Equitable LPL Brokerage IRA
$146,615

• $40.00 annual account charge
• Subject to 10-year withdrawal rule
• Withdrawals are taxed as income.

.02% Insured Cash Account - $115.24
.00% FIDELITY ADVISOR GOVT INCOME CL A(FVIAX) - $3.99 (.76%)
.19% FRANKLIN HIGH INCOME CL A1(FHAIX) - $1163.99 (.78%)
.89% LORD ABBETT GROWTH LEADERS CL A(LGLAX) - $5650.35 (.90%)
1.28% HIGHLAND INCOME FUND(HFRO) - $7983.79 (2.68%)
1.8% LORD ABBETT BOND DEBENTURE CL A(LBNDX) - $11328.33 (.78%)
2.23% FRANKLIN SMALL MID CAP GROWTH CL A(FRSGX) - $14115.06 (.86%)
2.41% COLUMBIA DIVIDEND INCOME CL A(LBSAX) - $15084.88 (.94%)
2.50% FRANKLIN INCOME CL A1(FKINX) - $15724.27 (.61%)
2.72% COLUMBIA BALANCED CL A(CBLAX) - $17124.66 (.95%)
4.11% FRANKLIN DYNATECH CL A(FKDNX) - $26209.76 (.85%)
5.18% PIMCO RAE PLUS CL A(PIXAX) - $32487.89 (1.2%)

Equitable EQUI-VEST®
EQUI-VEST is a tax-sheltered variable annuity contract offered by Equitable.

$218,000 - Inherited 403(b) Tax Deferred Variable Annuity

• The plan is an employer sponsored plan and not subject to the 10 year rule . The required minimum distributions are calculated based on mortality of age 115.
• Has an annual expense of approximately 1.25%. The fees are not billed but calculated in performance.
• There are no surrender fees.
• Withdrawals are taxed as income.

$35,000 - Inherited IRA

• Has an annual expense of approximately 1.25%. The fees are not billed but calculated in performance.
• Subject to the 10-year withdrawal rule. Withdrawals are taxed as income.

Sub-account investments (identical investment allocations for the Annuity and IRA)
5.55% Guaranteed Interest Account; guaranteed rate of 3%; the annual expense of 1.25% does not apply.

International Stocks/Global
1.73% EQ/Invesco Global Portfolio (OPPAX ?) (1.15%)
3.47% EQ/MFS International Intrinsic Value Portfolio (MGIAX ?) (1.15%)

Investment Grade bonds
1.39% Delaware Ivy VIP High Income (.72%)

Large Cap
2.43% EQ/Lg Cap Val Managed Vol (.86%)
3.47% EQ/JPMorgan Val Opportunities (.98%)
2.43% EQ/Lg Cap Grw Managed Vol (.91%)
2.08% EQ/T. Rowe Price Growth Stock (PRGFX ?) (1.00%)
1.73% EQ//ClearBridge Select Equity Managed Volatility Portfolio Class IB (1.06%)
1.73% EQ/FIDELITY INSTITUTIONAL AM Large Cap Portfolio (.87%)

Mid Cap
1.73% EQ/Goldman Sachs Mid Cap Value (GSMCX ?) (1.09%)
3.47% EQ/MFS Mid Cap Focused Grwth (1.10%)

Small Cap
1.39% EQ/AB Small Cap Growth (.92%)
1.39% EQ/Franklin Sm Cap Val Managed Vol (1.06%)
.69% EQ/Morgan Stanley Sml Cap Grw (1.15%)

_______________________________________________________________

Questions:

My Accounts

• Regarding my 401k allocations, I'm thinking either the Target fund 2040/2045 or some combination of one or more of the following would be good. Thoughts?
  Large Cap Equity Portfolio
  Small/Mid Cap Equity Portfolio
  International Equity Portfolio
  Bond Portfolio
• Any suggestions on the T. Rowe Price fund? Is it advised to keep it or transfer and consolidate to one brokerage?

My Wife's Accounts

• The Equitable account allocations seem overly complicated, not to mention the higher expense ratios and account fees. Any reasons not to pursue transferring these to another brokerage?
• Any concerns with initiating all these transfers with Vanguard given their apparent customer service issues?
• I've read it may be possible for the non-spouse beneficiary to perform a trustee-to-trustee transfer of a tax sheltered annuity to an “inherited IRA”. Can anyone confirm this? She would probably still be required to take RMDs, but maybe the long-term costs would be lowered since the funds are out of the annuity contract? If not, she should be able to transfer it to a less expensive annuity contract. I believe Fidelity has one.

In General...

• I pretty much handle all of our finances. While my wife would like a basic understanding of everything, she has little desire to be more involved more than that. I want things to be as easy as possible for her if I were to pass away. Any thoughts if Vanguard, Fidelity, or Schwab would be any better suited to her needs than the other? At least Fidelity and Schwab have offices, though only Schwab does here locally.

_______________________________________________________________

Proposed high-level plan:
Here's a proposed plan. What have I forgotten? Interested in your thoughts.

1. Choose a single brokerage that can handle all our needs...either Vanguard, Fidelity, or Schwab
2. Open the necessary individual accounts for my wife and I.
3. Transfer assets
   • Transfer T. Rowe Price Roth IRA? Some members of this forum think highly of this fund.
   • "In-kind" transfer of Equitable taxable brokerage account
   • "Trustee to Trustee" transfer of Inherited IRA accounts
   • Transfer Annuity contract to a low-cost Annuity contract ("custodian to custodian" ?) or to an "Inherited IRA" (if possible)
4. Re-allocate all assets in all accounts (401k and new brokerage taxable/non-taxable) to meet 80/20 asset allocation. May need some assistance with this when the time comes. Or, if you all have recommendations now, I'm all ears.
5. Begin taking RMDs and reinvest as much as possible.

_____________________________________________________________________________________________________________________________


5/2022 UPDATES

I'm posting one last update related to this thread. My wife and I have completed moving the various accounts over to Schwab. She was not able to move the 403(b) annuity from Equitable without doing a complete surrender. We don't want the tax hit, so she'll keep it there. We've had multiple conversations with Equitable, Schwab, and even Fidelity (while we considered them). Long story short, the funds have to remain with Equitable because of the type of contract in conjunction with the beneficiary distribution option my wife selected when the account was transferred to her.

This is our current portfolio. It's quite different from my original post.


Desired Asset allocation:
75% equities (85% US / 15% International)
25% fixed income
_______________________________________________________________

The (%) on left represents the weight within the account. The (%) on right represents the weight within the total portfolio.


His Retirement Accounts

Employer 401k
Approximating the Total Stock Market with the first 2 (88% Large Cap and 12% Small/Mid Cap).

