Author Topic: inheriting an IRA of 225K  (Read 4692 times)

cjw7

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inheriting an IRA of 225K
« on: May 07, 2014, 06:35:15 AM »
I am new to investing, and I have been reading this forum and researching what I must do with the IRA. I am a non-spouse beneficiary. I know I have to roll it into a IRA BDA and take required distributions starting by the end of 2015. I know I will be taxed on these distributions as they are taken out.
I want to invest through Vanguard. Can I open an IRA with Vanguard and just transfer the whole inherited IRA there? If so, I then would like to invest part of it in some of the higher risk stocks you guys talk about, and part of it in some more stable funds. What do you guys recommend for high risk and stable funds? I am a little confused on the fees charged...do they charge for purchasing funds? I looked at their fee chart, but I don't quite understand. What other fees are charged?
What do you recommend I do with the required distributions? I have rental properties now and I do want to invest in more rental property while it is cheap...should I just take out lumps when I want to buy a property for cash and just pay the taxes on the distribution?

NinetyFour

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Re: inheriting an IRA of 225K
« Reply #1 on: May 07, 2014, 06:57:47 AM »
I also inherited an IRA.  I transferred it to Vanguard with no problem, and invested it all in VTSAX.  No fees.  My distributions are much smaller than yours will be, so I just put them in my bank account or throw them at my mortgage.

hodedofome

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Re: inheriting an IRA of 225K
« Reply #2 on: May 07, 2014, 07:26:00 AM »
What is your plan for 'higher risk stocks?' Unless you have a defined plan for what stocks you will buy, when you will buy them, how much you will buy of each, and when you will sell them...just invest in index funds.

cjw7

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Re: inheriting an IRA of 225K
« Reply #3 on: May 07, 2014, 07:28:37 AM »
as I said, I am new to investing, maybe I am using the wrong term. I see the following mentioned often, I was thinking about investing in one or more of these: DIGX    VTSAX    VFINX

cjw7

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Re: inheriting an IRA of 225K
« Reply #4 on: May 12, 2014, 07:41:10 AM »
when I take the required distributions, would it be better to open a roth account with them instead of a regular ira since I would already be paying taxes on the distributions? I would qualify for roth.

NinetyFour

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Re: inheriting an IRA of 225K
« Reply #5 on: May 12, 2014, 07:48:51 AM »
I think that is a good idea.  In January of this year, I took out the RMD from my inherited Roth IRA and used it to top off my Roth for this year.  That way, the Roth grows (in theory, anyway) all year tax free.

danny9m

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Re: inheriting an IRA of 225K
« Reply #6 on: May 28, 2014, 04:22:22 PM »
Ed Slott is a famous accountant who does talks on PBS is very big on Inherited IRAs in that he believes they are one of the best tax sheltered savings vehicle there is.  This is because the money in the account grows tax free.  Of course you have to take your minimum distributions every year.  Vanguard can help you with the transfer.  I would take the minimum distributions but not touch it otherwise.  If you do you will be taxed at normal rates and face penalties.
If I were you Id use the Warren Buffet plan.  Put the money in the Vanguard S&P index fund and the short term corporate bond fund.  The split depends on your risk tolerance.   Buffett suggests a 90/10 split. 

NinetyFour

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Re: inheriting an IRA of 225K
« Reply #7 on: May 28, 2014, 04:51:16 PM »
I would take the minimum distributions but not touch it otherwise.  If you do you will be taxed at normal rates and face penalties.
 

I agree that any distribution or withdrawal will be taxed, but you will not pay penalties.  If you have to take RMDs, then the deceased person was over 70.5 years of age, so they were not paying penalties.  Neither will you.

That is my understanding anyway.

Frankies Girl

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Re: inheriting an IRA of 225K
« Reply #8 on: May 28, 2014, 06:19:51 PM »
Been there, done that, here's what I did...

First, make sure wherever you end up, that they do the conversion to an inherited IRA properly, if they don't you can be hit with major penalties and could be forced to take out all the money over a 5 year period. As long as you go with one of the big firms (Vanguard, Fidelity, etc...) you'll be fine because they know exactly what to do. It has to be set up as a beneficiary/inherited IRA.

Second, if you aren't up to speed on basic investing, you can absolutely just leave it "as is" once transferred to an an inherited IRA for a little while. I left mine alone with the professional management my dad had originally set up for it, and with their suggestions based off their questionnaire for me for about 3-4 months until I'd done my research and felt comfortable taking it over. This does mean that I paid for the professional management during that time out of my own pocket (or they can take the fee from the actual account without any penalty to you), but until I felt right about my moves, that seemed like the best solution at the time for me - I had zero investing experience, so I was mostly afraid about screwing something up.
 
Short term management fees are not as bad as just leaving it that way forever, and at least I wasn't feeling overwhelmed about having to do everything right NOW (dealing with the death and other aspects and trying to learn about investing was bad enough...). But looking back now, I would suggest if the inherited account has professional management, cancel it during the transfer and just let whatever funds that the IRA has sit in your inherited IRA until you feel confident about buying/selling to get your selections. There really isn't any need to pay for professional management at all. I would not sell off everything until you know what you want to buy - going to all cash means you'd lose out on any growth while you decide, and even if the current funds are crummy overall, they'd still likely be earning something during your research/learning phase.

Once you've got a good idea of what you want to do, then sell off anything you don't want and buy whatever you'd like. I had to create a self-managed account to move the funds over to since I did keep that pro management, but it was easy and completed in one day and after that I sold off all the junk and bought what I wanted.

The required minimum distributions are based off of your age and life expectancy. In my case (Fidelity) does the calculation and distribution automatically on the date I specified and automatically takes out taxes at the rate I wanted. Pretty sure Vanguard or any of the other ones would be able to do the same. 

I am using the amount to top off my and my husband's Roths (which I do think is the best move), but you can roll it to a taxable or just take the cash if that's what works for you.

http://jlcollinsnh.com/stock-series/
^This series was instrumental in helping me figure out everything and get my asset allocation figured out

http://www.bogleheads.org/wiki/Investment_policy_statement
Good idea to get this figured out ASAP


For Vanguard, I'd recommend calling their Concierge Services instead of the regular number. Since you've got a decent amount in that IRA, they should be very happy to help you personally to get it shifted over and set up correctly, including getting a Roth IRA set up for you to fund.
https://investor.vanguard.com/what-we-offer/personal-services/concierge-services

Finally, very sorry for your loss. I've been there with that part too, and it can be very difficult to get this sort of thing done and deal with a death in the family and I do hope you are doing as best you can under the circumstances. But do remember - it's okay to take a month or two to get your head on straight and deal with the money stuff when you're good and ready.