Inherited IRA and RMD Question

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Inherited IRA and RMD Question

Postby jb9 » Tue Mar 22, 2011 6:38 am


I am curious to hear how a boglehead might handle investing an Inherited IRA currently held at Fidelity in a brokerage account. I have integrated it into my total AA and am currently using a DCA approach as I demystify my own risk tolerance. I need to take an RMD annually which I use to fund a Roth IRA. Since I have a DCA approach, I am envisioning using my liquid core position (Money Market) as the source for my RMDs as well as “new funds” to rebalance until all the funds are invested. I am hoping to try and at least get a return on the account that will replenish each annual RMD. Does this seem like a valid approach or should I not worry about diminishing the principal as long as I am reinvesting it elsewhere?

Thanks in advance for any thoughts or suggestions.

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Postby Aptenodytes » Tue Mar 22, 2011 8:02 am

I can tell you what I do with my inherited IRAs:

1) I consider them to be an integral part of my overall retirement assets, and allocate and rebalance accordingly.

2) Beginning around September, I calculate what my RMD will be and look for ways to withdraw it that are consistent with my AA -- either use the RMD as a chance to rebalance or if that isn't possible rebalance after the withdrawal.

3) I don't think it makes sense to set a different target rate of return on your inherited IRA just because of the RMD requirement. Better to manage the overall portfolio. Don't take RMD into account when formulating AA.

4) You imply that your inherited IRA is in cash. I would not delay investing it unless investing all of it now would generate a huge amount of anxiety. The rational bet is to move all of it into your AA immediately.

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Re: Inherited IRA and RMD Question

Postby YDNAL » Tue Mar 22, 2011 8:15 am

jb9 wrote:I am curious to hear how a boglehead might handle investing an Inherited IRA currently held at Fidelity in a brokerage account.

It is YOUR IRA and should be treated as such - part of a unified portfolio. Take RMDs and reinvest according to your AA to whatever asset class needs it most.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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Postby Oneanddone » Tue Mar 22, 2011 1:48 pm

If at some point you are going to be annuitizing money, I like using inherited IRAs for this. This is because inherited IRAs otherwise can't last beyond your original life expectancy.

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Similar situation & question

Postby Take_Five » Wed Mar 23, 2011 3:55 pm

I have a similar situation to jb9 and a question -

I now understand why I should treat the inherited IRA as part of my retirement AA (I am also developing a separate 529 savings AA for the kid's college) Though, as pointed out, the BDA is designed to be depleted in your life expectancy. Of course, the challenge is how to spread / balance that AA among various accounts. I have two inherited IRAs (BDAs) (that I would like to move to Vanguard and combine), a smaller inherited Roth IRA, my own 401K, my wife's 401K (need to roll over), my Roth, and my wife's Roth. The inherited IRA accounts for roughly 50% of my retirement portfolio, 401Ks about 40% and Roths 10%. My 401K has a few decent fund options, but I can't "balance" that with our Roth's. Obviously, I can have total control over my eventual BDA and Roth funds choices. Thus, I am considering having some stock/bond/Intl' options in each major block - 401K, Roth, BDA. I'm still in the process of educating myself and forumulating a first take - but does it make sense to maintain multiple fund options in each account?

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