33.47% Vanguard Employee Benefit Index Fund: ER .01% 9.37%
4.56% Vanguard Institutional Extended Market Index Trust: ER .03% 1.28%
40.13% Vanguard Institutional Total International Stock Market Index Trust: ER .05% 11.23%
21.83% Vanguard Institutional Total Bond Market Index Trust ER .02% 6.11%

Available Funds (ticker symbols not available except for one)

• Stable Value Portfolio; The portfolio currently invests all its assets in the Vanguard Retirement Savings Trust II (.25%)
• Short-Term Bond Portfolio; Vanguard Short-Term Bond Index Fund; Institutional Plus Class Shares (VBIPX) (.04%
• Bond Portfolio; Vanguard Institutional Total Bond Market Index Trust (.016%)
• Balanced Portfolio; Vanguard Custom Balanced Index Portfolio; Large Cap Equity Portfolio - 60% and Bond Portfolio - 40% (.02%)
• Large Cap Equity Portfolio; Vanguard Employee Benefit Index Fund - S&P 500 index (.008%)
• Small/Mid Cap Equity Portfolio; Vanguard Institutional Extended Market Index Trust (.04%)
• International Equity Portfolio; Vanguard Institutional Total International Stock Market Index Trust (.06%)
• Target Funds - 2035, 2040, 2045, 2050 (.045%)

Schwab Roth IRA
100% T. Rowe Price Capital Appreciation Fund (PRWCX) ER .69% 3.42%

Her Accounts
Equitable 403(b) Annuity (Inherited)
52.44% EQ/Equity 500 Index Portfolio 1.25% account fee + ER .55% 15.43%
47.56% Guaranteed Interest Account (earns 3%) No Fee 13.99%

This account is not subject to the Secure Act 10-year rule...at least this is how Equitable is interpreting it. Both Schwab and Fidelity have questioned it however. The plan will be to withdrawal the RMD each year and reinvest.

Schwab Taxable
100% Vanguard Total Stock Market ETF (VTI) ER .03% 8.62%

Schwab Roth
100% Schwab Total Stock Market (SWTSX) ER .03% 2.20%

Schwab Inherited IRA
86.47% Schwab Total Stock Market (SWTSX) ER .03% 24.52%
13.53% Vanguard Intermediate-Term Bond ETF (BIV) ER .04% 3.84%

These funds have to be fully withdrawn over the next 9 years. The plan is to do so in a manner to limit the tax hit. We'll either reinvest as additional pre-tax contributions to my 401k (my wife is OK with comingling her inheritance), or into her taxable and roth...or a combination.

_______________________________________________________________

I'm interested in the forum's thoughts on the following:

1) The investment choices we've selected. What would you do differently?

2) How have we done allocating the assets around the specific accounts to meet our desired allocation? Can we simplify this further to make rebalancing easier?

3) What do you think of the fixed income allocation percentages? Are we putting too much/too little in the Equitable guaranteed interest account? Should we shift more or less towards the bond funds?

Thanks!

[David Jay]

Welcome to the forum!

The most common recommendations for a low cost brokerage are, in alphabetical order, Fidelity, Schwab and Vanguard. You can’t go wrong with any of the three.

It is to the advisory industry’s advantage to get folks to believe that it is just too complex for individuals to figure out. At Bogleheads we say that it can be straight forward and manageable. I recommend the Wiki “Getting Started” here: https://www.bogleheads.org/wiki/Getting_started

[babystep]

My wife recently inherited some $ from her father. Everything is currently in multiple Equitable accounts. The advisor was an old-time friend of my FIL, and I've known him for a number of years as well. From a fiduciary standpoint, I do believe he'd act with our best interest in mind.

These are the current holdings:

• $215k in a 501(c)(3) retirement annuity (currently invested in an "Equivest" account...around 8 different funds. The allocation mix is 80/20)

• $34k in a group IRA. (same as above investment wise)

• $145k in a 'brokerage' IRA. Not sure why it's deemed brokerage, but my guess is it's because the investment options are not limited (investment mix covers roughly 8-10 funds...80/20 investment mix)

• $52k brokerage account...mixture of some stocks, income funds, some cash

For the two IRAs, we will begin taking a RMD next year, and both need to be fully withdrawn over 10 years. At this point, we're planning to withdraw an equal amount each year and then reinvest. I leery of waiting until year 10 and taking a massive tax hit. How to invest the RMDs? not sure.

We do not have to take a RMD from the 501(c)(3).

I am 50, my wife is 47. I currently have $165k in my 401k. All of it is invested in the Vanguard Employee Benefit Index Fund. I also have a small Roth IRA at T-Rowe Price ($5k - Capital Appreciation Fund). There is also $20k in an employer credit union account. Retirement wise, I'm targeting somewhere between 62 and 67. I'll have a pension which will be worth approx. $50k a year. My wife is not employed.

We're not sure where to start. While I trust the Equitable advisor, I also don't want to get killed in fees in the long run. I'm new to the forum and the Boglehead investment philosophy. I love the idea of simplicity...but it seems too simple . Our primary goal is to grow this money for retirement.

I have so many questions...
- If we move the money...do we go with Vanguard or Fidelity?
- Should we use those firms' advisory services? Can we use them initially until things are settled...and then just manage ourselves? Ideally after setup, should there be much additional management?

I'll continue to dig through this site to learn, but I appreciate any insight you can provide.

If I don't know much where to invest then whatever RMD is coming out then I would just buy VTSAX every year for the next few years. You don't have much in Roth IRA. I would contribute 6k for myself and another 6k for spouse each year with increased money flow.

Fidelity or Vanguard are both good but Fidelity is considered to have better web-site and customer support.

If you list all the accounts, income and funds etc. then folks here will be able to help a great deal. Here is the format to ask detailed review.
viewtopic.php?f=1&t=6212

[celia]

I am sorry to hear of your family's loss. We can help you walk through these decisions but more info will be needed.

These are the current holdings:
$215k in a 501(c)(3) retirement annuity (currently invested in an "Equivest" account...around 8 different funds. The allocation mix is 80/20)

This is the largest account and likely to have the largest fees, particularly in the early years because annuities tend to have large up-front fees. An annuity is a contract where the other side makes the investment choices so I don't think there are many choices here other than when/how to withdraw and what the fees would be. Is the annuity "fixed" or "variable" rate, which could make the monthly payments be the same or vary each month? Find out the withdrawal rules and fees. (The costs tend to decrease over time.) How many years does the annuity run and can you speed up the withdrawals at what cost? If this is not in your wife's name yet, make sure the annuity isn't "starting over" as that would make the costs and commissions "start over".

What do you mean you don't have to take an RMD from this account? Will you have pay-outs over the life of the deceased or of your wife? Can she change it?

$34k in a group IRA. (same as above investment wise)

What is a "group IRA"? "IRA" stands for "Individual Retirement Account". Is this another annuity? If so, the same questions apply to this.

$145k in a 'brokerage' IRA. Not sure why it's deemed brokerage, but my guess is it's because the investment options are not limited (investment mix covers roughly 8-10 funds...80/20 investment mix)

Most investment accounts are "brokerage" as opposed to a "mutual fund only" account. It just means it can hold anything that a stock broker sells (stocks, bonds, mutual funds, ETFs). A brokerage account can have the tax attributes of a tax-deferred account (like an IRA or 401K), an after-tax account (like a Roth IRA or Roth 401K), or a Taxable account (no special tax attributes). Since it is also an IRA, you can buy or sell anything within the account without any tax consequences each year. The taxes are owed when withdrawals are taken and each dollar withdrawn will be taxed as regular income. Since it is an Inherited IRA, it can't be combined with any other IRAs.

$52k brokerage account...mixture of some stocks, income funds, some cash

This appears to be a Taxable account, as opposed to a tax-deferred or Roth account. You can do anything with this money, including paying taxes on withdrawals from the other accounts. You haven't given us any indication of your current or possible future marginal tax brackets, but it best to withdraw from the IRAs when your marginal tax brackets are the lowest.

Do you prepare your own taxes, so that you are familiar with the tax brackets?

