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Inherited IRA options

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  • Avatar AltIncome319 
    Participant
    Status: Other Professional, Spouse
    Posts: 11
    Joined: 01/31/2019

    We have a Inherited IRA set up from the passing of a parent, about $55k. We used our advisor to set this up for us. At the time we just wanted to get the transfer taken care of, as it was a crazy time and didn’t want to think too much about it. Now that its been over a year and were starting to really dive into our financial future and look at all aspects of our investments, etc.

    The IRA itself is invested in all low cost Vanguard Index funds so that is good, but i know the advisor fee is around 1.5%.

    We need to start taking distributions by the end of this year and my question is what should we do with it? Take the minimum distribution each year, take the distribution over 5 years or just take the lump sum now and pay the taxes. We don’t need the cash right now, our income bracket shouldn’t change over the next 10 plus years and we max out all possible retirement options. Just want to make sure we maximizing this money and not giving some away to advisor fees!!

    Can we  transfer this somewhere to get rid of the advisor fees or just take the lump sum, pay the taxes and invest in taxable, or do the 5 year distribution plan? We have a taxable with TD Ameritrade but I didn’t see where they had Inherited IRA’s. I just want to make sure we do it correctly, given the fact we have backdoor Roth’s set up already and don’t want to break any tax laws, etc.

    Thanks

    #221223 Reply
    Avatar dennis 
    Participant
    Status: Retired
    Posts: 31
    Joined: 04/18/2019

    TD Ameritrade does handle inherited IRA’s. My daughter has one from my father there. Schwab also does them, my wife has one there from her mother. Definitely get rid of the advisor fees!!

    #221230 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3800
    Joined: 01/08/2016
    Now that its been over a year and were starting to really dive into our financial future and look at all aspects of our investments, etc.

    Click to expand…

    also dont forget RMDs

    The IRA itself is invested in all low cost Vanguard Index funds so that is good, but i know the advisor fee is around 1.5%.

    Click to expand…

    barf

    We need to start taking distributions by the end of this year and my question is what should we do with it?

    Click to expand…

    reinvest….spend….those are the 2 options.

    Just want to make sure we maximizing this money and not giving some away to advisor fees!!

    Click to expand…

    oops too late.

    i would spread it out over years.

    then if you retire early, take a few years off, etc, lump some more out.

    Can we  transfer this somewhere to get rid of the advisor fees

    Click to expand…

    of course. call any brokerage and they will do the paperwork for you.

    I just want to make sure we do it correctly, given the fact we have backdoor Roth’s set up already and don’t want to break any tax laws, etc.

    Click to expand…

    inherited IRAs do not count towards prorata.

    #221245 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7523
    Joined: 01/09/2016

    Yes, go ahead and move the money. 1.5% is high, but some advisors have a higher AUM % for amounts under $100k because smaller amounts are not usually profitable without additional money to invest. There is no reason, however, that you cannot replicate this portfolio and DIY, rebalance annually. If you’re in a higher income bracket, just spread out over your lifetime.

    You might want to designate a specific purpose for each year’s check so it won’t disappear into your normal cash flow – maybe a donation to a cause the parent supported or a contribution to the grandchild’s 529.

    If the parent was > 70.5, be sure s/he took the RMD in the year of passing.

    My sympathies on losing your parent, always difficult. I hope you have many happy memories!

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #221252 Reply
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1750
    Joined: 02/01/2016

    One caveat, make sure any move of an inherited account is by trustee -> trustee transfer. Any distribution from a non-spouse inherited account is irrecoverable, can not be rolled over and will be subject to your marginal ordinary income tax rates.

    Speaking of which, it is seldom a good idea to take a lump sum and be taxed on it. Usually the best option is to only take the RMDs. There is one situation where it always makes sense to take more than the RMD. While it is less common for physicians, if you do not have the financial resources to maximize your tax-advantaged retirement accounts. The money from RMDs and distributions are fungible. It would make sense to take the total distributions necessary to maximize such contributions.

    If you take equal taxable distributions and make additional tax deferred contributions, the net tax effect is neutral. It is always better to have owned retirement accounts than inherited retirement accounts. A spouse can assume ownership of owned accounts, non-spouse beneficiaries can (at least currently) take RMDs based on their age (inherited inherited retirement accounts must use decedents RMD age), extra distributions will reduce or can even eliminate future RMDs when you start your own RMDsin the yea you turn age 70.5 , five (5) years ago the SCOTUS removed asset protection from inherited retirement accounts and very few states have adopted protections.

    #221274 Reply

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