Inherited accounts: sell then buy preferred positions or delay doing so

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JohnnyM
Posts: 94
Joined: Sat Feb 14, 2015 9:54 pm

Inherited accounts: sell then buy preferred positions or delay doing so

Post by JohnnyM »

I recently inherited 2 accounts
- inherited Roth IRA and
- an inherited traditional ira.
The values of them represent increasing my total family portfolio by 12% in both of those categories ( family Roth and traditional ira), so not a huge amount in the big scheme of things but of course I personally value and appreciate them .

The positions currently in the two inherited accounts are:
Inherited t-IRA
21% of the account VSCGX 40s:60b
off -22% from it's recent high

56% of the account VTINX 30s:70b
off - 22%

16% of the account VTI
off -26%

7% of the account VXUS off -31%


Inherited ROTH-IRA
51% of the account VASGX 80s:20b
off -27%

49% of the account VSMGX 60s:40b
off -25%



I would like to sell these above inherited positions and buy my preferred 13 positions, the same ones that are in my own Roth and traditional IRA. Those 13 positions are from Paul Merriman's Ultimate Buy and Hold ETFs, at M1 Finance where they do that constant re-balancing.
Equites
Symbols & percent off recent high +/-
AVEM

-31%
AVDE

-31%
AVDV

-30%
AVUS

-23%
AVUV

IJR

-25%
EFV

-29%
RPV

-21%
FNDC

-32%
VNQ
-30%
Bonds
VTIP -9%

SPTI -16%

VGSH -6%



My questions:
I assume it is fine to go ahead and perform selling the current positions and buying my preferred positions? I am not asking about is it legal, I am not asking about how to avoid the rollover/tax issue, but rather from the point of being in my best financial interest.
Reason I ask: The market is down currently say 20 - 25% from its 1 year high +/-.
All of the positions I mentioned above, both the inherited positions & my desired 13 positions, are all roughly equally down about 25% +/-.
Not really, my bonds are down less that equity ETFs for sure, the bonds in the inherited accounts are down roughly the same I assume.

Do you guys have any opinions on the timing of my desired action to sell & buy?
Maybe you have reasons why it might be better to delay and just sit tight for a while?
Maybe you have reasons why it might be better to sell some but not all positions, and with proceeds from those sales used to only buy some but not all my preferred positions?

The inherited accounts are about 60 stocks:40 bonds or maybe 50 stocks:50 bonds (without doing the math).
My desired asset allocation will be the same as what it currently is in my Roth IRAs and traditional IRAs which is 40 stocks:60 bonds.

Thank you in advance for any opinions and even comments about things I have not asked.
Topic Author
JohnnyM
Posts: 94
Joined: Sat Feb 14, 2015 9:54 pm

Re: Inherited accounts: sell then buy preferred positions or delay doing so

Post by JohnnyM »

Is there away to make all my equity & bond positions in my original post as a hyperlinks if that would be easier for you guys? That is what I pasted, but I see that the hyperlink didn’t paste. Maybe you don't nee them?
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Mullins
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Re: Inherited accounts: sell then buy preferred positions or delay doing so

Post by Mullins »

You might want to post the full names of the funds. Not likely many will want to spend time to find out what funds you've listed.
"The Quality of the Answer Depends on the Quality of Your Question."
sycamore
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Re: Inherited accounts: sell then buy preferred positions or delay doing so

Post by sycamore »

JohnnyM wrote: Mon Oct 03, 2022 10:51 am My questions:
I assume it is fine to go ahead and perform selling the current positions and buying my preferred positions? I am not asking about is it legal, I am not asking about how to avoid the rollover/tax issue, but rather from the point of being in my best financial interest.
Reason I ask: The market is down currently say 20 - 25% from its 1 year high +/-.
All of the positions I mentioned above, both the inherited positions & my desired 13 positions, are all roughly equally down about 25% +/-.
Not really, my bonds are down less that equity ETFs for sure, the bonds in the inherited accounts are down roughly the same I assume.

