Portfolio Review: Messy Portfolio After Inheritance

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

I recently lost my mom. The sudden merger of inherited assets has added complexity to our portfolio, and I need to make a lot of decisions, some quickly. I am not new to investing, but it’s a lot to think through while I deal with grief. So I’m turning to all of you to help me wade through the swamp.

One thing I know for sure is that I will not be continuing with her financial advisor. She had a discretionary account with them and the annual fees were five figures. Some of the fund choices were subpar along with higher than average costs. I do plan on hiring a fee-only CFP for a review, but for the most part I feel comfortable self-managing our portfolio.

My husband and I are both 60. I retired to care for my mom, but he is still working and wants to continue as long as possible. My guess is he’ll retire around 65 (unless he gets laid off due to a merger).

Emergency funds: Cash/MM/HYSA in portfolio

Debt: None except for the mortgage - 370K @3.5%, home market value $1M+

Tax Filing Status: Married Filing Jointly
Tax Rate: 22% Federal, 8% State
State of Residence: CA

Age: 60 & 60

Desired Asset allocation:75% stocks / 20% bonds / 5% REITs
Desired International allocation: 20% of stocks

Total Portfolio: $3.2M

Current retirement assets

NOTE: There’s an overlap of the same investments in both the taxable and IRA accounts. (For example, IVV = 24.3%+6.5%+7% = 37.8%) For the portfolio review I’m splitting the percentages for those because I think it might help me to think through asset locations.

Our Taxable - $2M
24.3% IVV: iShares Core S&P 500 ETF (expense ratio .03%)
9.2% IEFA: iShares Trust Core MSCI EAFE ETF (.07%)
4.4% MDHIX: Mainstay Mackay Short Duration High Yield I (0.77%)
4.0% GBOSX: JP Morgan Global Bond Opportunities Cl I (0.65%)
3.8% MSYIX: Morgan Stanley Institutional High Yield Cl I (0.65%)
3.7% IEMG: iShares Inc Core MSCI Emerging Mkts ETF (.09%)
3.1% IJH: iShares Core S&P Mid-Cap ETF (.05%)
2.4% VEU: Vanguard FTSE All World ex-US ETF (.08%)
2.3% GSDIX: Goldman Sachs Emerging Markets Debts Instl (0.9%)
1.8% GSEW: Goldman Sachs Equal Weight US Large Cap Equity (0.9%)
1.2% EMXC: iShares Emerging Mkts ex-China (.25%)
3.0% FDRXX: Fidelity Govt Cash Reserves
1.5% SNVXX: Schwab Govt Money Market + HYSA accounts
0.8% Treasury Direct: I-Bonds & T-Bills
0.07% Individual Stock
1.5% Money Market, HYSA, Bank Account

Inherited IRA - $550K
6.5% IVV: iShares Core S&P 500 ETF (expense ratio.03%)
1.9% IEFA iShares Trust Core MSCI EAFE ETF (.07%)
1.2% MDHIX: Mainstay Mackay Short Duration High Yield I (0.77%)
1.1% IEMG: iShares Inc Core MSCI Emerging Mkts ETF (.09%)
0.9% MSYIX: Morgan Stanley Institutional High Yield Cl I (0.65%)
0.8% IJH: iShares Core S&P Mid-Cap ETF (.05%)
0.7% GBOSX: JP Morgan Global Bond Opportunities Cl I (0.65%)
0.7% BSIIX: Blackrock Strategic Income Oppty Fund (0.68%)
0.7% ACWV: iShares MSCI Global Min Vol Factor ETF (0.32%)
0.6% GSDIX: Goldman Sachs Emerging Markets Debts Instl (0.9%)
0.6% GSEW: Goldman Sachs Equal Weight US Large Cap Equity ETF (.09%)
0.4% FDRXX: Fidelity Govt Cash Reserves

His 401k - $550K
Company match: 50% of first 6% up to $5,000

7% IVV: iShares Core S&P 500 ETF (expense ratio.03%)
6.5% VT: Vanguard Total World Stock Index Fund (.07%)
0.8% VGIT: Vanguard Intermediate Term Treasury Index Fund (.04%)
0.7% VGSH: Vanguard Short Term Treasury Index Fund (.04%)
0.5% SWTSX: Schwab Total Stock Market Index Fund (.03%)
1.6% SNVXX: Schwab Government Money Market

His Roth IRA at Schwab
.14% Individual Stocks

Her Roth IRA at Schwab
.6% IVV iShares Core S&P 500 ETF (expense ratio 0.3%)
.36% Individual Stocks
.09% Cash
_______________________________________________________________

Contributions

**Planned 2023 Contributions
$30K his 401(K) (also specify any employer matching contributions)
$7500 his IRA/Roth IRA*
$7500 her IRA/Roth IRA*
$?? taxable (for retirement, not short term goals)

Available funds in 401K
It is a Schwab PCRA so most funds and ETFs are available. No individual stocks, bonds, CDs, risky choices, etc. are available.
_______________________________________________________________

Questions:

Portfolio review
1. FUND CHOICES: As you can see there’s a hodgepodge of funds with some solid choices and others not so much. I think the advisor chose complexity for complexity’s sake. I’m okay with more than 3 funds, but these are too many. Which stand out as winners and losers to you? The largest position is in IVV (S&P 500); moving forward I'd like to focus on either VTI or VT. Should I keep the IVV and just add new contributions to total stock market funds? Or should I swap out some IVV for those? Also am considering muni funds...thoughts?

(NOTE: We need to set aside $75-150K for grad school (depending on which program) for one of our kids, to be spent 2024-2025).

2. TAX EFFICIENCY: Current asset locations need to be changed to make our portfolio more tax efficient. Last year, my mom’s taxable account produced $52K in dividends. YTD it has earned $13K in dividends. Not only am I not a fan of high yield (aka junk) bond funds, I don’t want dividends in our taxable account - we may get bumped into the next tax bracket. Also by staying under the income limit we can continue contributing to our Roth. My understanding is dividends/interest should go in tax-deferred, equities in taxable, and high growth in Roth. (Although using the general guideline may not breakdown in ideal percentages for our portfolio.)

3. LOGISTICS: Knowing I need to sell a number of positions and buy into new ones, how do I go about doing it in a thoughtful way? All at once?

