Windfall, retired, total newby

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
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Topic Author
whatthehay
Posts: 4
Joined: Thu Oct 10, 2024 7:29 pm

Windfall, retired, total newby

Post by whatthehay »

[topics merged by admin alex - see OP's post from 10/12 below for a more complete picture]

I inherited 537K in a deferred comp. from my brother. I know I have 10 years to withdraw it. It is in Mission Square. I have a Schwab account, should I move it there or leave it. How should I invest it. It's currently making 2.1% I have very little knowledge on investing. I also inherited 2 properties worth about 800K once I sell them. And another 300K in cash. I am 71 years old, own a primary house, vacation house and a rental, all paid for. Have no debt. Income is low, about 300 in IRA's, 500 in cash.
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arcticpineapplecorp.
Posts: 16323
Joined: Tue Mar 06, 2012 8:22 pm

Re: Investing inherited deferred comp

Post by arcticpineapplecorp. »

whatthehay wrote: Thu Oct 10, 2024 8:26 pm I inherited 537K in a deferred comp. from my brother. I know I have 10 years to withdraw it. It is in Mission Square. I have a Schwab account, should I move it there or leave it. How should I invest it. It's currently making 2.1% I have very little knowledge on investing. I also inherited 2 properties worth about 800K once I sell them. And another 300K in cash. I am 71 years old, own a primary house, vacation house and a rental, all paid for. Have no debt. Income is low, about 300 in IRA's, 500 in cash.
sorry for your loss and welcome to the group.

do you have $500k in cash? Why so much?

When you say the deferred comp is making 2.1% is it in some kind of stable value fund or annuity?

If you can move it to Schwab (trustee to trustee transfer) directly from a tax deferred account to an inherited IRA then yes you can move it to Schwab and you might have more choices depending on what's in mission square, and also the fees could be lower. You don't say what the fees are at mission square. Consolidating is good rather than to have multiple companies.

regarding how you should invest it, if you mean what funds or what allocation, you'll have to edit your post (don't start a new one) according to asking portfolio questions.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
Makefile
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Joined: Fri Apr 22, 2016 11:03 pm

Re: Investing inherited deferred comp

Post by Makefile »

If you are older than your brother, or less than ten years younger, you might be an eligible designated beneficiary able to do Stretch IRA.
Topic Author
whatthehay
Posts: 4
Joined: Thu Oct 10, 2024 7:29 pm

Re: Investing inherited deferred comp

Post by whatthehay »

I am 4 years younger than my brother. Mission Square charges .8 on the stable fund. They have limited access to other funds, many are Missionsquare funds. They are difficult to work with. They did just add some Fidelity Funds. I think I can move it to an inherited IRA account at Schwab. When I saids 500 cash, it is mostly is CD's. I will try to submit another question.
Thank you, I miss my brother.
Topic Author
whatthehay
Posts: 4
Joined: Thu Oct 10, 2024 7:29 pm

Windfall, retired, total newby

Post by whatthehay »

Greetings, I'm new to this so I'm going to try this out. I am married, retired, 71 and 73. I have no experience with investing and feel kind of silly that I never paid any attention before... I recently received a windfall from my brother who passed away. I never expected this to happen and I still have not totally accepted that I have inherited his estate. I inherited his deferred compensation of 537K and have 10 years to remove it. It is only making 2.1 % in a stable cash fund at Mission Square retirement. I want to move it from there because they are difficult to work with. I have a Schwab account, but wonder if another account would be better. I also received 2 properties which I am in the process of selling and will make about 800K. I also have 300K currently in short term cd's making about 4.7% I would help with asset allocation. I'm not quite sure where to begin. I was thinking I should move the deferred comp and figure out how to invest it, take out the RMD and some more to start the deletion. I'm unsure if I should just go write to a balance fund or if I should put money gradually. I my investments have been in real estate. Right now I have 5 houses, but I really don't want to keep managing rentals. The truth is my financial plan was to save every dollar and pay off my houses. I worked as a nurse for 40 years, no retirement, that is how it is. I have a daughter, granddaughter that I would like to leave money to and I would like to take out about 40K a year to spend on travel. I have a new car.
Income:
SS him: 2200
SS her:2004
Pension him: 2500
Rental (paid for, value 360K) 1450
Primary Residence: paid for, value 1,700,000
Vacation home: paid for, value 550K
Him IRA Annuity: 100K, 4.75%
Him IRA traditional: 89K in cd and MM 4.7%
Her: IRA 56K CD and MM 4.75%
Online Acct: 234K 4.1%
I was renting both of my brothers houses to offset his assisted living, but now I want to sell them. Both will used towards tax deductions.
Rental from one is 3200/month
Rental from second one 3000/month, but had to evict and now remodel cost 30K
Joint Cds 300K at 4.5%
No debt
wangle
Posts: 37
Joined: Wed Oct 09, 2024 8:30 pm

