Author Topic: Beneficiary IRA in a CD - trying to help my mom  (Read 967 times)

bdoubleu

  • 5 O'Clock Shadow
  • *
  • Posts: 51
  • Age: 32
Beneficiary IRA in a CD - trying to help my mom
« on: July 20, 2016, 08:18:39 AM »
My mom has a beneficiary IRA in a CD at 2% (bleh) worth ~$18,000 she inherited from my grandpa (he passed this year in April).  She wants my advice on what she should do with it, and I don't have the knowledge to give her a confident, correct answer. 

She doesn't need the money, but my first thought is it would be nice to get it moved to somewhere with better returns than 2%.  I wasn't sure if she could roll it over to Vanguard - from what I read, she wouldn't be able to roll it to a rollover IRA in her name, but is there some other account that would work?

Also, if she just cashes it out, she avoids the 10% penalty (grandpa was 90+), but would have to pay income tax on it, correct?  She is currently in the 25% bracket, but I was going to suggest maxing out her 401(k) (she is 64 - so max of $24,000 which she cannot reach this year due to her job allowing a max of 50% of her paycheck to go to 401k) to drop her to the 15%, and possibly withdrawing just enough to keep it taxed at 15%.  This may give her more wiggle room to withdraw more from the account next year and beyond, as she is willing to contribute the 50% max her company allows.

I've also read some about RMDs, which started to make my head spin (I'm sure it's easier to figure out than I'm making it seem....).  But if she were to take more out than whatever the calculated RMD/year amount is, that would be okay too, right?

Sorry if this seems all over the place.  I'm pretty financially savvy (maybe not as much as frequent posters here are, but definitely better than average), but I haven't dealt much with inheritance/estates.  Any other information that may be helpful??

(The rest of the inheritance she is getting was just in a checking account, no property to sell or anything, so that should be pretty straight forward as far as taxes [none?])

Spork

  • Walrus Stache
  • *******
  • Posts: 5753
    • Spork In The Eye
Re: Beneficiary IRA in a CD - trying to help my mom
« Reply #1 on: July 20, 2016, 08:28:37 AM »
Take my words with a grain of salt.  I am currently slogging through similar issues.

You can definitely transfer an inherited IRA to Vanguard.  I'm in the process of doing it at the moment (and the current account holder is dragging their feet really badly).  I don't know what the CD throws into the mix.  She might have to pay some penalty (within the IRA) for cashing it early... or if it matures relatively soon, she might just wait until it matures.  In other words, I am not sure you can do an "in kind" transfer of a CD.  It would probably have to be in cash to be movable.

I am assuming Grandpa was taking RMDs every year already.  My understanding is that she can take more than the RMD (the 'M' is 'minimum').  It should just be taxed as ordinary income.  Also, with that small of an amount, the RMD will be pretty tiny.

I believe there are some special rules for "what happens the year of his death"...  depending on if Grandpa has already taken his RMD this year.   If he did, then it is a non issue.  If he didn't, it is something odd like "all of the beneficiaries of Grandpa MUST take an amount that adds up to Grandpa's RMD".

Gin1984

  • Magnum Stache
  • ******
  • Posts: 4730
Re: Beneficiary IRA in a CD - trying to help my mom
« Reply #2 on: July 20, 2016, 08:29:53 AM »
According to vanguard, she can take more than the RMD:
https://investor.vanguard.com/inherit/ira-rmd
And yes, if it is a traditional IRA she would pay taxes. 
The plan of maxing out her 401k makes sense, but from my understanding you should be able to just roll it over the Vanguard and take the RMD.