4. INHERITED IRA: Mom did not take her RMD before passing, so I withdrew $30K which will be taxable to me this year. I understand I have 10 years starting in 2024 to deplete the account. I will evaluate with year by year, but the tentative plan is to wait to withdraw any significant amounts until my husband retires so we don’t bump into the next tax bracket. Once my husband retires we could withdraw from the the IRA first to postpone beginning Social Security payments until 70. Any thoughts?

5. ROTH: With >$1M in tax-deferred accounts, I would like to diversify into tax-free by adding more to the Roth IRA. How and when are the questions. Backdoor Roth? Change future contributions from the tax deferred 401(K) to the Roth 401(K)?

Thank you in advance!
User avatar
Duckie
Posts: 9767
Joined: Thu Mar 08, 2007 1:55 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by Duckie »

sodastream wrote: Sat May 27, 2023 5:09 pm The sudden merger of inherited assets has added complexity to our portfolio, and I need to make a lot of decisions, some quickly.
The "Inherited IRA" is obviously from your mom but can easily be cleaned up. Is any of "Our Taxable" from her? Because that is the messiest account. If some of that taxable account is recently inherited, selling may not be a big tax-hit because of the step-up in cost basis.
Desired Asset allocation:75% stocks / 20% bonds / 5% REITs
REITs are stocks. 20% bonds at age 60 is very aggressive.
Desired International allocation: 20% of stocks
20% of 80% is 16% international stocks.
Our Taxable - $2M
24.3% IVV: iShares Core S&P 500 ETF (expense ratio .03%)
9.2% IEFA: iShares Trust Core MSCI EAFE ETF (.07%)
4.4% MDHIX: Mainstay Mackay Short Duration High Yield I (0.77%)
4.0% GBOSX: JP Morgan Global Bond Opportunities Cl I (0.65%)
3.8% MSYIX: Morgan Stanley Institutional High Yield Cl I (0.65%)
3.7% IEMG: iShares Inc Core MSCI Emerging Mkts ETF (.09%)
3.1% IJH: iShares Core S&P Mid-Cap ETF (.05%)
2.4% VEU: Vanguard FTSE All World ex-US ETF (.08%)
2.3% GSDIX: Goldman Sachs Emerging Markets Debts Instl (0.9%)
1.8% GSEW: Goldman Sachs Equal Weight US Large Cap Equity (0.9%)
1.2% EMXC: iShares Emerging Mkts ex-China (.25%)
3.0% FDRXX: Fidelity Govt Cash Reserves
1.5% SNVXX: Schwab Govt Money Market + HYSA accounts
0.8% Treasury Direct: I-Bonds & T-Bills
0.07% Individual Stock
1.5% Money Market, HYSA, Bank Account
This account has five funds with expense ratios from 0.65% to 0.90%. Ouch! Granted they are not a big portion, but every little bit hurts. Turn OFF all automatic dividend/distribution reinvestment. Don't buy more of anything except IVV for a bit. Figure out the cost basis of every item. If anything has an unrealized loss, sell it.
Inherited IRA - $550K
6.5% IVV: iShares Core S&P 500 ETF (expense ratio.03%)
1.9% IEFA iShares Trust Core MSCI EAFE ETF (.07%)
1.2% MDHIX: Mainstay Mackay Short Duration High Yield I (0.77%)
1.1% IEMG: iShares Inc Core MSCI Emerging Mkts ETF (.09%)
0.9% MSYIX: Morgan Stanley Institutional High Yield Cl I (0.65%)
0.8% IJH: iShares Core S&P Mid-Cap ETF (.05%)
0.7% GBOSX: JP Morgan Global Bond Opportunities Cl I (0.65%)
0.7% BSIIX: Blackrock Strategic Income Oppty Fund (0.68%)
0.7% ACWV: iShares MSCI Global Min Vol Factor ETF (0.32%)
0.6% GSDIX: Goldman Sachs Emerging Markets Debts Instl (0.9%)
0.6% GSEW: Goldman Sachs Equal Weight US Large Cap Equity ETF (.09%)
0.4% FDRXX: Fidelity Govt Cash Reserves
Decide if you want stocks or bonds in this account and pick VTI/ITOT for stocks or BND/AGG for bonds.
His 401k - $550K
Company match: 50% of first 6% up to $5,000

7% IVV: iShares Core S&P 500 ETF (expense ratio.03%)
6.5% VT: Vanguard Total World Stock Index Fund (.07%)
0.8% VGIT: Vanguard Intermediate Term Treasury Index Fund (.04%)
0.7% VGSH: Vanguard Short Term Treasury Index Fund (.04%)
0.5% SWTSX: Schwab Total Stock Market Index Fund (.03%)
1.6% SNVXX: Schwab Government Money Market
This has 500 Index, Total World, and Total Stock Market. Consolidate and pick just one for US stocks. This account could have just VTI and VGIT for simplicity.
His Roth IRA at Schwab
.14% Individual Stocks
Does he like to play with individual stocks or would he consider one fund like VTI?
Her Roth IRA at Schwab
.6% IVV iShares Core S&P 500 ETF (expense ratio 0.3%)
.36% Individual Stocks
.09% Cash
Holding IVV in taxable and IRAs mean potential wash sales. Consider holding just VTI here.
As you can see there’s a hodgepodge of funds with some solid choices and others not so much. I think the advisor chose complexity for complexity’s sake. I’m okay with more than 3 funds, but these are too many. Which stand out as winners and losers to you? The largest position is in IVV (S&P 500); moving forward I'd like to focus on either VTI or VT. Should I keep the IVV and just add new contributions to total stock market funds? Or should I swap out some IVV for those?
In tax-sheltered you can sell without issue. In taxable you need to be very careful.
Also am considering muni funds...thoughts?
There is $550,000 in the inherited IRA. That's about 17% of the portfolio. He has $550,000 in his pre-tax 401k. Another 17%. You have enough space in tax-sheltered to cover more than your 20% desired bond allocation. You don't need muni bonds.
(NOTE: We need to set aside $75-150K for grad school (depending on which program) for one of our kids, to be spent 2024-2025).
That will come from taxable.
Knowing I need to sell a number of positions and buy into new ones, how do I go about doing it in a thoughtful way? All at once?
In tax-sheltered you can just do it. In taxable you need to know the cost basis of every item. Sell the ETFs with a loss first, then evaluate how much of ETFS with gains you can sell to get to $0. Then figure how much more ETFs with gains you are willing to sell knowing there will be tax consequences for them.
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by retiredjg »

sodastream wrote: Sat May 27, 2023 5:09 pm ...and I need to make a lot of decisions, some quickly.
What's the rush? Think, plan, then do. This is not an emergency.