Do you guys have any opinions on the timing of my desired action to sell & buy?
Maybe you have reasons why it might be better to delay and just sit tight for a while?
Maybe you have reasons why it might be better to sell some but not all positions, and with proceeds from those sales used to only buy some but not all my preferred positions?
Yes go ahead and transition to your desired positions right away. For one thing, Bogleheads disdain market timing. If you're psychologically reluctant to make the change right away, use a Dollar Cost Average technique to make the switch over the course of a few months to a year

But you're really not changing the AA much, and that's the key thing. You're not likely to gain or lose much at all by delaying.
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celia
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Re: Inherited accounts: sell then buy preferred positions or delay doing so

Post by celia »

You are free to change them at any time to fit in with your own portfolio. But keep in mind that withdrawals will need to go to Taxable accounts, not into your own IRAs. Since the Inherited Roth can be withdrawn tax-free, that can sit there and just grow for 10 years. I would invest the asset(s) there that I expect to grow the most. For the Inherited IRA, you may want to start withdrawaing now before the markets recover. This is especially important if you will need to start taking your own RMDs within 10 years or will want to convert your own IRAs since the Inherited IRA withdrawals will take up room in your tax brackets.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
ClassII
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Re: Inherited accounts: sell then buy preferred positions or delay doing so

Post by ClassII »

I agree with Celia. The Roth portion should definitely be held on to for the full 10 years to reap the tax-free growth. Traditional you may want to sell evenly over the next 10 years to keep the tax impact to a minimum. As for the funds you might as well rebalance it all today into your existing AA as there's no capital gains cost to do so.
SuzBanyan
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Re: Inherited accounts: sell then buy preferred positions or delay doing so

Post by SuzBanyan »

ClassII wrote: Mon Oct 03, 2022 12:11 pm I agree with Celia. The Roth portion should definitely be held on to for the full 10 years to reap the tax-free growth. Traditional you may want to sell evenly over the next 10 years to keep the tax impact to a minimum. As for the funds you might as well rebalance it all today into your existing AA as there's no capital gains cost to do so.
You may want to put the assets you expect to grow the slowest in your inherited IRA and hold those with higher expected growth in your owned IRA or 401k. This mini was the tax cost when those assets are distributed as they are likely to be distributed before your owned IRA or 401k. For example, if 10% of your liquid assets are in the Inherited IRA and your desired asset allocation is 30% to bonds, put nothing but bonds in the Inherited IRA and mixture of bonds and equities in your owned IRA and 401k.
123
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Re: Inherited accounts: sell then buy preferred positions or delay doing so

Post by 123 »

To the extent that you can it is generally best to put stock/equity investments in a Roth IRA account (including inherited) and fixed income investments in a traditional IRA account (including inherited). In most cases mirroring the same funds in the two different types of IRAs does nothing to improve tax efficiency and often ends up with more taxes paid. We're presuming that stocks will grow more than fixed income over time.
The closest helping hand is at the end of your own arm.
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grabiner
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Re: Inherited accounts: sell then buy preferred positions or delay doing so

Post by grabiner »

You inherited $X in a traditional IRA and $Y in a Roth IRA. What they are in now is irrelevant, since you can convert them to cash and then to any other investments worth $X and $Y. Thus you should sell whatever is needed so that they meet your own investment needs.

It does make sense to hold bonds in the inherited traditional IRA, since you will be forced to deplete that account faster, and holding bonds minimizes the tax bill.

If you aren't maxing out your own retirement accounts, withdraw from the inherited accounts so that you can max out. This gets you more tax deferral, at no tax cost if you withdraw from the traditional IRA to fund a traditional 401(k), and at effectively no tax cost if you withdraw from the Roth IRA to put the same after-tax value into a traditional 401(k).
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Topic Author
JohnnyM
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Joined: Sat Feb 14, 2015 9:54 pm

Re: Inherited accounts: sell then buy preferred positions or delay doing so

Post by JohnnyM »

Thank you very much for all your comments, great points, very helpful.
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Watty
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Re: Inherited accounts: sell then buy preferred positions or delay doing so

Post by Watty »

I agree with moving the money right away. If you will be taking a 2022 RMD distribution then include that in your planning.
JohnnyM wrote: Mon Oct 03, 2022 10:51 am I would like to sell these above inherited positions and buy my preferred 13 positions, the same ones that are in my own Roth and traditional IRA. Those 13 positions are from Paul Merriman's Ultimate Buy and Hold ETFs, at M1 Finance where they do that constant re-balancing.
I am not familiar with that stragety and without commenting on the merits of it with the inherited accounts you will four accounts and if you have 13 ETFs in each account that will be 52 different positions that you need to keep track of. When you start taking RMDs that will add a taxable account too and add another 13 positions for a total of 65 positions.

