Inherited IRA what to do with it.

[mc-m3]

Originally Posted by RockCrusher

An early retirement can be nice.

But an early retirement means whatever you have to sustain you -- in terms of money/income -- has to last you and your wife longer.

You could retire at 62 (my Dad did) and you could live long enough you could be retired longer than you worked. Which is again my Dad's situation. He retired at 62 and lived to 95+. Thus he was retired for 34 years. But he worked only 32 years: From 1950 to 1982.

if he worked for 32 years and retired at 62, this implies he didn't start working until he was 30! Was he a student or in the armed services until age 30?

[MaxVO2]

Originally Posted by mc-m3

if he worked for 32 years and retired at 62, this implies he didn't start working until he was 30! Was he a student or in the armed services until age 30?

***Maybe a Cardio-Thoracic surgeon in group practice, or Neuro-Surgeon specializing in tumor and stroke remediation and treatment.

Their training/residency is so long they often don't start "working" until the age of 30. They make a comfortable living once they start working in their specialty, and retire quite young.

[iX nOOky]

Originally Posted by RockCrusher

An early retirement can be nice.

But an early retirement means whatever you have to sustain you -- in terms of money/income -- has to last you and your wife longer.

You could retire at 62 (my Dad did) and you could live long enough you could be retired longer than you worked. Which is again my Dad's situation. He retired at 62 and lived to 95+. Thus he was retired for 34 years. But he worked only 32 years: From 1950 to 1982.

I'd love to live until 95 and have that problem. I'd say the majority of my relatives worked too long, and died with too much. The brother that I inherited the IRA from never touched his 401k after 11 years, because he was always afraid he'd run out of money. I often told him to spend some of his money, especially when his cancer came back, and he had less than a year. He didn't.

If my plan goes well we will retire well on our retirement, and that is not including my wife's business and building that she'll sell when she retires, but maybe hang around and put some hours in for spare cash.

[DrVenture]

Originally Posted by iX nOOky

I'd love to live until 95 and have that problem. I'd say the majority of my relatives worked too long, and died with too much. The brother that I inherited the IRA from never touched his 401k after 11 years, because he was always afraid he'd run out of money. I often told him to spend some of his money, especially when his cancer came back, and he had less than a year. He didn't.

If my plan goes well we will retire well on our retirement, and that is not including my wife's business and building that she'll sell when she retires, but maybe hang around and put some hours in for spare cash.

So, you likely are less than 10 years younger than your brother. In that case, as ZL9M2 said, it is likely that the 10-yr rule does not apply and you have a great deal more flexibility. This is something you should validate.

[lowkey_domm]

Originally Posted by RockCrusher

Haven't read all the replies but my experience inheriting an IRA when my parents died is I left the money in the what is referred to as a beneficiary IRA at the mutual fund company.

Dad had the money invested in a mix of US stocks, bonds, and foreign stocks. It was doing just ok.

I redid the investments and put all the funds into a S&P 500 Index fund. Oh this back in 2015.

The beneficiary IRA has grown by about 25% and this is with my having to take an RMD every year. To be sure the S&P 500 Index is up quite a bit over that span of time but a gain in value is a gain in value. If a rising tide is the cause so be it.

If having to take a RMD out impacts your taxes you can look into a charitable donation from the fund. I forget the type of donation but the money has to come from the fund and go to the charity directly. This is a tax free distribution to the charity. And you get whatever tax help from the charity donation.

Obviously the above is at best just a superficial coverage of this process. Ok for online but in the real world you need to speak to a tax advisor.

Maybe you can convert the IRA to a Roth IRA? This can of course seriously impact your taxes the year or years if you do this in stages but later when you have to withdraw the money it is tax free.

But again you need to speak with a tax advisor to see if this is even doable in your case and if doable what the pluses and negatives are.

Registered FA speaking: Cannot convert funds from inherited to ROTH, the IRS has these accounts specifically titled as such so you they can tax you. With that being said the biggest considerations are your current income level (married JNT / vs SNGLE) and when you inherited the funds. Pre <2020 you have lifetime expectancy ruling, post 2020 under the TCJA you have the 10Y rule. IRS requires to withdraw every penny within 10Ys. Each dollar withdrawn will go towards your taxable income bracket.

[iX nOOky]

Originally Posted by DrVenture

So, you likely are less than 10 years younger than your brother. In that case, as ZL9M2 said, it is likely that the 10-yr rule does not apply and you have a great deal more flexibility. This is something you should validate.

He was 76, 20 years older. We had a large family.