Desired Asset allocation:75% stocks / 20% bonds / 5% REITs
This is very aggressive for your ages. It only makes sense if you have way more money than you'll ever need and are investing for heirs instead of yourselves.


Our Taxable - $2M
24.3% IVV: iShares Core S&P 500 ETF (expense ratio .03%)
9.2% IEFA: iShares Trust Core MSCI EAFE ETF (.07%)
4.4% MDHIX: Mainstay Mackay Short Duration High Yield I (0.77%)
4.0% GBOSX: JP Morgan Global Bond Opportunities Cl I (0.65%)
3.8% MSYIX: Morgan Stanley Institutional High Yield Cl I (0.65%)
3.7% IEMG: iShares Inc Core MSCI Emerging Mkts ETF (.09%)
3.1% IJH: iShares Core S&P Mid-Cap ETF (.05%)
2.4% VEU: Vanguard FTSE All World ex-US ETF (.08%)
2.3% GSDIX: Goldman Sachs Emerging Markets Debts Instl (0.9%)
1.8% GSEW: Goldman Sachs Equal Weight US Large Cap Equity (0.9%)
1.2% EMXC: iShares Emerging Mkts ex-China (.25%)
3.0% FDRXX: Fidelity Govt Cash Reserves
1.5% SNVXX: Schwab Govt Money Market + HYSA accounts
0.8% Treasury Direct: I-Bonds & T-Bills
0.07% Individual Stock
1.5% Money Market, HYSA, Bank Account
First, have you definitely decided this is "our" money? There can be reasons (especially blended families) to keep this as your money.

If all of this is inherited, it should have a stepped up basis. In other words, you should be able to liquidate all of this will little tax. What do you want to hold in taxable? I suggest a total stock index, a total international index (could be the VEU), and the Treasury Direct holdings. And maybe the cash reserves if you want them.

Inherited IRA - $550K
6.5% IVV: iShares Core S&P 500 ETF (expense ratio.03%)
1.9% IEFA iShares Trust Core MSCI EAFE ETF (.07%)
1.2% MDHIX: Mainstay Mackay Short Duration High Yield I (0.77%)
1.1% IEMG: iShares Inc Core MSCI Emerging Mkts ETF (.09%)
0.9% MSYIX: Morgan Stanley Institutional High Yield Cl I (0.65%)
0.8% IJH: iShares Core S&P Mid-Cap ETF (.05%)
0.7% GBOSX: JP Morgan Global Bond Opportunities Cl I (0.65%)
0.7% BSIIX: Blackrock Strategic Income Oppty Fund (0.68%)
0.7% ACWV: iShares MSCI Global Min Vol Factor ETF (0.32%)
0.6% GSDIX: Goldman Sachs Emerging Markets Debts Instl (0.9%)
0.6% GSEW: Goldman Sachs Equal Weight US Large Cap Equity ETF (.09%)
0.4% FDRXX: Fidelity Govt Cash Reserves
I would liquidate all this and maybe just hold bonds here. There should be no tax.

His 401k - $550K
Company match: 50% of first 6% up to $5,000

7% IVV: iShares Core S&P 500 ETF (expense ratio.03%)
6.5% VT: Vanguard Total World Stock Index Fund (.07%)
0.8% VGIT: Vanguard Intermediate Term Treasury Index Fund (.04%)
0.7% VGSH: Vanguard Short Term Treasury Index Fund (.04%)
0.5% SWTSX: Schwab Total Stock Market Index Fund (.03%)
1.6% SNVXX: Schwab Government Money Market
Suggest holding only 500 index and bonds as needed.

1. FUND CHOICES: As you can see there’s a hodgepodge of funds with some solid choices and others not so much. I think the advisor chose complexity for complexity’s sake. I’m okay with more than 3 funds, but these are too many. Which stand out as winners and losers to you? The largest position is in IVV (S&P 500); moving forward I'd like to focus on either VTI or VT. Should I keep the IVV and just add new contributions to total stock market funds? Or should I swap out some IVV for those? Also am considering muni funds...thoughts?
I would not keep 500 index in taxable because it sets up possible wash sales with 500 index in the other accounts. I'd sell it and replace it with Total Stock. Hold your international allocation here too to get the foreign tax credit. Since you live in CA, a CA muni fund for part of your bond allocation is attractive.


3. LOGISTICS: Knowing I need to sell a number of positions and buy into new ones, how do I go about doing it in a thoughtful way? All at once?
All at once is fine.

5. ROTH: With >$1M in tax-deferred accounts, I would like to diversify into tax-free by adding more to the Roth IRA. How and when are the questions. Backdoor Roth? Change future contributions from the tax deferred 401(K) to the Roth 401(K)?
Can you contribute directly to Roth IRA or are you over the limit?

You can eventually convert the 401k to Roth IRA.

If you wanted you could start using some Roth 401k if that does not push you out of the 22% bracket.
runner540
Posts: 1763
Joined: Sun Feb 26, 2017 4:43 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by runner540 »

Sorry for your loss. Please be cautious about commingling inherited accounts. Learn about the implications should you split up, before taking action.
Freeadvice
Posts: 261
Joined: Wed Nov 27, 2019 12:42 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by Freeadvice »

10-Year Rule Number Two: When the Participant Dies on or After Their RBD
Under this 10-year rule, annual RMDs must be taken over the life expectancy of the designated beneficiary beginning by Dec. 31 of the year that follows the year the participant dies. In addition, the inherited account must be fully distributed by Dec. 31 of the 10th year following the year the participant dies.
https://www.morningstar.com/financial-a ... rited-iras
HomeStretch
Posts: 11334
Joined: Thu Dec 27, 2018 2:06 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by HomeStretch »

Welcome to the forum. Condolences on your loss.

Have you transferred the accounts managed by the advisor to a low-cost brokerage yet in order to reduce investment costs?

Changes to holdings in the Taxable account have tax consequences. What is the gain or loss per holding? The cost basis for any holdings recently inherited was likely stepped-up and may have very little gain/loss if sold. For starters, you could turn-off automatic re-investment of dividends/capital gain distributions and sell holdings/specific tax lots with a loss or no/little gain. Don’t reinvest any sale proceeds in the market that you need to pay for grad school tuition in 2024-5.