That is way too complex so you should look at all the accounts combined as one big portfolio and try to eliminate a lot of duplication.
JohnnyM wrote: Mon Oct 03, 2022 10:51 am My desired asset allocation will be the same as what it currently is in my Roth IRAs and traditional IRAs which is 40 stocks:60 bonds.

Thank you in advance for any opinions and even comments about things I have not asked.
The core of the Boglehead philosophy is to use a few low cost index funds.

https://www.bogleheads.org/wiki/Boglehe ... philosophy

A simple three fund portfolio will work since it can be adapted to fit a lot of different situations.

https://www.bogleheads.org/wiki/Three-fund_portfolio

You did not say what your age is but given your 40% stock asset allocation I would assume that you are older. When I retired one of my investment goals was to simplify my portfolio as much as possible so that it would be easier to manage as I got older and less financially capable or if my wife who knows less about investing has to manage it some day.

I really wanted to get it on automatic pilot as much as possible while I was able to.

One question I ask myself in my planning is "How will this work when I am 85 and living in assisted living?"

An additional concern of mine is that one of the symptoms of dementia or Alzheimer's is making poor financial decisions and no body including yourself may realize that you are declining mentally until you have been messing up your portfolio for several years. There have been posts where people have had a relative that managed their investments well for 50 years or more only to lose a large part of it when they started declining mentally.

After I retired I ended up setting my portfolio with target date funds and my family knows that if I ever start doing things that are different than that could be a red flag that they needed to get involved so that I did not get into financial trouble.

Just for simplicity I would highly suggest that you reconsider your stragety and use just a few index funds or a balanced fund like the target date funds like I use.

You might be able to manage it now but that might not always be true.
MRinvestor
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Re: Inherited accounts: sell then buy preferred positions or delay doing so

Post by MRinvestor »

It seems to me the fundamental question is do you consider the inherited funds worth holding as they are? Are they of sufficient quality (however you define it) to be worth keeping ... compared to your otherwise preferred investments. If not, sell and move on.

In my own case, I inherited a portfolio of individual stocks. I never wanted to hold individual stocks. But after doing considerable homework on the holdings, I sold off the positions that were too risky for me or too small to justify keeping; and pared down the ones that were high quality but too large for my comfort. In the end, I retained most of the individual stocks (about 75% of what I inherited) and it has turned out to be a good move over the last 7 years.
Topic Author
JohnnyM
Posts: 94
Joined: Sat Feb 14, 2015 9:54 pm

Re: Inherited accounts: sell then buy preferred positions or delay doing so

Post by JohnnyM »

Again excellent points, thank you

JohnnyM wrote: ↑Mon Oct 03, 2022 10:51 amI would like to sell these above inherited positions and buy my preferred 13 positions, the same ones that are in my own Roth and traditional IRA. Those 13 positions are from Paul Merriman's Ultimate Buy and Hold ETFs, at M1 Finance where they do that constant re-balancing.
I am not familiar with that stragety and without commenting on the merits of it with the inherited accounts you will have four accounts and if you have 13 ETFs in each account that will be 52 different positions that you need to keep track of. When you start taking RMDs that will add a taxable account too and add another 13 positions for a total of 65 positions.

No, all four accounts have the same 13 positions, 10 stock ETFs + 3 bond ETFs, and all four at M1Finance where they constantly buy what is low of your target percentage, never have to manually re-balance, it's done constantly.
Re when RMDs start: I'm a ways off, age 63 now, but yes, the inherited t-IRA will likely be “even distributions over the 10 years”.
I've often thought how/if I’ll change my 13 positions at M1Finance when I have to start drawing from them, I’ll figure that as the time nears,

That is way too complex so you should look at all the accounts combined as one big portfolio and try to eliminate a lot of duplication.
Agree about “look at all the accounts combined as one big portfolio”, that’s why they are the same positions.



The core of the Boglehead philosophy is to use a few low cost index funds.
A simple three fund portfolio will work since it can be adapted to fit a lot of different situations.

Agree, I use 3 funds in my Taxable accounts. The ROTHS & t-IRAs could be 3 funds but being at M1Finance it would be no more or less work on my part, I have a small tilt to Value & Small cap and a small tilt towards US vs International

Really excellent comments about aging & mental decline, ones I will definitely act on.
Thank you very much to everyone for taking the time to help.
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