Need some help/advice please!
My mom is turning 70 this year, and will have to start taking required distributions in 2015 out of her 403b and IRAs. We had discussed a few months ago about moving her out of all the load funds (she's in with companies like Valic and the like right now, former school teacher) and maybe getting her into a simple 2- 3-fund index portfolio. Based off of the idea of simple and efficient - she agrees she wants Vanguard and will eventually move all of her accounts over (hooray!). She has one taxable, a 403b and at least one traditional IRA that I know of, in addition to a savings account.
Her entire investment/retirement portfolio is not necessary for her living expenses at all. She has a very generous pension and SS - more than she can spend - and it will last as long as she does. So she said her comfort level with risk/volatility is high, and wants a portfolio that equals roughly 80% stocks, 20% bonds.
She has about 40K sitting in a savings account. She wants it moved to a new account at Vanguard and wants it all in VTSAX.
My first thought is for her to open a taxable account and since VTSAX is at least tax efficient, it will be the best fund to hold in there.
But since she will be having to start the RMDs next year, there is also the possibility to open a Roth IRA to use for eventual conversions. But at this point, she's kind of screwed (from what I can tell) on taxes - her pension/SS + RMD is going to push her solidly above a 25% tax rate, and adding a conversion to a Roth is just going to push her taxes up even further. Should I even try to start her on Roth conversions at this point? And then there is the fact that her current taxable account holds several different types of funds including bonds so that is creating even more taxable events (and I'll have to research how to best liquidate those to get her moved over to her AA without causing even more of a mess).
So my current first run at a game plan is:
1. Open Vanguard taxable account, link to her checking account and transfer cash to buy VTSAX.
2. Move over her existing accounts to Vanguard; consolidate the existing to reduce accounts down to one of each kind and convert any 403b to a traditional IRA to simplify her holdings. Try to accomplish this before December 31st. There is an annuity in there that I need more info on, but I'll get her to give me the account details soon.
3. Sell off loaded funds or any others that don't fit with her AA, and buy into the indexed mutual funds VTSAX/VBTLX and possibly some international as she does like the idea so could add some VTIAX. All dividend/cap gains are probably going to be reinvested as she doesn't need to take any payouts.
Will have to be very careful with the existing taxable account fund transition as I don't want to add to the already high tax bill that is coming.
4. Do major research on minimizing her taxes - because I think this is the biggest issue at this point.
5. Open Roth IRA? Conversions? Or something else...
So any suggested reading or advice on how to proceed with this is GREATLY appreciated. Please poke holes in this plan if you see any!