There are no tax consequences for changing holdings in tax deferred and Roth accounts. Consider:
(1) holding 100% of your desired bond allocation in the Inherited IRA. This should result in lower growth/lower RMDs during what you expect to be higher income/tax years until retirement.
(2) holding one total market equity fund in the Roth IRAs.

As you expect to have a lower future marginal tax rate in retirement, continuing to make Traditional 401k contributions likely makes sense for the tax benefit. Does the 401k allow a mega backdoor Roth (MBR)? If yes, (assuming sufficient compensation) contribute to the MBR up to the IRS limit ($66,000 for employEE/ER + catch-up of $7,500 for 2023) each year to get more $ into Roth. If the W-2 take home pay becomes too low due to the MBR, use the Taxable account to cover living expenses. Roth accounts grow tax free whereas Taxable accounts do not. In addition, you and your spouse can make annual Roth IRA contributions either directly or via backdoor Roth.

Hold your desired REIT allocation in a tax deferred account.

Have you determined how much you need in your retirement portfolio (exclude the grad school savings $) in order for your husband to retire? This starts with projecting your retirement income (such as SS) and retirement expenses for everything including income taxes, healthcare and periodic expenses such as a new car or home maintenance.
livesoft
Posts: 85971
Joined: Thu Mar 01, 2007 7:00 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by livesoft »

Our inherited IRAs are invested in one.single.fund: A Target Risk fund of index funds with a 60/40 asset allocation. VSMGX Vanguard LifeStrategy Moderate Growth is an example. We have to take RMDs, but these are set-and-forget and otherwise have zero transactions in them. You can do this with your inherited IRA this week easily. You may have to select another such fund since your brokerage is not Vanguard. For this account you don't have to decide stocks or bonds and you don't have to worry about any interference with your other accounts. You do want your brokerage to calculate the RMD for you each year.

As for the inherited taxable account assets, I think the sooner you sell assets that have little or no gains or even losses the better. For tax efficiency, I invest primarily in VTI in taxable.

I use my 401(k) for all portfolio rebalancing activities, but even so, it has very few investments in it: VTI, a total international index, a total bond index, and small-cap-value index fund. The 401(k) does not have the asset allocation of my entire portfolio, but enough of each class to make my entire portfolio a 60/40 portfolio. Thus. my non-401(k) accounts are in "set-and-forget" mode except for maybe one contribution a year.
Last edited by livesoft on Sun May 28, 2023 6:07 am, edited 1 time in total.
Wiki This signature message sponsored by sscritic: Learn to fish.
rossington
Posts: 1806
Joined: Fri Jun 07, 2019 2:00 am
Location: Florida

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by rossington »

sodastream wrote: Sat May 27, 2023 5:09 pm She had a discretionary account with them and the annual fees were five figures.
Only for the IRA? :shock:
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
Outer Marker
Posts: 4360
Joined: Sun Mar 08, 2009 8:01 am

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by Outer Marker »

sodastream wrote: Sat May 27, 2023 5:09 pm Age: 60 & 60

Desired Asset allocation:75% stocks / 20% bonds / 5% REITs
Desired International allocation: 20% of stocks

Total Portfolio: $3.2M
I would suggest dialing back your AA to 70/30 and ditching the sub-allocation to REITS.

Unless there are huge capital gains issues, and you're going to bust the 15% capital gains rate, I'd liquidate the dumpster fire you've got going on in taxable and consolidate that into total market funds.
delamer
Posts: 17348
Joined: Tue Feb 08, 2011 5:13 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by delamer »

I’m sorry for your loss.

Despite some assumptions made by earlier posters, inherited assets in a taxable account do not always receive a step-up in cost basis to the date of death. So it’s important that you know if that is the case for you before making any changes within the taxable account.

Once you start Medicare, your premiums can increase if your income is above a certain amount. Make sure you understand the implications of this — IRMAA — before you decide to hold off on withdrawals from the Inherited IRA. Hopefully, the IRA will grow significantly in value over the next 10 years too. So you won’t be just withdrawing today’s balance.

Remember that moving into the next marginal tax brackets only changes the tax rate on additional income. For example, say you have enough income that you slip $100 into the 24% bracket (from 22%). You’ll pay $24 in taxes on that $100, but the tax owed on your other income won’t change.

Good luck, and take your time.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

THANK YOU, everyone, for taking the time to read my post and offer excellent feedback. I truly appreciate it!