[donall]

What is a 501(c)(3) retirement annuity?
What are the fees associated with Equitable, the advisor, and each fund?

[nix4me]

I would advise your wife to contact an attorney and make sure she understands the law about HER inheritance before anything happens.

[fish71]

This is the largest account and likely to have the largest fees, particularly in the early years because annuities tend to have large up-front fees. An annuity is a contract where the other side makes the investment choices so I don't think there are many choices here other than when/how to withdraw and what the fees would be. Is the annuity "fixed" or "variable" rate, which could make the monthly payments be the same or vary each month? Find out the withdrawal rules and fees. (The costs tend to decrease over time.) How many years does the annuity run and can you speed up the withdrawals at what cost? If this is not in your wife's name yet, make sure the annuity isn't "starting over" as that would make the costs and commissions "start over".

What do you mean you don't have to take an RMD from this account? Will you have pay-outs over the life of the deceased or of your wife? Can she change it?

You are correct, we do not have to take an RMD out of the annuity. I meant to say it was not subject to the 10-year rule like the 2 IRAs are. All the accounts have been transferred over to my wife. It's my understanding the RMD for the annuity is now based on her life expectancy. It's currently invested in a mix of mutual funds, so doesn't that make it a 'variable' rate? I don't know the withdrawal rules. I'll have to find out. Can an account like this be moved to Vanguard or Fidelity?

What is a "group IRA"? "IRA" stands for "Individual Retirement Account". Is this another annuity? If so, the same questions apply to this.

Good question . I believe it's just an IRA. Some of the paperwork I have shows it as a 'Group IRA'. I set up an online Equitable account, and I don't see the 'group' verbiage anywhere.

This appears to be a Taxable account, as opposed to a tax-deferred or Roth account. You can do anything with this money, including paying taxes on withdrawals from the other accounts. You haven't given us any indication of your current or possible future marginal tax brackets, but it best to withdraw from the IRAs when your marginal tax brackets are the lowest.

Do you prepare your own taxes, so that you are familiar with the tax brackets?

I'm currently in the 22% tax bracket...income is $135k. In the past I have prepared my own taxes using TurboTax...but it sounds like things may start to get complicated after adding some of these investments to our household.

[fish71]

What is a 501(c)(3) retirement annuity?
What are the fees associated with Equitable, the advisor, and each fund?

My FIL worked for a non-profit organization which is considered a 501(c)(3). So it was some time of retirement account with his employer. That's about as much as I can tell you. I did ask the advisor what fees were associated with the various accounts, and he only mentioned fees associated with each funds, and the taxes we'd pay on withdrawals (dividends, capital gains, etc.) A quick scan of the mutual funds shows an expense ratio ranging from .7 to 1.0. I'll call their customer service number and see if I can find out anything additional.

[backpacker61]

You and your wife should read through the wiki

Managing a Windfall
https://www.bogleheads.org/wiki/Managing_a_windfall

[Gill]

I would advise your wife to contact an attorney and make sure she understands the law about HER inheritance before anything happens.

Point well made.
Gill

[fish71]

I would advise your wife to contact an attorney and make sure she understands the law about HER inheritance before anything happens.

Not to be dense, but could you elaborate more on the 'law' you are referring to? I just want to understand where you are coming from. FWIW, she is co-executor of her father's estate. She's met with an attorney multiple times in regard to multiple estate matters, including any financial dollars she (and her brother) inherited. All the retirement accounts have been transferred to her appropriately. She and I are both on the same page. Admittedly, she does feel some loyalty to the advisor (family friend), but at the same time she wants to grow the money as much as possible over the next 10-15 years.

[celia]

I'm currently in the 22% tax bracket...income is $135k. In the past I have prepared my own taxes using TurboTax...but it sounds like things may start to get complicated after adding some of these investments to our household.

Don't worry. You will be able to continue filing your own tax returns. Each IRA custodian will send you a 1099-R form and you just take the numbers off the form and enter them in the 1099-R section of the software.

You likely have other income besides wages each year, like dividends or LTCG. You need to be aware of all your incomes each year so you (your wife) can control how much is withdrawn from the IRAs each year. All traditional IRA withdrawals will be taxed as regular/ordinary income. After you add up your incomes and subtract your standard (or itemized) deductions, you can see what tax bracket you are in:
2021 Tax Brackets

Since you're in the 22% tax bracket, you might was well fill up that bracket by withdrawing more than than the RMD or 10% of the account value. You may (or may not) need to save room in your tax brackets in later years should you need to convert your own IRAs or receive another inheritance. And tax brackets are scheduled to revert to 2017 levels in 2026, so take advantage of today's historically low tax brackets.

[donall]

I assume your wife got excellent legal advice on the transfer of inherited assets as well as how the assets should be titled.

Your wife and you need to do thorough research on all the inherited assets. Your wife can then make informed decisions. She needs to know all expenses and type of asset to make a plan. Loyalty to a person who has been paid for their services should not be part of this. After doing the research and learning more about the types of assets and inheritance, please have your wife post (If she wants) so that she can get more targeted thoughts on her inheritance. This should not be rushed!

Best wishes on a difficult time.

[Teague]

I would advise your wife to contact an attorney and make sure she understands the law about HER inheritance before anything happens.

Not to be dense, but could you elaborate more on the 'law' you are referring to? I just want to understand where you are coming from. FWIW, she is co-executor of her father's estate. She's met with an attorney multiple times in regard to multiple estate matters, including any financial dollars she (and her brother) inherited. All the retirement accounts have been transferred to her appropriately. She and I are both on the same page. Admittedly, she does feel some loyalty to the advisor (family friend), but at the same time she wants to grow the money as much as possible over the next 10-15 years.

I think the point was that an inheritance does not automatically become part of the marital estate. So presuming your wife and you inherited this money is inaccurate, in my understanding. You didn't inherit anything, she did. She may choose to commingle some or all of the funds with marital assets, or not.

[nedsaid]

I would advise your wife to contact an attorney and make sure she understands the law about HER inheritance before anything happens.

Not to be dense, but could you elaborate more on the 'law' you are referring to? I just want to understand where you are coming from. FWIW, she is co-executor of her father's estate. She's met with an attorney multiple times in regard to multiple estate matters, including any financial dollars she (and her brother) inherited. All the retirement accounts have been transferred to her appropriately. She and I are both on the same page. Admittedly, she does feel some loyalty to the advisor (family friend), but at the same time she wants to grow the money as much as possible over the next 10-15 years.

The inheritance seems pretty straightforward. The IRAs can be cashed out immediately, over 5 years, or in 10 years. The best strategy would probably be to take distributions yearly over 10 years to minimize the tax bite. The assets in taxable accounts get a stepped up basis at date of death. Not sure about the retirement annuity, would need more information. My suspicion is that the retirement annuity would have similar rules to the IRAs but I would check on that. Be certain that the IRAs are properly titled as Beneficiary IRAs.

[nix4me]

I would advise your wife to contact an attorney and make sure she understands the law about HER inheritance before anything happens.

Not to be dense, but could you elaborate more on the 'law' you are referring to? I just want to understand where you are coming from. FWIW, she is co-executor of her father's estate. She's met with an attorney multiple times in regard to multiple estate matters, including any financial dollars she (and her brother) inherited. All the retirement accounts have been transferred to her appropriately. She and I are both on the same page. Admittedly, she does feel some loyalty to the advisor (family friend), but at the same time she wants to grow the money as much as possible over the next 10-15 years.

