Author Topic: Please Help with Structure of Inherited Accounts  (Read 885 times)

gillstone

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Please Help with Structure of Inherited Accounts
« on: February 08, 2019, 10:21:33 PM »
My wife passed a month ago and Iím working through what to do with her IRAs and 401K.  Everyone keeps offering to start a Gofundme, but I really donít need money - I need advice.

Most of the online advice assumes Iím a lot older.  Can I please get some advice on how to the best structure my accounts given that I am still a few years from FIRE, but a long ways from 59 Ĺ.

As of January 31, I have inherited the following accounts:

  • 401k - American Funds ~ $43,100 (100% managed funds with stupid-high fees)
    Inherited Roth IRA - Vanguard ~ $14,200 (75% VHYDX & 25% VGTSX)
    Inherited Trad IRA - Vanguard ~ $2,100 (100% VYM)

In addition, I have the following accounts of my own:

  • 403b ~ $81,500 (80% Blackrock Market Index F & 20% VTIAX)
    457 Account - available upon separation from employer ~ $65,100 (80% VINIX & 20% VDBNX)
    Roth IRA - Vanguard ~ $3,600 (100% VGSIX)
    Trad IRA - Vanguard ~ $12,700 (100% VHYDX)
    Vanguard Brokerage ~ $7,500 (80% VTI & 20% BND)
    Savings - $30,000

Other info:
  • Contributions to the 403b are capped at 11% of income (match inclusive), but I do max out the 457 account. 
    There were two life insurance policies.  I will use them to pay off the mortgage, remaining medical bills, student loans, and a renovation project we were planning for years.  Leaving roughly $200,000.   
    I have two boys (6 & 9) who are receiving survivors SSA survivors benefits which are funneled into 529 and UTMA accounts.
    Current household budget will allow me to save $15,000/yr in addition to the employer options.

Thank you

calimom

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Re: Please Help with Structure of Inherited Accounts
« Reply #1 on: February 09, 2019, 01:01:47 PM »
Very sorry for your loss, Gillstone. I was widowed at 31 with 3 children. It's hard.

The GoFundMe sounds well intended but completely unnecessary. Can you roll your wife's 401 into your own Vanguard account? Those fees, ugh. There should be no penalty or tax on spousal transfers.

You didn't ask for specific advice on the survivors' benefits, but here is what I've learned. Each year the SSA will send you a Representative Payee Report. At the center of this are the questions "were all monies spent for the care of the beneficiary? Was any money saved?" If "yes" on savings, the SSA will become interested in that account. By their guideline, the saved funds must be turned over to the beneficiary at 18 (or 19 if still in high school) Saving money for college is of course a smart thing, but it's best if it comes from 'your' money. I use the SSA to pay for all kid related expenses like sports, clothing, trips and camp as well as a big percentage of mortgage, utility, food and car expenses. College savings comes from my own funds and in that way I can control what happens to the money. If for example, your 18 year old elects not to go to college and instead wants to buy a van and follow a band around the country, they will have to find another way to finance it rather than the $30,000 that was just dropped into their lap from "their" saved SSA benefits.

You may also lose your child tax deduction unless you spend a lot on private schools or tutoring for your children.

Again, my condolences and please go easy on yourself during this time.

lhamo

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Re: Please Help with Structure of Inherited Accounts
« Reply #2 on: February 09, 2019, 04:33:13 PM »
So sorry for your loss.

This overview on Fidelity gives a pretty good summary of what your options are:

https://www.fidelity.com/viewpoints/retirement/surviving-spouse-IRA

If you think you  might want to access the funds that were in your wife's accounts before age 59.5 for FIRE or other reasons, seems like rolling everything over into inherited IRAs might make the most sense.

Dee18

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Re: Please Help with Structure of Inherited Accounts
« Reply #3 on: February 09, 2019, 04:40:46 PM »
I would roll your wifeís 401k into her Vanguard traditional ira.  Mandatory withdrawals from that account will be dependent on her age.  You could also put the Roth money in there, but I prefer to keep my taxable and nontaxable accounts separate.+1 to Calimomís  advice about the SS benefits for your children.

Igelfreundin

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Re: Please Help with Structure of Inherited Accounts
« Reply #4 on: February 10, 2019, 09:04:13 PM »
Giillstone, I'm sorry for your loss. Can you delay making a decision on what to do with her funds? My husband died when I was 36, and I seem to recall dealing with his retirement accounts at least six months later. Looking back, my brain was just processing so much that I don't think I could have made good decisions.

In the end, I pulled the money out of his 401(k) and put it into a post-tax Vanguard account. I'm sure there are better ways to do it, but it wasn't a huge amount and that was all I could manage at the time.

gillstone

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Re: Please Help with Structure of Inherited Accounts
« Reply #5 on: February 12, 2019, 09:41:23 PM »
Thank you for the advice Calimom.  I assumed I would just pay off the mortgage, but that was before I knew SSA would be coming.  With that in the mix, it makes more sense to keep the mortgage and use my funds to save for their adulthood.  That and pay for really awesome summers.

terran

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Re: Please Help with Structure of Inherited Accounts
« Reply #6 on: February 12, 2019, 10:09:13 PM »
I would roll your wifeís 401k into her Vanguard traditional ira.  Mandatory withdrawals from that account will be dependent on her age.  You could also put the Roth money in there, but I prefer to keep my taxable and nontaxable accounts separate.+1 to Calimomís  advice about the SS benefits for your children.

I'm not sure if this is what you mean, but RMDs don't necessarily apply to retirement accounts you inherit from your spouse. Unlike other inherited IRAs, they can be rolled into an IRA in your own name and treated just like any other IRA you have.

However, I didn't know this until I looked it up just now, but apparently you can choose to roll the IRA over into an inherited IRA from which you can take RMDs (or a few other options) so that you can access those funds without penalty while you're still too young to do so from your own accounts.

Here's more information on the various options: https://www.fidelity.com/viewpoints/retirement/surviving-spouse-IRA

Dee18

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Re: Please Help with Structure of Inherited Accounts
« Reply #7 on: February 13, 2019, 06:32:26 AM »
Thank you for that correction Terran! Sorry I gave incorrect advice.  My inherited IRA was from my father and I didnít know a spousal IRA was different.