Duckie wrote: Sat May 27, 2023 6:35 pm
sodastream wrote: Sat May 27, 2023 5:09 pm The sudden merger of inherited assets has added complexity to our portfolio, and I need to make a lot of decisions, some quickly.
The "Inherited IRA" is obviously from your mom but can easily be cleaned up. Is any of "Our Taxable" from her? Because that is the messiest account. If some of that taxable account is recently inherited, selling may not be a big tax-hit because of the step-up in cost basis.
Yes, the "Our Taxable" account is a merger of 3 portfolios. Ours, Mom's, and Dad's (he passed away years ago, but with Mom's passing it's now ours). This is why it's so messy. Mom's account got the recent step-up in cost basis, but his basis is from years ago. There's > $450K in unrealized gain in those assets.
Desired Asset allocation:75% stocks / 20% bonds / 5% REITs
REITs are stocks. 20% bonds at age 60 is very aggressive.
You're right. After sleeping on it, I feel 70/30 is a better allocation for us right now.
Desired International allocation: 20% of stocks
20% of 80% is 16% international stocks.
I'm still undecided whether to achieve the weighting in VT or a separate international fund.
Our Taxable - $2M
*snipped*
This account has five funds with expense ratios from 0.65% to 0.90%. Ouch! Granted they are not a big portion, but every little bit hurts. Turn OFF all automatic dividend/distribution reinvestment. Don't buy more of anything except IVV for a bit. Figure out the cost basis of every item. If anything has an unrealized loss, sell it.
I know and agree...those funds with unattractive expense ratios were chosen by her FA.
Inherited IRA - $550K
*snipped*
Decide if you want stocks or bonds in this account and pick VTI/ITOT for stocks or BND/AGG for bonds.
His 401k - $550K
Company match: 50% of first 6% up to $5,000
*snipped*
This has 500 Index, Total World, and Total Stock Market. Consolidate and pick just one for US stocks. This account could have just VTI and VGIT for simplicity.
Great suggestions, thank you.
His Roth IRA at Schwab
.14% Individual Stocks
Does he like to play with individual stocks or would he consider one fund like VTI?
I like to take small positions of individual stocks. It's not a significant chunk of our portfolio.
Her Roth IRA at Schwab
*snipped*
Holding IVV in taxable and IRAs mean potential wash sales. Consider holding just VTI here.
Oh, wash sales...I hadn't considered that. The FA for Mom's and Dad's accounts chose a lot of the same funds across their accounts.
As you can see there’s a hodgepodge of funds with some solid choices and others not so much. I think the advisor chose complexity for complexity’s sake. I’m okay with more than 3 funds, but these are too many. Which stand out as winners and losers to you? The largest position is in IVV (S&P 500); moving forward I'd like to focus on either VTI or VT. Should I keep the IVV and just add new contributions to total stock market funds? Or should I swap out some IVV for those?
In tax-sheltered you can sell without issue. In taxable you need to be very careful.
Yes, this is my concern.
Also am considering muni funds...thoughts?
There is $550,000 in the inherited IRA. That's about 17% of the portfolio. He has $550,000 in his pre-tax 401k. Another 17%. You have enough space in tax-sheltered to cover more than your 20% desired bond allocation. You don't need muni bonds.
Thanks for this insight.
(NOTE: We need to set aside $75-150K for grad school (depending on which program) for one of our kids, to be spent 2024-2025).
That will come from taxable.
Yes, I'll have to figure out where to set it aside.
Knowing I need to sell a number of positions and buy into new ones, how do I go about doing it in a thoughtful way? All at once?
In tax-sheltered you can just do it. In taxable you need to know the cost basis of every item. Sell the ETFs with a loss first, then evaluate how much of ETFS with gains you can sell to get to $0. Then figure how much more ETFs with gains you are willing to sell knowing there will be tax consequences for them.
There are >$40K in losses at the moment...will have losses to carry forward for years.

Thank you, Duckie.
Outer Marker
Posts: 4360
Joined: Sun Mar 08, 2009 8:01 am

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by Outer Marker »

sodastream wrote: Sun May 28, 2023 10:55 pm the "Our Taxable" account is a merger of 3 portfolios. Ours, Mom's, and Dad's (he passed away years ago, but with Mom's passing it's now ours). This is why it's so messy. Mom's account got the recent step-up in cost basis, but his basis is from years ago. There's > $450K in unrealized gain in those assets.
...
There are >$40K in losses at the moment...will have losses to carry forward for years.
If you have $40K in losses, you can do quite a bit of clean up and get rid of the worst high cost offending funds in taxable with gains. Even then, I'd still be inclined to sell more if necessary to clean up the portfolio at the 15% capital gains rate. You'll pay it sooner or later unless the plan is to hang onto it for your heirs.
Outer Marker
Posts: 4360
Joined: Sun Mar 08, 2009 8:01 am

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by Outer Marker »

Focus on getting rid of these in taxable
sodastream wrote: Sat May 27, 2023 5:09 pm Our Taxable - $2M
24.3% IVV: iShares Core S&P 500 ETF (expense ratio .03%)
9.2% IEFA: iShares Trust Core MSCI EAFE ETF (.07%)
4.4% MDHIX: Mainstay Mackay Short Duration High Yield I (0.77%)
4.0% GBOSX: JP Morgan Global Bond Opportunities Cl I (0.65%)
3.8% MSYIX: Morgan Stanley Institutional High Yield Cl I (0.65%)

3.7% IEMG: iShares Inc Core MSCI Emerging Mkts ETF (.09%)
3.1% IJH: iShares Core S&P Mid-Cap ETF (.05%)
2.4% VEU: Vanguard FTSE All World ex-US ETF (.08%)
2.3% GSDIX: Goldman Sachs Emerging Markets Debts Instl (0.9%)
1.8% GSEW: Goldman Sachs Equal Weight US Large Cap Equity (0.9%)
1.2% EMXC: iShares Emerging Mkts ex-China (.25%)

3.0% FDRXX: Fidelity Govt Cash Reserves
1.5% SNVXX: Schwab Govt Money Market + HYSA accounts
0.8% Treasury Direct: I-Bonds & T-Bills
0.07% Individual Stock
1.5% Money Market, HYSA, Bank Account
As noted, the tax-advantaged accounts can easily be cleaned up without tax consequences.
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

retiredjg wrote: Sat May 27, 2023 7:38 pm
sodastream wrote: Sat May 27, 2023 5:09 pm ...and I need to make a lot of decisions, some quickly.
What's the rush? Think, plan, then do. This is not an emergency.
Not a rush for most of the decisions. What I am concerned about is the hefty amount of dividends from high yield funds that Mom's taxable account is producing. If I don't get rid of those funds our income will move into the next bracket. So I'd like to decide on those quickly. The others, not as urgent.
Desired Asset allocation:75% stocks / 20% bonds / 5% REITs
This is very aggressive for your ages. It only makes sense if you have way more money than you'll ever need and are investing for heirs instead of yourselves.
I've changed my mind and decided on 70/30 for now, and as my husband retires we'll scale to 60/40.
Our Taxable - $2M
*snipped*
First, have you definitely decided this is "our" money? There can be reasons (especially blended families) to keep this as your money.
Yes, definitely "our" money. No blended families.
If all of this is inherited, it should have a stepped up basis. In other words, you should be able to liquidate all of this will little tax. What do you want to hold in taxable? I suggest a total stock index, a total international index (could be the VEU), and the Treasury Direct holdings. And maybe the cash reserves if you want them.
As I mentioned to Duckie above, this account is a combination of ours, Mom's, and Dad's. The cost basis for Mom's account is fine, it's the other holdings that have gains/losses.
Inherited IRA - $550K
I would liquidate all this and maybe just hold bonds here. There should be no tax.
This sounds like a solid plan.
His 401k - $550K
Company match: 50% of first 6% up to $5,000
*snipped*
Suggest holding only 500 index and bonds as needed.
This makes sense.
1. FUND CHOICES: As you can see there’s a hodgepodge of funds with some solid choices and others not so much. I think the advisor chose complexity for complexity’s sake. I’m okay with more than 3 funds, but these are too many. Which stand out as winners and losers to you? The largest position is in IVV (S&P 500); moving forward I'd like to focus on either VTI or VT. Should I keep the IVV and just add new contributions to total stock market funds? Or should I swap out some IVV for those? Also am considering muni funds...thoughts?
I would not keep 500 index in taxable because it sets up possible wash sales with 500 index in the other accounts. I'd sell it and replace it with Total Stock. Hold your international allocation here too to get the foreign tax credit. Since you live in CA, a CA muni fund for part of your bond allocation is attractive.
You're the second person to mention wash sales. Good catch and I agree. Total stock as in VTI or VT? Yes, I was thinking of a CA muni fund.
5. ROTH: With >$1M in tax-deferred accounts, I would like to diversify into tax-free by adding more to the Roth IRA. How and when are the questions. Backdoor Roth? Change future contributions from the tax deferred 401(K) to the Roth 401(K)?
Can you contribute directly to Roth IRA or are you over the limit?