I think the point was that an inheritance does not automatically become part of the marital estate. So presuming your wife and you inherited this money is inaccurate, in my understanding. You didn't inherit anything, she did. She may choose to commingle some or all of the funds with marital assets, or not.

Correct.

[ee22bee]

I would advise your wife to contact an attorney and make sure she understands the law about HER inheritance before anything happens.

Not to be dense, but could you elaborate more on the 'law' you are referring to? I just want to understand where you are coming from. FWIW, she is co-executor of her father's estate. She's met with an attorney multiple times in regard to multiple estate matters, including any financial dollars she (and her brother) inherited. All the retirement accounts have been transferred to her appropriately. She and I are both on the same page. Admittedly, she does feel some loyalty to the advisor (family friend), but at the same time she wants to grow the money as much as possible over the next 10-15 years.

I think the point was that an inheritance does not automatically become part of the marital estate. So presuming your wife and you inherited this money is inaccurate, in my understanding. You didn't inherit anything, she did. She may choose to commingle some or all of the funds with marital assets, or not.

For each year's RMD, for example, I would put those in an account that's in her name only, not joint. She can open a new separate account for this purpose or put the RMDs into the taxable brokerage account she inherited, assuming set up and stays in her name only. And don't add non-inherited funds into this dedicated inheritance account.

Same for you if you yourself receive any inheritance in the future.

I would keep each spouse's inheritances separate, and separate from joint marital assets.

[delamer]

I would advise your wife to contact an attorney and make sure she understands the law about HER inheritance before anything happens.

Not to be dense, but could you elaborate more on the 'law' you are referring to? I just want to understand where you are coming from. FWIW, she is co-executor of her father's estate. She's met with an attorney multiple times in regard to multiple estate matters, including any financial dollars she (and her brother) inherited. All the retirement accounts have been transferred to her appropriately. She and I are both on the same page. Admittedly, she does feel some loyalty to the advisor (family friend), but at the same time she wants to grow the money as much as possible over the next 10-15 years.

I think the point was that an inheritance does not automatically become part of the marital estate. So presuming your wife and you inherited this money is inaccurate, in my understanding. You didn't inherit anything, she did. She may choose to commingle some or all of the funds with marital assets, or not.

For each year's RMD, for example, I would put those in an account that's in her name only, not joint. She can open a new separate account for this purpose or put the RMDs into the taxable brokerage account she inherited, assuming set up and stays in her name only. And don't add non-inherited funds into this dedicated inheritance account.

Same for you if you yourself receive any inheritance in the future.

I would keep each spouse's inheritances separate, and separate from joint marital assets.

Good advice. While you can do your investing and asset allocation from the point-of-view of all your assets combined, the inheritance legally belongs to your wife just like your 401(k) belongs to you.

In terms of the RMDs, remember that — hopefully — the account value will grow over the next 10 years. So while $18,000 is 1/10th now, taking $18,000/year for 9 years is probably going to require a big withdrawal in year 10. You have a fair amount of room in the 22% bracket to do IRA withdrawals and stay within the bracket. You don’t have to use it all in year 1, but taking just 1/10th is unnecessarily conservative.

[grabiner]

In terms of the RMDs, remember that — hopefully — the account value will grow over the next 10 years. So while $18,000 is 1/10th now, taking $18,000/year for 9 years is probably going to require a big withdrawal in year 10. You have a fair amount of room in the 22% bracket to do IRA withdrawals and stay within the bracket. You don’t have to use it all in year 1, but taking just 1/10th is unnecessarily conservative.

To reduce this effect, you can put the inherited IRA in bonds, assuming that this much in bonds is appropriate for your investment needs. That will prevent the inherited IRA from growing too much and forcing you to take a big withdrawal that will push you into a high tax bracket. You can hold stocks, which are more likely to grow rapidly, in your other accounts.

[fish71]

I would keep each spouse's inheritances separate, and separate from joint marital assets.

Many of you recommend keeping the inherited assets separate. What is the reasoning behind this? Admittedly, neither my wife nor I considered this. We've been married 25 years... every financial account, mortgage, car loans, etc. have been held jointly. We've shared everything.

I really appreciate all the responses.

[GenawithanE]

You ask why keep the money separate? Because if the day comes when you divorce, she does not have to share one penny of her inheritance with you in the division of property. As someone said to me when my folks died and i asked why they recommended i keep it in a separate account: “Because of [my husband’s] floozy.” In other words, if the non-inheriting spouse cheats, they can’t also get their paws on part of the inheritance after the inheriting spouse throws them out. by the way, we had been happily married for 30 years when that happened. Still happily married.

To be more blunt than some others, she should know that she has the right to keep the inheritance separate and what she might be giving up if she doesn’t. That is her decision and you should not try to influence her.

[cchrissyy]

I think for many people even if the marriage is long term and trusting, they keep in mind that the person who passed away would want the funds kept apart and eventually flowing on to that person's descendents, which may be your kids or their cousins, or else charitable causes, rather than to you, in the case where your inheriting spouse passes away before you do.

[trueblueky]

She needs to talk to Equivest to learn more about the annuity:

* Was the annuity already paying out to FIL?
* Was 2021 distribution taken?
* Is she required to continue taking distributions?
* What portion of the payments are taxable? How does that change over time?
* What is the "basis" -- how much did FIL contribute? How much basis has been recovered, if any?
* Can she change the asset allocation within the annuity? What does that cost? What funds are available?

[delamer]

I think for many people even if the marriage is long term and trusting, they keep in mind that the person who passed away would want the funds kept apart and eventually flowing on to that person's descendents, which may be your kids or their cousins, or else charitable causes, rather than to you, in the case where your inheriting spouse passes away before you do.

I kept my inheritance separate. One reason is because my husband’s extended family would inherit our joint assets (plus retirement accounts) if we outlive out two adult children, under the terms of our wills. But I did not want my parents’ legacy to go to my in-laws (no reflection on my relationship with them). If my children outlive me, they split the inheritance from their grandparents. If my children die before me, my inheritance will go to charity.

I also understand that an asset in my name could not be attached in the event that my husband was sued or be used to keep my husband from qualifying for Medicaid (very unlikely that he’d need to, however).

[fish71]

I appreciate all the input and I will pass this info onto to my wife. You've provided much food for thought.

[AnnetteLouisan]

You ask why keep the money separate? Because if the day comes when you divorce, she does not have to share one penny of her inheritance with you in the division of property. As someone said to me when my folks died and i asked why they recommended i keep it in a separate account: “Because of [my husband’s] floozy.” In other words, if the non-inheriting spouse cheats, they can’t also get their paws on part of the inheritance after the inheriting spouse throws them out. by the way, we had been happily married for 30 years when that happened. Still happily married.

To be more blunt than some others, she should know that she has the right to keep the inheritance separate and what she might be giving up if she doesn’t. That is her decision and you should not try to influence her.

But it also protects the non inheriting spouse. If they divorce, her inheritance will be a reason to keep his payments to her low or none (or a reason not to grant an upward modification). I’m not a divorce lawyer though so double check.

[fish71]

I've updated my original post to provide complete and accurate info.

[mkc]

My wife recently inherited some $ from her father. Everything is currently in multiple Equitable accounts. The advisor was an old-time friend of my FIL, and I've known him for a number of years as well. From a fiduciary standpoint, I do believe he'd act with our best interest in mind.