Re: Windfall, retired, total newby

Post by wangle »

Welcome and congratulations on the windfall!

I think getting out of managing rentals is a smart move. I had my dad get out of his rental two years ago. You're in your golden years and don't need to deal with the headache. You've taken care of other folks your entire career, it's time to enjoy yours! Note: Consider the tax hit you'll take when you sell your rentals due to unrecaptured depreciation/cap gains though. There are some tax strategies you can wangle to offset the year you sell the property.

Since you inherited 500K worth of pre-tax money, it may be smart to start converting some of that each year. Think Roth-conversions (you're also required to starting at 73 anyway).

Depending on your risk tolerance, which seems to be quite low, look into diversifying some of your assets into index funds and higher yielding bond funds. Investing is pretty personal so it's wise to work with someone with investment and tax planning experience to make the most of your nest egg.

Also if you haven't, make sure to have your estate plan in place. I've gotten my parents both long term care plans so that their care is pre-paid and that it doesn't impact the amount they want to leave me.

Hope this helps!
Tax pro, Recovering life insurance agent, RE + crypto investor, aspiring trader. Avid outdoorsman.
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Watty
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Joined: Wed Oct 10, 2007 3:55 pm

Re: Windfall, retired, total newby

Post by Watty »

whatthehay wrote: Sat Oct 12, 2024 9:26 pm I'm not quite sure where to begin.
There is a getting started wiki if you have not seen it.

https://www.bogleheads.org/wiki/Getting_started

There is a also a wiki on managing a windfall.

https://www.bogleheads.org/wiki/Managing_a_windfall

I agree with selling the two inherited rental properties. Most likely they got a stepped up cost basis unless there was some special case so you can likely sell them and not pay any capital gains taxes. It would be good to double check with a tax pro to make sure that is true in your case, and to find out if your state income taxes also work that way. Most housing markets are still fairly strong now even if they have cooled off some so it may not be hard to sell them now.

https://www.bogleheads.org/wiki/Step-up_in_basis

One thing to be careful about is that probably 99% of financial advisors who may try to get you to sign up with them are really sales people who will put you into terrible investments just to make money off of you. They may also try to make your investments so complex that it will be difficult to leave them. If anyone tries to sell you an annuity or some "special" investment which is not available to the general public then they are almost certainly trying to take advantage of you.

Also be careful in that "fee based" financial advisor is not the same as a "fee only" financial advisor.

You would need to look hard but it is possible to a financial advisor who is in the 1% who is not just a salesperson but if you do then you also need to have a plan for how that will work when that person is no longer available.

Another alternative is that Vanguard Personal Advisor Service(PAS) will manage your investments for a fee of 0.3% and they will not put you into bad investments. I have not used them but you can look of prior threads about using them.
HomeStretch
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Joined: Thu Dec 27, 2018 2:06 pm

Re: Windfall, retired, total newby

Post by HomeStretch »

Welcome to the forum. Condolences on your loss.

If you like Schwab, your plan makes sense to rollover the Mission deferred comp account to a Schwab inherited IRA and to invest your Schwab Taxable account and Inherited IRA using a Schwab target index fund. For a simple portfolio, you don’t need a financial advisor. Selling all the rentals to simplify also makes sense and those proceeds can be added to your Schwab Taxable account.

It’s a little hard to tally your inherited and owned individual/joint assets (excluding your primary/vacation homes) as presented. But your investment portfolio seems to be well over $1 million once the properties are sold. Your plan to withdraw $40k/year from your portfolio is very reasonable as it is <4% of the portfolio. If you are making other portfolio withdrawals already, make sure your total annual withdrawal from your total investments portfolio as a % makes sense (4-5% is reasonable).