You can eventually convert the 401k to Roth IRA.

If you wanted you could start using some Roth 401k if that does not push you out of the 22% bracket.
That's what I was thinking too. I'll have to figure out how much wiggle room we have in our bracket after the sales of the funds in the taxable account. I may try a blended approach this year. Contributions have been to 401k, but I can split future contributions into both 401k and Roth 401k.

Thank you, retiredjg!
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

Freeadvice wrote: Sat May 27, 2023 11:31 pm 10-Year Rule Number Two: When the Participant Dies on or After Their RBD
Under this 10-year rule, annual RMDs must be taken over the life expectancy of the designated beneficiary beginning by Dec. 31 of the year that follows the year the participant dies. In addition, the inherited account must be fully distributed by Dec. 31 of the 10th year following the year the participant dies.
https://www.morningstar.com/financial-a ... rited-iras
From what I've learned, the rules now say that non-spousal beneficiaries do not have to take out annual RMDs as long as the account is depleted in 10 years.
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

runner540 wrote: Sat May 27, 2023 7:49 pm Sorry for your loss. Please be cautious about commingling inherited accounts. Learn about the implications should you split up, before taking action.
Thank you for your condolences.
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

HomeStretch wrote: Sun May 28, 2023 4:08 am Welcome to the forum. Condolences on your loss.
Thank you for your condolences.
Have you transferred the accounts managed by the advisor to a low-cost brokerage yet in order to reduce investment costs?
Yes, the accounts are being transferred to Schwab where we already have other accounts.
Changes to holdings in the Taxable account have tax consequences. What is the gain or loss per holding? The cost basis for any holdings recently inherited was likely stepped-up and may have very little gain/loss if sold. For starters, you could turn-off automatic re-investment of dividends/capital gain distributions and sell holdings/specific tax lots with a loss or no/little gain.
I checked the auto reinvest feature after reading your post, and it looks like the FA already turned it off. I have a spreadsheet with the cost basis for all the holdings. Some gains and some losses. I am going to check each lot to figure out which ones to sell.

I'm also considering donating some appreciated stock to our church instead of making our normal contributions from our bank account.
Don’t reinvest any sale proceeds in the market that you need to pay for grad school tuition in 2024-5.
Got it. Where do you recommend I hold this? I'm thinking treasury bills or muni fund.
There are no tax consequences for changing holdings in tax deferred and Roth accounts. Consider:
(1) holding 100% of your desired bond allocation in the Inherited IRA. This should result in lower growth/lower RMDs during what you expect to be higher income/tax years until retirement.
(2) holding one total market equity fund in the Roth IRAs.
Bond allocation in the Inherited IRA makes sense, thank you. Which total market equity fund do you like?
As you expect to have a lower future marginal tax rate in retirement, continuing to make Traditional 401k contributions likely makes sense for the tax benefit. Does the 401k allow a mega backdoor Roth (MBR)? If yes, (assuming sufficient compensation) contribute to the MBR up to the IRS limit ($66,000 for employEE/ER + catch-up of $7,500 for 2023) each year to get more $ into Roth. If the W-2 take home pay becomes too low due to the MBR, use the Taxable account to cover living expenses. Roth accounts grow tax free whereas Taxable accounts do not. In addition, you and your spouse can make annual Roth IRA contributions either directly or via backdoor Roth.
Yeah, this is what I've been thinking. It seems like the company does offer a MBR (although they don't call it that)...the description says they allow in-plan Roth rollovers: "In-plan Roth rollovers let you convert your eligible pre-tax and/or after-tax balances to the Roth savings within the Plan." Now to figure out how to execute on this strategy.
Hold your desired REIT allocation in a tax deferred account.
Got it, thanks.
Have you determined how much you need in your retirement portfolio (exclude the grad school savings $) in order for your husband to retire? This starts with projecting your retirement income (such as SS) and retirement expenses for everything including income taxes, healthcare and periodic expenses such as a new car or home maintenance.
If he wanted to retire now and we could live off 4% of our portfolio. But since he wants to work a little longer, and we have some time on our side, I'd like to build a deeper cushion. If we could grow our portfolio to >$4M that would give us more of a buffer and allow us to pass on more money to our kids (and eventually our grandkids).

Thank you, HomeStretch!
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

livesoft wrote: Sun May 28, 2023 6:02 am Our inherited IRAs are invested in one.single.fund: A Target Risk fund of index funds with a 60/40 asset allocation. VSMGX Vanguard LifeStrategy Moderate Growth is an example. We have to take RMDs, but these are set-and-forget and otherwise have zero transactions in them. You can do this with your inherited IRA this week easily. You may have to select another such fund since your brokerage is not Vanguard. For this account you don't have to decide stocks or bonds and you don't have to worry about any interference with your other accounts. You do want your brokerage to calculate the RMD for you each year.
We once had a target date fund in the 401k but decided we preferred to have more control over the breakdown. It's a great concept, though - I think it would have been a better choice for my mom instead of the FA with discretionary authority.
As for the inherited taxable account assets, I think the sooner you sell assets that have little or no gains or even losses the better. For tax efficiency, I invest primarily in VTI in taxable.
Thank you.
I use my 401(k) for all portfolio rebalancing activities, but even so, it has very few investments in it: VTI, a total international index, a total bond index, and small-cap-value index fund. The 401(k) does not have the asset allocation of my entire portfolio, but enough of each class to make my entire portfolio a 60/40 portfolio. Thus. my non-401(k) accounts are in "set-and-forget" mode except for maybe one contribution a year.
Using the 401k to rebalance is a solid strategy. Thank you, livesoft!
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

rossington wrote: Sun May 28, 2023 6:07 am
sodastream wrote: Sat May 27, 2023 5:09 pm She had a discretionary account with them and the annual fees were five figures.
Only for the IRA? :shock:
Nope, the total fees were for the IRA and taxable accounts. And to add insult to injury many of the funds did not have low expense ratios.
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