1/2022 UPDATES

It took some time putting all of this together. I've finished up "The Bogleheads' Guide to Investing", read through some of the Wiki pages, and continue to read through various forum posts.


Wife's Inheritance Accounts
Equitable LPL Brokerage taxable account
$50,000

.30% Insured Cash Account - $1908.16

.07% IDACORP INC (IDA) – 4 shares worth $445.8
.55% NISOURCE INC (NI) – 127 shares worth $3474.72
.84% XCEL ENERGY INC (XEL) – 78 shares worth $5274.36

.21% PUTNAM HIGH YIELD CL A (PHYIX) - $1304.38 (1.04%)
.30% FRANKLIN HIGH INCOME CL A1 (FHAIX) - $1904.65 (.78%)
.33% FRANKLIN HIGH YIELD TAX FREE INCOME CL A1 (FRHIX) - $2071.69 (.64%)
.63% FRANKLIN STRATEGIC INCOME CL A (FRSTX) - $3962.59 (.88%)
.85% FRANKLIN DYNATECH CL A (FKDNX) - $5330.48 (.85%)
1.08% FRANKLIN FEDERAL TAX FREE INCOME CL A1 (FKTIX) - $6761.82 (.63%)
3.20% FRANKLIN INCOME CL A1 (FKINX) - $20092.54 (.61%)

Equitable LPL Brokerage IRA
$146,615

• $40.00 annual account charge
• Subject to 10-year withdrawal rule
• Withdrawals are taxed as income.

.02% Insured Cash Account - $115.24
.00% FIDELITY ADVISOR GOVT INCOME CL A(FVIAX) - $3.99 (.76%)
.19% FRANKLIN HIGH INCOME CL A1(FHAIX) - $1163.99 (.78%)
.89% LORD ABBETT GROWTH LEADERS CL A(LGLAX) - $5650.35 (.90%)
1.28% HIGHLAND INCOME FUND(HFRO) - $7983.79 (2.68%)
1.8% LORD ABBETT BOND DEBENTURE CL A(LBNDX) - $11328.33 (.78%)
2.23% FRANKLIN SMALL MID CAP GROWTH CL A(FRSGX) - $14115.06 (.86%)
2.41% COLUMBIA DIVIDEND INCOME CL A(LBSAX) - $15084.88 (.94%)
2.50% FRANKLIN INCOME CL A1(FKINX) - $15724.27 (.61%)
2.72% COLUMBIA BALANCED CL A(CBLAX) - $17124.66 (.95%)
4.11% FRANKLIN DYNATECH CL A(FKDNX) - $26209.76 (.85%)
5.18% PIMCO RAE PLUS CL A(PIXAX) - $32487.89 (1.2%)

Equitable EQUI-VEST®
EQUI-VEST is a tax-sheltered variable annuity contract offered by Equitable.

$218,000 - Inherited 403(b) Tax Deferred Variable Annuity

• The plan is an employer sponsored plan and not subject to the 10 year rule . The required minimum distributions are calculated based on mortality of age 115.
• Has an annual expense of approximately 1.25%. The fees are not billed but calculated in performance.
• There are no surrender fees.
• Withdrawals are taxed as income.

$35,000 - Inherited IRA

• Has an annual expense of approximately 1.25%. The fees are not billed but calculated in performance.
• Subject to the 10-year withdrawal rule. Withdrawals are taxed as income.

Sub-account investments (identical investment allocations for the Annuity and IRA)
5.55% Guaranteed Interest Account; guaranteed rate of 3%; the annual expense of 1.25% does not apply.

International Stocks/Global
1.73% EQ/Invesco Global Portfolio (OPPAX ?) (1.15%)
3.47% EQ/MFS International Intrinsic Value Portfolio (MGIAX ?) (1.15%)

Investment Grade bonds
1.39% Delaware Ivy VIP High Income (.72%)

Large Cap
2.43% EQ/Lg Cap Val Managed Vol (.86%)
3.47% EQ/JPMorgan Val Opportunities (.98%)
2.43% EQ/Lg Cap Grw Managed Vol (.91%)
2.08% EQ/T. Rowe Price Growth Stock (PRGFX ?) (1.00%)
1.73% EQ//ClearBridge Select Equity Managed Volatility Portfolio Class IB (1.06%)
1.73% EQ/FIDELITY INSTITUTIONAL AM Large Cap Portfolio (.87%)

Mid Cap
1.73% EQ/Goldman Sachs Mid Cap Value (GSMCX ?) (1.09%)
3.47% EQ/MFS Mid Cap Focused Grwth (1.10%)

Small Cap
1.39% EQ/AB Small Cap Growth (.92%)
1.39% EQ/Franklin Sm Cap Val Managed Vol (1.06%)
.69% EQ/Morgan Stanley Sml Cap Grw (1.15%)

_______________________________________________________________

Questions:


My Wife's Accounts

[*]The Equitable account allocations seem overly complicated, not to mention the higher expense ratios and account fees.

Note the comment you had originally regarding the "old time friend" advisor and what you discovered the inherited accounts actually hold. Sounds like you have realized he is a typical advisor, not one acting in the client's best interest.

Between step-up on the taxable and transactions within the IRA not being a taxable event, there is no reason to do an in-kind transfer and retain the current holdings, none are worth keeping. Just be sure to document the current stepped-up basis of the taxable and get them into another brokerage.

ETA or if current broker charges fees on trades, then transfer in-kind and liquidate - again, making sure you have stepped-up basis documented.

[Nyc10036]

I've updated my original post to provide complete and accurate info.

All I can say is wow what a mess.
There isn't anything in those inherited assets that is worth keeping as is.

[nix4me]

I would have your wife call Fidelity and get HER inheritance moved to Fidelity and run as far away from that advisor as possible. A simple 1-fund or 2-fund portfolio is all that is needed. Nothing is worth keeping, all junk. Fidelity will help her get out of the annuity too.

[Navillus1968]

My wife recently inherited some $ from her father. Everything is currently in multiple Equitable accounts. The advisor was an old-time friend of my FIL, and I've known him for a number of years as well. From a fiduciary standpoint, I do believe he'd act with our best interest in mind.
<snip>

For the two IRAs, we will begin taking a RMD next year, and both need to be fully withdrawn over 10 years. At this point, we're planning to withdraw an equal amount each year and then reinvest. I leery of waiting until year 10 and taking a massive tax hit. How to invest the RMDs? not sure.
<snip>

1/2022 UPDATES

It took some time putting all of this together. I've finished up "The Bogleheads' Guide to Investing", read through some of the Wiki pages, and continue to read through various forum posts.