[RockCrusher]

Originally Posted by lowkey_domm

Registered FA speaking: Cannot convert funds from inherited to ROTH, the IRS has these accounts specifically titled as such so you they can tax you. With that being said the biggest considerations are your current income level (married JNT / vs SNGLE) and when you inherited the funds. Pre <2020 you have lifetime expectancy ruling, post 2020 under the TCJA you have the 10Y rule. IRS requires to withdraw every penny within 10Ys. Each dollar withdrawn will go towards your taxable income bracket.

Thanks for chipping in.

I didn't have to delve into a possible Roth conversion. I inherited an IRA back in 2014 and the annual RMD was of course appreciated but except for redoing how the money was invested I didn't do anything else.

But in the case of the OP he should seek out a good tax advisor someone infinitely more qualified to help him than I.

[RockCrusher]

Originally Posted by mc-m3

if he worked for 32 years and retired at 62, this implies he didn't start working until he was 30! Was he a student or in the armed services until age 30?

Dad went into the Navy in the early 1940s. He didn't get discharged until sometime in 1946 then entered college under the GI bill.

He graduated in 1950 and began full time employment shortly after he graduated.

Oh, Dad was born in 1919 so in 1950 he was 31.

[RockCrusher]

Originally Posted by iX nOOky

I'd love to live until 95 and have that problem. I'd say the majority of my relatives worked too long, and died with too much. The brother that I inherited the IRA from never touched his 401k after 11 years, because he was always afraid he'd run out of money. I often told him to spend some of his money, especially when his cancer came back, and he had less than a year. He didn't.

If my plan goes well we will retire well on our retirement, and that is not including my wife's business and building that she'll sell when she retires, but maybe hang around and put some hours in for spare cash.

Too bad about your brother.

Running out of money, or the fear of it, is real to retired folks. Of course the amount of fear differs.

With Dad he never expressed any concern about running out of money while they lived in their paid for home.

But the fear became something he began to express when he and Mom were living in assisted care. This began sometime in late 2012. I'd visit Mom and Dad every day, sometimes twice a day.

Every day early in our visit Dad would ask me how much was he paying for this care? I'd tell him: $2800/month each for Mom and him or $5600/month total. Dad would come back with that's almost $70,000/year. Can we afford that? I said yes you can afford it.

I didn't talk details at the care home because I didn't want the staff to know anymore about Mom and Dad's financial situation beyond the fact the check Dad wrote every month was good.

But more than half the cost per year was covered by their combined income mainly from pensions and SSA benefits and investments.

Savings made up the difference.

I didn't have the heart to tell Dad neither he nor Mom would outlive their money. And they didn't. They died in November of 2014 just a few weeks apart.

[lowkey_domm]

Originally Posted by RockCrusher

Thanks for chipping in.

I didn't have to delve into a possible Roth conversion. I inherited an IRA back in 2014 and the annual RMD was of course appreciated but except for redoing how the money was invested I didn't do anything else.

But in the case of the OP he should seek out a good tax advisor someone infinitely more qualified to help him than I.

NP, lots changed since 2014 with the inheritance laws. Always best to speak with a tax professional to confirm most individuals have basic set up with W2s a primary residence. Not complex to look at the brackets and determine how much to pull out. Gets more in the weeds if retired however mainly because of IRMA adjustments towards medical part B & D just something to look out for.

[lowkey_domm]

Originally Posted by RockCrusher

Too bad about your brother.

Running out of money, or the fear of it, is real to retired folks. Of course the amount of fear differs.

With Dad he never expressed any concern about running out of money while they lived in their paid for home.

But the fear became something he began to express when he and Mom were living in assisted care. This began sometime in late 2012. I'd visit Mom and Dad every day, sometimes twice a day.

Every day early in our visit Dad would ask me how much was he paying for this care? I'd tell him: $2800/month each for Mom and him or $5600/month total. Dad would come back with that's almost $70,000/year. Can we afford that? I said yes you can afford it.

I didn't talk details at the care home because I didn't want the staff to know anymore about Mom and Dad's financial situation beyond the fact the check Dad wrote every month was good.

But more than half the cost per year was covered by their combined income mainly from pensions and SSA benefits and investments.

Savings made up the difference.

I didn't have the heart to tell Dad neither he nor Mom would outlive their money. And they didn't. They died in November of 2014 just a few weeks apart.

Sorry to hear about your folks, health care expenses is the #1 risk running into retirement besides spending too much in retirement, most people get by with Medicaid from personal experience the scary part is health costs have doubled from the numbers you projected here's a great free resource I used to model clients expected costs if it were every brought up in my meetings -> https://www.genworth.com/aging-and-y...s/cost-of-care.

[iX nOOky]

Originally Posted by RockCrusher

Too bad about your brother.

Running out of money, or the fear of it, is real to retired folks. Of course the amount of fear differs.