Outer Marker wrote: Sun May 28, 2023 9:19 am
sodastream wrote: Sat May 27, 2023 5:09 pm Age: 60 & 60

Desired Asset allocation:75% stocks / 20% bonds / 5% REITs
Desired International allocation: 20% of stocks

Total Portfolio: $3.2M
I would suggest dialing back your AA to 70/30 and ditching the sub-allocation to REITS.
I've decided to dial it back to 70/30. Thank you.
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

delamer wrote: Sun May 28, 2023 11:34 am I’m sorry for your loss.

Despite some assumptions made by earlier posters, inherited assets in a taxable account do not always receive a step-up in cost basis to the date of death. So it’s important that you know if that is the case for you before making any changes within the taxable account.
Yes, as I've mentioned in another reply, some of the holdings did have a step up in basis, while others did not. The ones that didn't have unrealized gains and losses. Some of the gains are significant. It's complex.
Once you start Medicare, your premiums can increase if your income is above a certain amount. Make sure you understand the implications of this — IRMAA — before you decide to hold off on withdrawals from the Inherited IRA. Hopefully, the IRA will grow significantly in value over the next 10 years too. So you won’t be just withdrawing today’s balance.
Medicare concerns me, but I don't understand much about the program and how premiums work yet. Do you have any resources I can study? Thank you for mentioning this!
Remember that moving into the next marginal tax brackets only changes the tax rate on additional income. For example, say you have enough income that you slip $100 into the 24% bracket (from 22%). You’ll pay $24 in taxes on that $100, but the tax owed on your other income won’t change.

Good luck, and take your time.
Thank you, delamer!
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

Outer Marker wrote: Sun May 28, 2023 11:03 pm
sodastream wrote: Sun May 28, 2023 10:55 pm the "Our Taxable" account is a merger of 3 portfolios. Ours, Mom's, and Dad's (he passed away years ago, but with Mom's passing it's now ours). This is why it's so messy. Mom's account got the recent step-up in cost basis, but his basis is from years ago. There's > $450K in unrealized gain in those assets.
...
There are >$40K in losses at the moment...will have losses to carry forward for years.
If you have $40K in losses, you can do quite a bit of clean up and get rid of the worst high cost offending funds in taxable with gains. Even then, I'd still be inclined to sell more if necessary to clean up the portfolio at the 15% capital gains rate. You'll pay it sooner or later unless the plan is to hang onto it for your heirs.
You're right, we probably should sell more than necessary. One thing that did cross my mind is that because it's on our living trust, when one of us goes the surviving spouse will get a step up...although of course we don't know when that will happen and if we'll need to tap into those holdings before then. I'm not emotionally attached to any of the funds and would like to pass on the maximum amount to our heirs as well as to simplify things so they don't have to inherit a messy portfolio too.
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

Outer Marker wrote: Sun May 28, 2023 11:10 pm Focus on getting rid of these in taxable
sodastream wrote: Sat May 27, 2023 5:09 pm Our Taxable - $2M
24.3% IVV: iShares Core S&P 500 ETF (expense ratio .03%)
9.2% IEFA: iShares Trust Core MSCI EAFE ETF (.07%)
4.4% MDHIX: Mainstay Mackay Short Duration High Yield I (0.77%)
4.0% GBOSX: JP Morgan Global Bond Opportunities Cl I (0.65%)
3.8% MSYIX: Morgan Stanley Institutional High Yield Cl I (0.65%)

3.7% IEMG: iShares Inc Core MSCI Emerging Mkts ETF (.09%)
3.1% IJH: iShares Core S&P Mid-Cap ETF (.05%)
2.4% VEU: Vanguard FTSE All World ex-US ETF (.08%)
2.3% GSDIX: Goldman Sachs Emerging Markets Debts Instl (0.9%)
1.8% GSEW: Goldman Sachs Equal Weight US Large Cap Equity (0.9%)
1.2% EMXC: iShares Emerging Mkts ex-China (.25%)

3.0% FDRXX: Fidelity Govt Cash Reserves
1.5% SNVXX: Schwab Govt Money Market + HYSA accounts
0.8% Treasury Direct: I-Bonds & T-Bills
0.07% Individual Stock
1.5% Money Market, HYSA, Bank Account
As noted, the tax-advantaged accounts can easily be cleaned up without tax consequences.
Outer Marker, the interesting thing is that nearly all the ones you've crossed out (except for the individual stocks) have losses! I had already highlighted them on my spreadsheet. It's encouraging to have you confirm what I've been thinking. Thank you!
Outer Marker
Posts: 4360
Joined: Sun Mar 08, 2009 8:01 am

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by Outer Marker »

sodastream wrote: Mon May 29, 2023 12:02 am
Outer Marker wrote: Sun May 28, 2023 11:10 pm Focus on getting rid of these in taxable
sodastream wrote: Sat May 27, 2023 5:09 pm Our Taxable - $2M
24.3% IVV: iShares Core S&P 500 ETF (expense ratio .03%)
9.2% IEFA: iShares Trust Core MSCI EAFE ETF (.07%)
4.4% MDHIX: Mainstay Mackay Short Duration High Yield I (0.77%)
4.0% GBOSX: JP Morgan Global Bond Opportunities Cl I (0.65%)
3.8% MSYIX: Morgan Stanley Institutional High Yield Cl I (0.65%)

3.7% IEMG: iShares Inc Core MSCI Emerging Mkts ETF (.09%)
3.1% IJH: iShares Core S&P Mid-Cap ETF (.05%)
2.4% VEU: Vanguard FTSE All World ex-US ETF (.08%)
2.3% GSDIX: Goldman Sachs Emerging Markets Debts Instl (0.9%)
1.8% GSEW: Goldman Sachs Equal Weight US Large Cap Equity (0.9%)
1.2% EMXC: iShares Emerging Mkts ex-China (.25%)