Total Household Income
$137,000 (single income)


Tax Filing Status:
Married Filing Jointly

Tax Rate:
22% Federal
4.95% State

Age:
Me: 50
Wife: 47


My Retirement Accounts

Employer 401k
$170,000 (70% Large Cap Equity; 30% Balanced)...all in a traditional 401k. A Roth option is available.
- Company contributes $1,200 annually
- I'm contributing $7,800 annually

[ <snip>

Wife's Inheritance Accounts
<snip>

Equitable LPL Brokerage IRA
$146,615
<snip>

$35,000 - Inherited IRA

• <snip>

Not trying to be pedantic, but inherited IRAs no longer have RMDs. There is no yearly minimum distribution. As you have noted, the only rule is to liquidate the account by 31 DEC of the 10th anniversary of the death of the IRA owner.
Note- depending on actual date of death, this "10 year rule" could effectively be almost *eleven years* for a death occurring early in the year (death in JAN 2021, IRS 10 year anniversary is DEC 2031- 11 years total time). This allows additional tax-deferred growth, but don't mess up the final withdrawal- the penalty is enormous: 50%!
"Under the 10-year rule, the value of the inherited IRA needs to be zero by Dec. 31 of the 10th anniversary of the owner’s death. "
https://www.forbes.com/sites/juliejason ... d0bcea5d04

As others above have noted, your wife needs to decide whether to commingle her inheritance with your joint funds. There are considerable advantages tax-wise if you commingle at least some of the IRA distributions.

Money is fungible.
Hypothetical example- Your wife takes a $20k IRA distribution in 2021, she can max out ($6k) her deductible IRA, that leaves $14k to live on. Meanwhile, you plus up your 401k contribution by $14k since your current $7.8k contribution leaves plenty of room for a 50 year old.

Obviously, this means commingling her inheritance to some extent in the 401k, but in a divorce she's already entitled to 50% of your 401k anyway (that's currently full of *your* salary, haha), maybe it's not that big a deal?

This plan allows you to take tax-deferred money from the inherited IRA & contribute an equal amount into deductible IRA/401k. You'll pay taxes on the IRA distribution, but deduct taxes on the IRA/401k contributions, should be close to a wash. Your money will grow faster, free of the tax drag in a taxable account.

Your wife needs to decide if she trusts you- show her this scene from The Shawshank Redemption, LOL (language warning) https://www.youtube.com/watch?v=njJ41irPjTc

PS- If you decide to do something like this, invest in equities in the inherited IRA. You don't care if the IRA grows at a good clip- you have plenty of room in your current tax bracket to make sizable IRA distributions (>$60k) without jumping into the 24% marginal rate.

[fish71]

Between step-up on the taxable and transactions within the IRA not being a taxable event, there is no reason to do an in-kind transfer and retain the current holdings, none are worth keeping. Just be sure to document the current stepped-up basis of the taxable and get them into another brokerage.

ETA or if current broker charges fees on trades, then transfer in-kind and liquidate - again, making sure you have stepped-up basis documented.

I would have your wife call Fidelity and get HER inheritance moved to Fidelity and run as far away from that advisor as possible. A simple 1-fund or 2-fund portfolio is all that is needed. Nothing is worth keeping, all junk. Fidelity will help her get out of the annuity too.

Yes, the current advisor charges for trades. We will chat with Fidelity on how to best go about this.

[fish71]

Not trying to be pedantic, but inherited IRAs no longer have RMDs. There is no yearly minimum distribution. As you have noted, the only rule is to liquidate the account by 31 DEC of the 10th anniversary of the death of the IRA owner.
Note- depending on actual date of death, this "10 year rule" could effectively be almost *eleven years* for a death occurring early in the year (death in JAN 2021, IRS 10 year anniversary is DEC 2031- 11 years total time). This allows additional tax-deferred growth, but don't mess up the final withdrawal- the penalty is enormous: 50%!
"Under the 10-year rule, the value of the inherited IRA needs to be zero by Dec. 31 of the 10th anniversary of the owner’s death. "
https://www.forbes.com/sites/juliejason ... d0bcea5d04

As others above have noted, your wife needs to decide whether to commingle her inheritance with your joint funds. There are considerable advantages tax-wise if you commingle at least some of the IRA distributions.

Money is fungible.
Hypothetical example- Your wife takes a $20k IRA distribution in 2021, she can max out ($6k) her deductible IRA, that leaves $14k to live on. Meanwhile, you plus up your 401k contribution by $14k since your current $7.8k contribution leaves plenty of room for a 50 year old.

Obviously, this means commingling her inheritance to some extent in the 401k, but in a divorce she's already entitled to 50% of your 401k anyway (that's currently full of *your* salary, haha), maybe it's not that big a deal?

This plan allows you to take tax-deferred money from the inherited IRA & contribute an equal amount into deductible IRA/401k. You'll pay taxes on the IRA distribution, but deduct taxes on the IRA/401k contributions, should be close to a wash. Your money will grow faster, free of the tax drag in a taxable account.

Your wife needs to decide if she trusts you- show her this scene from The Shawshank Redemption, LOL (language warning) https://www.youtube.com/watch?v=njJ41irPjTc

PS- If you decide to do something like this, invest in equities in the inherited IRA. You don't care if the IRA grows at a good clip- you have plenty of room in your current tax bracket to make sizable IRA distributions (>$60k) without jumping into the 24% marginal rate.

I appreciate the detailed response and video clip .

[fish71]

Any comments on these other questions I had?

My Accounts

• Regarding my 401k allocations, I'm thinking either the Target fund 2040/2045 or some combination of one or more of the following would be good. Thoughts?
  Large Cap Equity Portfolio
  Small/Mid Cap Equity Portfolio
  International Equity Portfolio
  Bond Portfolio
• Any suggestions on the T. Rowe Price fund? Is it advised to keep it or transfer and consolidate to one brokerage?

[rhubarbpie]

Any comments on these other questions I had?

My Accounts

• Regarding my 401k allocations, I'm thinking either the Target fund 2040/2045 or some combination of one or more of the following would be good. Thoughts?
  Large Cap Equity Portfolio
  Small/Mid Cap Equity Portfolio
  International Equity Portfolio
  Bond Portfolio

All of your options except the stable value fund have super-cheap ERs, so none of them would be a horrible choice. It kinda depends on what you end up doing with the rest of your portfolio, and your wife's, since preferably you are constructing an AA with your whole portfolio in mind. But a target fund or the balanced fund would be easy, decent options for the time being. Since the funds are inside a 401k, you could change them whenever without tax consequences.

[delamer]

Any comments on these other questions I had?

My Accounts

• Regarding my 401k allocations, I'm thinking either the Target fund 2040/2045 or some combination of one or more of the following would be good. Thoughts?
  Large Cap Equity Portfolio
  Small/Mid Cap Equity Portfolio
  International Equity Portfolio
  Bond Portfolio

All of your options except the stable value fund have super-cheap ERs, so none of them would be a horrible choice. It kinda depends on what you end up doing with the rest of your portfolio, and your wife's, since preferably you are constructing an AA with your whole portfolio in mind. But a target fund or the balanced fund would be easy, decent options for the time being. Since the funds are inside a 401k, you could change them whenever without tax consequences.

Agreed.

Transfer your IRA to whichever custodian you choose for your wife’s inheritance.

[fish71]

[Thread merged into here --admin LadyGeek]

My wife recently opened up a Schwab brokerage account and completed an "in kind" transfer of an Equitable taxable account she inherited from her dad last year. He passed away 4/15/21 so all are considered long term capital gains/losses. It has a number of assets in it...stocks, mutual funds, cash.

