allocation for inherited Roth account

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Topic Author
afstravel
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Joined: Sun Mar 21, 2021 7:35 am

allocation for inherited Roth account

Post by afstravel »

I'm a retired 64 yr old with an overall 40:60 portfolio. I'm aiming to have all equities in my relatively small HSA and Roth IRA accounts. Additionally, I have an inherited Roth IRA (@5% of total assets currently invested in a 2025 Target date fund. I take annual RMDs from this account. Should inherited Roth IRA's be invested for long-term growth (equities) in a fashion similar to Roth IRA's or does the fact that yearly RMD's suggest that a different asset allocation might be better?

Thanks!
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arcticpineapplecorp.
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Re: allocation for inherited Roth account

Post by arcticpineapplecorp. »

figure out your overall asset allocation (mix of stocks/fixed income), then determine what makes sense to put where which is asset location. This involves thinking about tax implications. I.E., withdrawals from Roth are tax free, so if that account were to grow that's not a bad thing because it's more tax free spending. But if it grows so much that moves your overall allocation from 40/60 to something more aggressive, you could always reallocate in whatever account makes sense.

typically it makes sense tax wise to put fixed income in tax deferred accounts and stocks in tax free accounts. You can't always do it precisely that way due to amount of assets in different accounts and your overall risk preference. For many, tax deferred are larger than Roth accounts. So they put all their fixed income in tax deferred but also might have stocks there too, and all stocks in their Roth. YMMV. It's also fine to put a smallish amount from Roth in fixed income (2-3 years worth) or send dividends to cash to withdrawal as RMDs (in full or in part).

also, assuming this Roth inherited IRA was prior to Secure Act passage.
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retiredjg
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Re: allocation for inherited Roth account

Post by retiredjg »

afstravel wrote: Fri May 20, 2022 9:08 am I'm a retired 64 yr old with an overall 40:60 portfolio. I'm aiming to have all equities in my relatively small HSA and Roth IRA accounts. Additionally, I have an inherited Roth IRA (@5% of total assets currently invested in a 2025 Target date fund. I take annual RMDs from this account. Should inherited Roth IRA's be invested for long-term growth (equities) in a fashion similar to Roth IRA's or does the fact that yearly RMD's suggest that a different asset allocation might be better?
There could be several ways this inherited Roth IRA works.

I'm assuming you did not inherit this from a spouse since you are taking RMDs.

Are you really taking RMDs (meaning you inherited this before the SECURE Act and RMDs are required?). Or do you mean you are taking money out each year but it must all be out by the end of year 10 (which is not a real RMD but people call it that anyway)?

Had the Roth IRA been opened 5 years before the original owner died and was that person over age 59.5? If yes, the Roth IRA is qualified and all earnings are tax free - so invest however you want and long term growth (equities) is likely to be a good choice.

I'm not sure about all the ins and outs of this topic, but these are some things to consider.
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BL
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Re: allocation for inherited Roth account

Post by BL »

arcticpineapplecorp. wrote: Fri May 20, 2022 10:27 am figure out your overall asset allocation (mix of stocks/fixed income), then determine what makes sense to put where which is asset location. This involves thinking about tax implications. I.E., withdrawals from Roth are tax free, so if that account were to grow that's not a bad thing because it's more tax free spending. But if it grows so much that moves your overall allocation from 40/60 to something more aggressive, you could always reallocate in whatever account makes sense.

typically it makes sense tax wise to put fixed income in tax deferred accounts and stocks in tax free accounts. You can't always do it precisely that way due to amount of assets in different accounts and your overall risk preference. For many, tax deferred are larger than Roth accounts. So they put all their fixed income in tax deferred but also might have stocks there too, and all stocks in their Roth. YMMV. It's also fine to put a smallish amount from Roth in fixed income (2-3 years worth) or send dividends to cash to withdrawal as RMDs (in full or in part).

also, assuming this Roth inherited IRA was prior to Secure Act passage.
+1
What year did you inherit?
Topic Author
afstravel
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Joined: Sun Mar 21, 2021 7:35 am

Re: allocation for inherited Roth account

Post by afstravel »

Sorry more details, I inherited the account in 2008 after my mother passed away at age 81.
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retiredjg
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Re: allocation for inherited Roth account

Post by retiredjg »

In that case, I would put mostly or all stock funds in this account and hope you get the highest return with no taxes.
chemocean
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Re: allocation for inherited Roth account

Post by chemocean »

I received an inherited IRA several years ago, smaller % than yours (0.5%). I was always intrigued with alternative investment vehicles. I invested the funds in the Emerging Market, which is now down like everything else. My plan is to liquidate the inherited IRA in the year I turn 70.5 by using it to make QCDs for my yearly contributions. The ride has been fun, but not much at stake, especially since I am giving it away anyway, which is in line with the philosophy of the original owner.
Topic Author
afstravel
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Re: allocation for inherited Roth account

Post by afstravel »

Thank you for your responses.
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