“Where to begin” may look like this:
1. Transfer the Mission account to Schwab. Start the account transfer at Schwab online. The Mission account will need to be appropriately titled into your name first. You may also need to sell the Mission holding and transfer cash to Schwab.

2. Choose an asset allocation based on your risk tolerance. Holding some equities (minimum of 30%) will help your portfolio keep up with inflation.

3. If you hold cash at Schwab, their Taxable account default settlement fund has a low yield. For a higher yield, you will need to buy a Schwab money market fund (MMF) with a more competitive yield such as SWVXX prime MMF with a current 7-day SEC yield of 4.71%. You can also invest your cash at Schwab in U.S. treasuries or brokered CDs.

4. When you are ready, invest your Taxable and Inherited accounts using a Schwab target date index fund with an appropriate equity %. For example, SWYDX is Schwab’s 2025 Target Index Fund (TDF) that has about 40% equity and a 0.08% ER. If you want a higher or lower equity %, choose a different TDF year (2020, 2030, etc.).

5. Determine whether your brother took any year-of-death 2024 required minimum distributions (if not, you will need to do so) and understand your 10-year RMD schedule starting in 2025.

6. Get a handle on taxes (you may want a tax preparer’s help). Understand the cost basis for the inherited properties and the taxable gains on any properties sold. Make the appropriate estimated quarter tax payments when sold.

Enjoy your travel and spending time with your family. As your plan is to leave your estate to your daughter/granddaughter, be sure your estate plans (Will, durable POA and healthcare POA/advance directives) and your designated beneficiary designations are up-to-date. Also consider whether your portfolio is large enough to begin gifting while alive - for example, paying for a family trip together.
wangle
Posts: 37
Joined: Wed Oct 09, 2024 8:30 pm

Re: Windfall, retired, total newby

Post by wangle »

Watty wrote: Sun Oct 13, 2024 12:25 am
whatthehay wrote: Sat Oct 12, 2024 9:26 pm I'm not quite sure where to begin.
There is a getting started wiki if you have not seen it.

https://www.bogleheads.org/wiki/Getting_started

There is a also a wiki on managing a windfall.

https://www.bogleheads.org/wiki/Managing_a_windfall

I agree with selling the two inherited rental properties. Most likely they got a stepped up cost basis unless there was some special case so you can likely sell them and not pay any capital gains taxes. It would be good to double check with a tax pro to make sure that is true in your case, and to find out if your state income taxes also work that way. Most housing markets are still fairly strong now even if they have cooled off some so it may not be hard to sell them now.

https://www.bogleheads.org/wiki/Step-up_in_basis

One thing to be careful about is that probably 99% of financial advisors who may try to get you to sign up with them are really sales people who will put you into terrible investments just to make money off of you. They may also try to make your investments so complex that it will be difficult to leave them. If anyone tries to sell you an annuity or some "special" investment which is not available to the general public then they are almost certainly trying to take advantage of you.

Also be careful in that "fee based" financial advisor is not the same as a "fee only" financial advisor.

You would need to look hard but it is possible to a financial advisor who is in the 1% who is not just a salesperson but if you do then you also need to have a plan for how that will work when that person is no longer available.

Another alternative is that Vanguard Personal Advisor Service(PAS) will manage your investments for a fee of 0.3% and they will not put you into bad investments. I have not used them but you can look of prior threads about using them.
Great advice. I used to be a financial advisor who sold annuities and make hefty commissions. Product providers want to incentivize people to push their product, I get it. It was not always the best fit for the client. The industry is built on conflict on interest. Most of the time I was pulled to do better for myself than for the client.

The way I have set up my business now is that I will never take commission or any bonuses from a product provider. It's a lot of money to leave on the table, but my clients will always know that I made an "objective" recommendation. Building a system with integrity will often not make the most money, but it will keep me honest and ultimately benefit everyone involve.

Finding that an advisor who is 100% honest and transparent could be nearly impossible :wink: .
Tax pro, Recovering life insurance agent, RE + crypto investor, aspiring trader. Avid outdoorsman.
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