Symbol Description Quantity Gain/Loss $

IDA IDACORP INC 4 $263.14
NI NISOURCE INC 00500 127 $2,737.39
XEL XCEL ENERGY INC 78 $3,533.40

FKDNX FRANKLIN DYNATECH A (.79%) 34.161 -$1,007.69
FKTIX FRANKLIN FEDERAL TAX FRE E INCOME A1 (.63%) 550.18 -$715.25
FHAIX FRANKLIN HIGH INCOME A1 (.76%) 1007.75 -$342.63
FRHIX FRANKLIN HIGH YIELD TAX FREE INC A1 (.64%) 197.869 -$263.17
FKINX FRANKLIN INCOME A1 (.62%) 7973.229 $1,499.77
FRSTX FRANKLIN STRATEGIC INCOM E A (.88%) 421.104 -$816.94
PHYIX PUTNAM HIGH YIELD A (1.04%) 221.656 -$138.88


1) Any reason to keep any of these? My guess is not, and that VTI would be the best choice for this account.
2) I will help her with the buying and selling...though it will be a first for both of us. Do we keep it simple and use Market Orders or should we use Limit Orders?
3) Do we need to be considered with tax-loss harvesting...or just sell all and be done with it and pay the 15% capital gains tax on what net gain ends up being?

[retired@50]

My wife recently opened up a Schwab brokerage account and completed an "in kind" transfer of an Equitable taxable account she inherited from her dad last year. He passed away 4/15/21 so all are considered long term capital gains/losses. It has a number of assets in it...stocks, mutual funds, cash.

Symbol Description Quantity Gain/Loss $

IDA IDACORP INC 4 $263.14
NI NISOURCE INC 00500 127 $2,737.39
XEL XCEL ENERGY INC 78 $3,533.40

FKDNX FRANKLIN DYNATECH A (.79%) 34.161 -$1,007.69
FKTIX FRANKLIN FEDERAL TAX FRE E INCOME A1 (.63%) 550.18 -$715.25
FHAIX FRANKLIN HIGH INCOME A1 (.76%) 1007.75 -$342.63
FRHIX FRANKLIN HIGH YIELD TAX FREE INC A1 (.64%) 197.869 -$263.17
FKINX FRANKLIN INCOME A1 (.62%) 7973.229 $1,499.77
FRSTX FRANKLIN STRATEGIC INCOM E A (.88%) 421.104 -$816.94
PHYIX PUTNAM HIGH YIELD A (1.04%) 221.656 -$138.88


1) Any reason to keep any of these? My guess is not, and that VTI would be the best choice for this account.
2) I will help her with the buying and selling...though it will be a first for both of us. Do we keep it simple and use Market Orders or should we use Limit Orders?
3) Do we need to be considered with tax-loss harvesting...or just sell all and be done with it and pay the 15% capital gains tax on what net gain ends up being?

1. I'd sell everything. The mutual funds have high expense ratios and the individual stocks have firm-specific risk. Use the proceeds to invest in what makes sense for your overall portfolio. See link for tax efficient ideas: https://www.bogleheads.org/wiki/Tax-eff ... _placement

2. You can use either order type for the stocks, but mutual funds don't have order types. I'd just use a market order and be done with it.

3. It appears that you'll have a gain somewhere between $4k and $5k given the numbers you've provided. Depending on your income tax bracket, any gains will be taxed accordingly. If this amount ($4k - $5k) is small relative to your total annual income then it's really not a big deal and you probably shouldn't string it out over multiple tax years.

Regards,

[retiredjg]

I see no reason to keep any of those.

Tax-loss harvesting is useful for other things, but not this. Just sell it, pay the tax on roughly $4,700 and buy what you want.

[LadyGeek]

fish71 - In order to provide appropriate advice, it's best to keep all the information in one spot. I merged your update back into the original thread. If you have any questions, ask them here.

(Thanks to the member who reported the post and provided a link to this thread.)

[fish71]

fish71 - In order to provide appropriate advice, it's best to keep all the information in one spot. I merged your update back into the original thread. If you have any questions, ask them here.

(Thanks to the member who reported the post and provided a link to this thread.)

Will do

And thanks to the rest of you for your responses.

[fish71]

I posted a last set of updates based on where we currently stand after simplifying our investment accounts. I look forward to the responses.

[retiredjg]

5/2022 UPDATES

I'm posting one last update related to this thread. My wife and I have completed moving the various accounts over to Schwab. She was not able to move the 403(b) annuity from Equitable without doing a complete surrender. We don't want the tax hit, so she'll keep it there. We've had multiple conversations with Equitable, Schwab, and even Fidelity (while we considered them). Long story short, the funds have to remain with Equitable because of the type of contract in conjunction with the beneficiary distribution option my wife selected when the account was transferred to her.

This is our current portfolio. It's quite different from my original post.


Desired Asset allocation:
75% equities (85% US / 15% International)
25% fixed income
_______________________________________________________________

The (%) on left represents the weight within the account. The (%) on right represents the weight within the total portfolio.


His Retirement Accounts

Employer 401k
Approximating the Total Stock Market with the first 2 (88% Large Cap and 12% Small/Mid Cap).

33.47% Vanguard Employee Benefit Index Fund: ER .01% 9.37%
4.56% Vanguard Institutional Extended Market Index Trust: ER .03% 1.28%
40.13% Vanguard Institutional Total International Stock Market Index Trust: ER .05% 11.23%
21.83% Vanguard Institutional Total Bond Market Index Trust ER .02% 6.11%

Available Funds (ticker symbols not available except for one)

• Stable Value Portfolio; The portfolio currently invests all its assets in the Vanguard Retirement Savings Trust II (.25%)
• Short-Term Bond Portfolio; Vanguard Short-Term Bond Index Fund; Institutional Plus Class Shares (VBIPX) (.04%
• Bond Portfolio; Vanguard Institutional Total Bond Market Index Trust (.016%)
• Balanced Portfolio; Vanguard Custom Balanced Index Portfolio; Large Cap Equity Portfolio - 60% and Bond Portfolio - 40% (.02%)
• Large Cap Equity Portfolio; Vanguard Employee Benefit Index Fund - S&P 500 index (.008%)
• Small/Mid Cap Equity Portfolio; Vanguard Institutional Extended Market Index Trust (.04%)
• International Equity Portfolio; Vanguard Institutional Total International Stock Market Index Trust (.06%)
• Target Funds - 2035, 2040, 2045, 2050 (.045%)

Schwab Roth IRA
100% T. Rowe Price Capital Appreciation Fund (PRWCX) ER .69% 3.42%

Her Accounts
Equitable 403(b) Annuity (Inherited)
52.44% EQ/Equity 500 Index Portfolio 1.25% account fee + ER .55% 15.43%
47.56% Guaranteed Interest Account (earns 3%) No Fee 13.99%

This account is not subject to the Secure Act 10-year rule...at least this is how Equitable is interpreting it. Both Schwab and Fidelity have questioned it however. The plan will be to withdrawal the RMD each year and reinvest.

Schwab Taxable
100% Vanguard Total Stock Market ETF (VTI) ER .03% 8.62%

Schwab Roth
100% Schwab Total Stock Market (SWTSX) ER .03% 2.20%

Schwab Inherited IRA
86.47% Schwab Total Stock Market (SWTSX) ER .03% 24.52%
13.53% Vanguard Intermediate-Term Bond ETF (BIV) ER .04% 3.84%

These funds have to be fully withdrawn over the next 9 years. The plan is to do so in a manner to limit the tax hit. We'll either reinvest as additional pre-tax contributions to my 401k (my wife is OK with comingling her inheritance), or into her taxable and roth...or a combination.

_______________________________________________________________

I'm interested in the forum's thoughts on the following:

1) The investment choices we've selected. What would you do differently?

