Inherited Ira Help

[Keller Jaymes]

I'm new to investing, and hoping you can help me figure out the best course of action.
My grandmother passed away, at the age of 92, October 2020.
I have inherited a portion of her IRA. Split between my 4 Aunts/Uncles and me and my sibling splitting my mother's share (as she's already passed away). My portion has been set up in my name at Ameriprise.
The Summary of my account says "Custd for *my name* INH IRA as bene of *grandmothers name* / Tax qualified *my name* Ameriprise brokerage account. The account was funded August 2021. The value has dropped from about $18k down to about $14k since that time. I am 40.


What can I do with this? What am I supposed to do with this? The 'advisor' said I need to take it out within 10 years.
Any advise would be VERY much appreciated. I don't currently have a tax advisor.

[CAsage]

Do you need the money? What is it invested in? What other investments do you have? Emergency fund good and no debt? What tax bracket are you in (marginal federal)? Yes, you must draw it out in 10 years, but you could anytime move it to another custodian if you thought Ameriprise's fees were excessive.
With a little more info you would get good advice. For example, you could choose to take it out now, pay taxes on it, then fund your own IRA or savings.

[Tom_T]

Yes, if you withdraw it all now, it's $14K of taxable income. You could have them withhold x% Federal and possibly some state, but you'd have at least $10K left over in your pocket.

[livesoft]

... then fund your own IRA or savings.

Just be aware that one must have earned income to "fund your own IRA." Technically, one cannot withdraw from an inherited IRA and have that money qualify as earned income eligible to contribute to one's own IRA.

But yes, one can use the money for non-IRA savings and investments. Or one can use the money for expenses and that might free up some earned income from a job to contribute to an IRA.

For the OP: Ameriprise is generally a high-fee financial institution that I would not keep any of my investments at. However, the drop in value of your inherited IRA is mostly from the drop in the stock and bond markets in 2021.

For more help, I suggest you follow the format about "Asking Portfolio Questions": https://www.bogleheads.org/wiki/Asking_ ... _questions

[biscuit5]

I'm new to investing, and hoping you can help me figure out the best course of action

You may want to list your AGE in your post as (to me) that will have an impact on the responses.

[Keller Jaymes]

Do you need the money? What is it invested in? What other investments do you have? Emergency fund good and no debt? What tax bracket are you in (marginal federal)? Yes, you must draw it out in 10 years, but you could anytime move it to another custodian if you thought Ameriprise's fees were excessive.
With a little more info you would get good advice. For example, you could choose to take it out now, pay taxes on it, then fund your own IRA or savings.

I don't need the money. It's invested in LCCAX (Columbia Contrarian Core CL A ). I have a Roth Ira, as does my spouse. My spouse also has a SEP-IRA. I have a great emergency fund. Only debt is mortgage w/ 4.25% interest rate.
I believe we're in the 12% / approaching the upper end of it. Do i have to take RMD?

[MarkBarb]

You can take out as much or as little as you want each year, provided that you have it all out by the end of 10 years.

You can also change how it is invested without taking it out. For example, if it is invested in a few individual stocks, you could sell those and buy a stock mutual fund or a bond fund or a money market fund. As long as the money stays in the account, that won't impact your taxes and you have pretty broad latitude in how it is invested.

Any money that you take out of it will be taxed as income. That might make it better to take it out a little every year to avoid going into a higher tax bracket. If you are near retirement and expect your income to be lower in retirement, it might be better to wait until then to take it out so that your tax rate is lower. If you have a year where your income is unusually low, that might be a good year to take it out because your tax rate is lower.

You cannot move it into your own IRA. The closest you could come would be to take it out, pay taxes on it, and then (if you have enough other "earned" income), put the money into an IRA.

If you were close to the person from whom you inherited it and if you don't have a strong need for the money, I think you should consider taking out a little each year to spend on something they would have appreciated. There is no financial incentive to do that, but it might bring you extra satisfaction thinking about how you are spending what was their money on something that would have made them smile.

[MarkBarb]

Do you need the money? What is it invested in? What other investments do you have? Emergency fund good and no debt? What tax bracket are you in (marginal federal)? Yes, you must draw it out in 10 years, but you could anytime move it to another custodian if you thought Ameriprise's fees were excessive.
With a little more info you would get good advice. For example, you could choose to take it out now, pay taxes on it, then fund your own IRA or savings.

I don't need the money. It's invested in LCCAX (Columbia Contrarian Core CL A ). I have a Roth Ira, as does my spouse. My spouse also has a SEP-IRA. I have a great emergency fund. Only debt is mortgage w/ 4.25% interest rate.
I believe we're in the 12% / approaching the upper end of it. Do i have to take RMD?

No. You don't have to take any RMDs. You can take it out at any rate as long as it is gone by the end of the 10 year period. You can take it all out today or wait until the last week of the last of the 10 years and take it all out then. When they started the 10 year rule, the IRS put out some communications that were misleading and some people thought that you needed to take RMDs, but that is not the case.

[trueblueky]

Do you need the money? What is it invested in? What other investments do you have? Emergency fund good and no debt? What tax bracket are you in (marginal federal)? Yes, you must draw it out in 10 years, but you could anytime move it to another custodian if you thought Ameriprise's fees were excessive.
With a little more info you would get good advice. For example, you could choose to take it out now, pay taxes on it, then fund your own IRA or savings.