With Dad he never expressed any concern about running out of money while they lived in their paid for home.

But the fear became something he began to express when he and Mom were living in assisted care. This began sometime in late 2012. I'd visit Mom and Dad every day, sometimes twice a day.

Every day early in our visit Dad would ask me how much was he paying for this care? I'd tell him: $2800/month each for Mom and him or $5600/month total. Dad would come back with that's almost $70,000/year. Can we afford that? I said yes you can afford it.

I didn't talk details at the care home because I didn't want the staff to know anymore about Mom and Dad's financial situation beyond the fact the check Dad wrote every month was good.

But more than half the cost per year was covered by their combined income mainly from pensions and SSA benefits and investments.

Savings made up the difference.

I didn't have the heart to tell Dad neither he nor Mom would outlive their money. And they didn't. They died in November of 2014 just a few weeks apart.

Yes the cost of care is very high, especially these days. My brother's care was about $5,900 a month, not including add ons. I was writing checks out of his checking and it really went fast. This was one of the cheaper options, many of the facilities around us were closer to $10k a month. He made it 6 months in that facility and was worried about running out of money, but thankfully he had planned well so we didn't have to touch anything except his emergency fund.

It makes one consider long term care insurance, especially as you get closer to retiring.

[iX nOOky]

Originally Posted by DrVenture

Yes, one has 10 years to take an inherited IRA from the date of the original owner's death. There are RMDs starting in 2025. Letting it grow as long as possible and taking advantage of tax-deferred compounding is a good plan. I would consider putting it 50/50 in an index and large cap growth fund. Some of the current funds are conservative for a young(er) person.

No penalty for withdrawal, only the income tax. That is unavoidable. Married filing jointly, the 22% bracket is up to $206,700 in 2025. Remember that you will only pay tax on earnings, not the basis or entire amount.

Taxes are to be paid on the entire amount not just interest earned when cashing anything in. RMD's start this year, so I am letting it grow, then will withdraw the amount that just keeps the interest rate at 24% and not 32% which is quite a jump.

[2000cs]

I would suggest laying out a financial/tax plan covering at least 10 years (the length of time you have to take the inherited IRA).

Look at strategies for spreading the withdrawal of the inherited IRA. A lump sum in year 10, after 10 years of further appreciation will likely bump you into a much higher tax bracket for that year, and if you are retired then it also could trigger IRMAA (which you can get relief from but paperwork is involved). Spreading the withdrawals can be do minimize tax. However, you need really good advice on the RMD requirement for an inherited IRA/401(k) - I was just reading a note that the IRS now requires RMDs at the rate the original owner (your brother) would have had to take. You can take more, but you can’t take less.

Verify those key elements, lay it out with your expected work and investment income, and you should be able to make a decent withdrawal plan that doesn’t cost a bunch of unnecessary tax. Charitable gifts directly from an IRA is an option that saves taxes, but may not be available on an inherited IRA - I haven’t looked at those rules.

Also, it bears saying, you don’t have to spend the money! You can simply withdraw it and put it into a regular taxable brokerage account or invest as you please.

[dcstep]

Originally Posted by iX nOOky

Yes thank you, I should probably put it in something that earns more despite being riskier, I'm going to have to research some, but I think some of the lazy portfolios look interesting for two or three mutual fund picks.

Managed funds do not beat the markets. Go with ETFs vs. mutual funds, with their high fees. SPY for S&P 500 and QQQ for NASDAQ and put on stop losses at about 85% of your entry values. You can be more aggressive and sleep at night.

[clutchdj]

GT3 RS

[XutvJet]

Originally Posted by iX nOOky

Taxes are to be paid on the entire amount not just interest earned when cashing anything in. RMD's start this year, so I am letting it grow, then will withdraw the amount that just keeps the interest rate at 24% and not 32% which is quite a jump.

I would do S&P500 index funds in that IRA and take the minimum RMDs like you're doing and let that baby grow if you don't really need the money.

[XutvJet]

Originally Posted by iX nOOky

I'd love to live until 95 and have that problem. I'd say the majority of my relatives worked too long, and died with too much.

The data STRONGLY supports the notion that the earlier you retire, the longer you'll likely live.

I'm closing in on 52. I took a 20% pay / bonus cut 3 years ago to dial my hours back to 32 hours vs fulltime (45-52 hours/wk). With raises, I've made back that 20% plus a little more. I am a far happier person. I plan to dial my hours back to 24 hours here in a year and then fully retire at 55ish. Work stress for most people takes a significant toll on one's life. Get it out as soon as you can unless you're one of the very few that love their job. I'm envious of them, but I also have plenty of hobbies and passions and won't miss my job one ounce.