2) How have we done allocating the assets around the specific accounts to meet our desired allocation? Can we simplify this further to make rebalancing easier?

3) What do you think of the fixed income allocation percentages? Are we putting too much/too little in the Equitable guaranteed interest account? Should we shift more or less towards the bond funds?

Thanks!

You have made a lot of progress and what you have looks fine.

The only red flag is the EQ/Equity 500 Index Portfolio 1.25% account fee + ER .55% 15.43% and this seems to be largely unavoidable. I can think of a couple of things that might improve this high cost situation over the years.

1. Go ahead and take more than the RMD from the 500 index in this account, but not enough to push you out of the current 22% tax bracket. Invest that money in total stock in taxable without the fee and high expense ratio. This will not change your AA and there will be a little tax, but it will eliminate the high cost on a little of the portfolio.

2. As His 401k grows, the bond allocation in that account will become larger. Trim that bond slice and increase the size of the 3% guaranteed interest account in the annuity which apparently does not have the extra high fees.

3. Consider that your 75/25 allocation is a bit aggressive and change it to 70/30 which is still aggressive for your ages. Do this by reducing the 500 index in the annuity and buying more of the 3% guaranteed income fund.

If you were to do a little bit of all of these ideas, you could reduce the amount of the portfolio subject to the high costs from 15% of the portfolio to 10% immediately. And maybe reduce it to about 0% by the end of 2023.

[protagonist]

Welcome to the forum!

The most common recommendations for a low cost brokerage are, in alphabetical order, Fidelity, Schwab and Vanguard. You can’t go wrong with any of the three.

It is to the advisory industry’s advantage to get folks to believe that it is just too complex for individuals to figure out. At Bogleheads we say that it can be straight forward and manageable. I recommend the Wiki “Getting Started” here: https://www.bogleheads.org/wiki/Getting_started

+1.
There is nothing complicated or mysterious about intelligent investing , and the low cost brokerages are a crapshoot....go with the one you feel most comfortable with. Most important, whatever you choose to invest in, don't invest in anything that you don't understand. Which means doing your homework anyway if you hire somebody (otherwise you are assuming that "somebody" has your interests at heart above and beyond their own , which is a big assumption to make with your life savings and in most if not all situations is probably wrong). In which case there is not a lot of reason, imho, to hire somebody.

[harikaried]

How have we done allocating the assets around the specific accounts to meet our desired allocation? Can we simplify this further to make rebalancing easier?

Looks like you're pretty close to your 25% fixed income and 85%US/15%Intl split for equities. If you really wanted to simplify and reduce fees, seems like you could do something like… skipping Extended in the 401k, shifting all "bonds" to annuity (and less subject to account fee), have all other accounts in 1 position with low cost. This means for rebalancing, you adjust the US/Intl ratio in the 401k and equity/fixed-income ratio in annuity.

Employer 401k
60% Vanguard Employee Benefit Index Fund: ER .01% [17% total]
40% Vanguard Institutional Total International Stock Market Index Trust: ER .05% [11% total]

His Roth
100% Schwab Total Stock Market (SWTSX) ER .03% [3% total]

Equitable 403(b) Annuity (Inherited)
15% EQ/Equity 500 Index Portfolio 1.25% account fee + ER .55% [4% total]
85% Guaranteed Interest Account (earns 3%) No Fee [25% total]

Taxable
100% Vanguard Total Stock Market ETF (VTI) ER .03% [9% total]

Her Roth
100% Schwab Total Stock Market (SWTSX) ER .03% [2% total]

Inherited IRA
100% Schwab Total Stock Market (SWTSX) ER .03% [28% total]

[retiredjg]

Something like this does simplify things on paper, but I don't think it will work without a bond fund in the 401k. Otherwise, there will be no contributions of new money going into bonds in the portfolio.

[harikaried]

there will be no contributions of new money going into bonds in the portfolio

OP will want to rebalance anyway as the 401k's annual contributions seem to be about 5% of that account. So until the annuity is 100% fixed income, "new bonds" can be achieved by exchanging from the expensive EQ 500.

Maybe if OP wants to have 30% fixed-income asset allocation, then 100% of annuity could be the guaranteed interest covering 29%, so the remainder 1% fixed-income could be bonds in the 401k. This also has a nice benefit of only 1 account is needed to rebalance US/Intl/Bonds. So maybe something like…

Employer 401k
55% Vanguard Employee Benefit Index Fund: ER .01% [16% total]
40% Vanguard Institutional Total International Stock Market Index Trust: ER .05% [11% total]
5% Vanguard Institutional Total Bond Market Index Trust ER .02% [1% total]

Equitable 403(b) Annuity (Inherited)
100% Guaranteed Interest Account (earns 3%) No Fee [29% total]

Other accounts
100% Total Stock Market ER .03% [43% total]

The total/weighted portfolio expense ratio seems to drop to 0.02% from currently 0.32% (roughly $2k/yr -> $100).

[fish71]

retiredjg & harikaried,

I appreciate the responses. It seems you are both advocates of using the Equitable guaranteed savings account as our primary fixed income asset...at least for the time being...mainly for the reason of eliminating the high cost of the Equity 500 fund (which happens to be their cheapest fund option ). I'm ok with this, but I don't understand at what point this becomes a negative vs. investing in a bond fund (ex. BND). Or is always holding a portion of our fixed income portfolio in this account a good idea? Admittedly, I haven't fully grasped how to measure a bond fund's performance...so not sure when this "savings account" begins hurting us vs. helping us. Hope this makes sense.

Also, if we move all the funds out of the Equity 500 fund and into the guaranteed savings account (assuming we go 70/30), aren't we then locking in the losses we've taken ytd?

[retiredjg]

retiredjg & harikaried,

I appreciate the responses. It seems you are both advocates of using the Equitable guaranteed savings account as our primary fixed income asset...at least for the time being...mainly for the reason of eliminating the high cost of the Equity 500 fund (which happens to be their cheapest fund option ). I'm ok with this, but I don't understand at what point this becomes a negative vs. investing in a bond fund (ex. BND).

If there were no extra fee in this account, your guaranteed income fund is worth keeping as long as it is paying more than bonds are paying. Since there is an extra fee to use anything else in this account, the guaranteed income fund is probably worth keeping as long as you have the high cost IRA account. What you have to watch for is whether the 3% continues. Sometimes the interest rate changes from year to year.

Also, if we move all the funds out of the Equity 500 fund and into the guaranteed savings account (assuming we go 70/30), aren't we then locking in the losses we've taken ytd?

Not if you turn around and sell bonds and buy 500 index in another account. that would just be exchanging things.

[harikaried]

(assuming we go 70/30), aren't we then locking in the losses we've taken ytd?

It sounds like you're hesitant in switching from 75/25 to 70/30 because of the current market conditions, and that could potentially be market timing (similar to some who decide to switch after market has gone up). You can simplify your accounts while maintaining your current asset allocation and later adjust or glide.

Indeed if we say the 5% less exposure to equities is $30k investment, missing out on a 10% swing (up or down) is $3k compared to the guaranteed interest of $1k.

However as retiredjg pointed out, if you sell EQ500 the same day you exchange bonds for equities in either/both 401k and inherited IRA, then you've basically moved equities among your accounts without changing overall exposure as you'll be selling low and buying low at the same time.

You'll need to decide what asset allocation is good for you to maintain and if the additional costs (e.g., account fees, rebalancing process) are worthwhile.