I don't need the money. It's invested in LCCAX (Columbia Contrarian Core CL A ). I have a Roth Ira, as does my spouse. My spouse also has a SEP-IRA. I have a great emergency fund. Only debt is mortgage w/ 4.25% interest rate.
I believe we're in the 12% / approaching the upper end of it. Do i have to take RMD?

You have ten years to deplete the account.

From a tax standpoint, taking up to the top of 12% each year is a good initial plan.

[Keller Jaymes]

Thank you all for your advise/tips. I was worried about the RMD aspect, afraid I was supposed to be taking one.
Would you use the money to invest, or, put it towards mortgage principal (Rate is 4.25%)? My Grandma was incredibly hard working, and extremely frugal - I wasn't expecting this money, so I want to make the most of it.

[CAsage]

Bless your grandmother for the gift! In your shoes, I would move the money to either Fidelity, Vanguard or Schwab, and invest it in whatever you feel fits your asset allowance. Since it's pre-tax, you might consider a Total Bond Index fund) with dirt cheap expense ratio of 0.3% or near that, and then increase your stock a bit elsewhere. Your current LCCAX fund is a relatively high 1% Large Cap fund; you can get one for less. Not ghastly, but not good. Think Whole Foods pricing. Then I would withdraw at least 1/10 each year or simplify your life and drain it ASAP keeping your total income under the 12% tax bracket. Invest it elsewhere and think fondly of Grandma.
Are you getting a mortgage deduction off your taxes? If you are that close to paying it off, go for it, otherwise investing is better.

[Alan S.]

Thank you all for your advise/tips. I was worried about the RMD aspect, afraid I was supposed to be taking one.
Would you use the money to invest, or, put it towards mortgage principal (Rate is 4.25%)? My Grandma was incredibly hard working, and extremely frugal - I wasn't expecting this money, so I want to make the most of it.

You were correct to be concerned about annual RMDs within the 10 year rule. Because GM passed after her RMDs had begun, the proposed Secure Act Regs indicate that you must take annual RMDs in year 1-9. That said, because these Regs are still not finalized after 3 years, the IRS has stated that you were not responsible for beneficiary RMDs that you did not take in 2021 and 2022. However, you need to take these annual RMDs starting this year, and then drain the account by 12/31/2030.

Those annual RMDs are based on your age in 2021 as long as your separate inherited IRA was established by 12/31/2021. Was it?

[Keller Jaymes]

Thank you all for your advise/tips. I was worried about the RMD aspect, afraid I was supposed to be taking one.
Would you use the money to invest, or, put it towards mortgage principal (Rate is 4.25%)? My Grandma was incredibly hard working, and extremely frugal - I wasn't expecting this money, so I want to make the most of it.

You were correct to be concerned about annual RMDs within the 10 year rule. Because GM passed after her RMDs had begun, the proposed Secure Act Regs indicate that you must take annual RMDs in year 1-9. That said, because these Regs are still not finalized after 3 years, the IRS has stated that you were not responsible for beneficiary RMDs that you did not take in 2021 and 2022. However, you need to take these annual RMDs starting this year, and then drain the account by 12/31/2030.

Those annual RMDs are based on your age in 2021 as long as your separate inherited IRA was established by 12/31/2021. Was it?

The account in my name was opened 8/27/2021.
I turned 39 in 2021. I've had an equal number of people tell me No RMD and Yes RMD -

[Rob Relyea]

I've had an equal number of people tell me No RMD and Yes RMD -

I've inherited part of an IRA in 2022, so I'm subscribed to the bogleheads thread linked below to determine if RMDs will be required in those 10 years, or not. Inconclusive so far to me.

Thread: IRS Delays New Guidelines for Inherited IRAs

[Katietsu]

Thank you all for your advise/tips. I was worried about the RMD aspect, afraid I was supposed to be taking one.
Would you use the money to invest, or, put it towards mortgage principal (Rate is 4.25%)? My Grandma was incredibly hard working, and extremely frugal - I wasn't expecting this money, so I want to make the most of it.

You were correct to be concerned about annual RMDs within the 10 year rule. Because GM passed after her RMDs had begun, the proposed Secure Act Regs indicate that you must take annual RMDs in year 1-9. That said, because these Regs are still not finalized after 3 years, the IRS has stated that you were not responsible for beneficiary RMDs that you did not take in 2021 and 2022. However, you need to take these annual RMDs starting this year, and then drain the account by 12/31/2030.

Those annual RMDs are based on your age in 2021 as long as your separate inherited IRA was established by 12/31/2021. Was it?

The account in my name was opened 8/27/2021.
I turned 39 in 2021. I've had an equal number of people tell me No RMD and Yes RMD -

1. Alan S. is an expert on this topic. You should take his advice.

2. You are getting conflicting advice because the IRS has given changing information since the passing of the Secure Act. Even now, they have not published the final regulations when the original Secure Act passed in 2019.

3. Plan on needing to take an RMD in 2023. Watch for more IRS guidance though as Congress or the IRS may change their mind by the end of the year.

[Keller Jaymes]

Thank you for taking the time to help me.