3.0% FDRXX: Fidelity Govt Cash Reserves
1.5% SNVXX: Schwab Govt Money Market + HYSA accounts
0.8% Treasury Direct: I-Bonds & T-Bills
0.07% Individual Stock
1.5% Money Market, HYSA, Bank Account
As noted, the tax-advantaged accounts can easily be cleaned up without tax consequences.
Outer Marker, the interesting thing is that nearly all the ones you've crossed out (except for the individual stocks) have losses! I had already highlighted them on my spreadsheet. It's encouraging to have you confirm what I've been thinking. Thank you!
Funny how that is, right?! Fund cost is the single best indicator of likely performance, and all of your high cost funds have losses. Pretty solid validation of the benefits of low cost indexing!
Freeadvice
Posts: 261
Joined: Wed Nov 27, 2019 12:42 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by Freeadvice »

sodastream wrote: Sun May 28, 2023 11:15 pm
Freeadvice wrote: Sat May 27, 2023 11:31 pm 10-Year Rule Number Two: When the Participant Dies on or After Their RBD
Under this 10-year rule, annual RMDs must be taken over the life expectancy of the designated beneficiary beginning by Dec. 31 of the year that follows the year the participant dies. In addition, the inherited account must be fully distributed by Dec. 31 of the 10th year following the year the participant dies.
https://www.morningstar.com/financial-a ... rited-iras
From what I've learned, the rules now say that non-spousal beneficiaries do not have to take out annual RMDs as long as the account is depleted in 10 years.
That’s not my understanding. The IRS waived the 50% penalty for those that had that misunderstanding last year and did not take the RMD. The IRS never said RMDs were waived.

Relief under Notice 2022-53 for beneficiaries subject to the 10-year rule
The IRS will not treat a beneficiary of an inherited account in a plan or IRA who was subject to the 10-year rule and who failed to take an RMD for 2021 and 2022 as having failed to take the correct RMD

https://www.irs.gov/retirement-plans/pl ... eneficiary

So I believe that we will need to take our RMDs.
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by retiredjg »

With the new information, here is a further suggestion.

1. In taxable, sell every share (not just every position) that has a loss and keep watching for losses as the market moves around and sell them when you can.

2. Dump the ones already pointed out above because they are the tax-inefficient funds (even if some of the shares may not be at a loss).

3. Use the losses to offset other gains which will allow you to dump some of those silly little slices that are nothing more than clutter.

4. Decide if it is best to keep total stock or 500 index in taxable....then eliminate that same fund from your other accounts...to avoid wash sales. If that means using a target fund in the 401k or other accounts for awhile, so be it. You can change back later if you want.

5. Consider your charitable donations. There is little sense in donating cash when you can donate appreciated shares of things you no longer want in taxable and not pay taxes to get rid of the stuff. At your ages, this can be done directly or through a donor advised fund at your brokerage.

6. Realize that moving into the next tax bracket for one year is not really much of a problem. It only affects the money that goes over the line and one year is just one year. The stress of struggling to stay under a certain bracket is not really worth it.

7. IRMAA is something you need to learn about before reaching age 63 so you have a little time to put that off. Short story, your income at 63 determines what you pay for Medicare at 65. And so on...every year, there is always a 2 year look back. There are exceptions - like retiring - which can overcome the look back income.

8. I suggest that you not use VT. There is more flexibility if you hold total stock and total international separately, especially in a taxable account.
HomeStretch
Posts: 11334
Joined: Thu Dec 27, 2018 2:06 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by HomeStretch »

sodastream wrote: Sun May 28, 2023 11:39 pm
HomeStretch wrote: Sun May 28, 2023 4:08 am Don’t reinvest any sale proceeds in the market that you need to pay for grad school tuition in 2024-5.
Got it. Where do you recommend I hold this? I'm thinking treasury bills or muni fund.

HomeStretch - T-Bills, brokered CD or a muni/treasury money market fund are good safer choices.
There are no tax consequences for changing holdings in tax deferred and Roth accounts. Consider:
(1) holding 100% of your desired bond allocation in the Inherited IRA. This should result in lower growth/lower RMDs during what you expect to be higher income/tax years until retirement.
(2) holding one total market equity fund in the Roth IRAs.
Bond allocation in the Inherited IRA makes sense, thank you. Which total market equity fund do you like?

HomeStretch - At Schwab, I would use a Schwab TSM fund such as SWTSX (US) or SWISX (International) or an ETF. Or use a S&P 500 fund/ETF if you decide to hold a TSM fund/ETF in Taxable to avoid wash sales.
As you expect to have a lower future marginal tax rate in retirement, continuing to make Traditional 401k contributions likely makes sense for the tax benefit. Does the 401k allow a mega backdoor Roth (MBR)? If yes, (assuming sufficient compensation) contribute to the MBR up to the IRS limit ($66,000 for employEE/ER + catch-up of $7,500 for 2023) each year to get more $ into Roth. If the W-2 take home pay becomes too low due to the MBR, use the Taxable account to cover living expenses. Roth accounts grow tax free whereas Taxable accounts do not. In addition, you and your spouse can make annual Roth IRA contributions either directly or via backdoor Roth.
Yeah, this is what I've been thinking. It seems like the company does offer a MBR (although they don't call it that)...the description says they allow in-plan Roth rollovers: "In-plan Roth rollovers let you convert your eligible pre-tax and/or after-tax balances to the Roth savings within the Plan." Now to figure out how to execute on this strategy.
HomeStretch - That’s great that your 401k allows a MBR. Fully utilize it even if you need to withdraw from the Taxable account for spending due to the lower payroll check. The BH wiki MBR page may be helpful:
https://www.bogleheads.org/wiki/Mega-backdoor_Roth
User avatar
Duckie
Posts: 9767
Joined: Thu Mar 08, 2007 1:55 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by Duckie »

sodastream wrote: Sun May 28, 2023 10:55 pm There's > $450K in unrealized gain in those assets.
<snip>
There are >$40K in losses at the moment...will have losses to carry forward for years.
After you sell the $40K in taxable with losses sell $40K with gains, maybe more than $40K.
Yes, I'll have to figure out where to set it aside.
Money needed for grad school in a couple of years should be in savings accounts, money market accounts, or CDs. Some money market funds are paying over 4% right now.
delamer
Posts: 17348
Joined: Tue Feb 08, 2011 5:13 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by delamer »

sodastream wrote: Sun May 28, 2023 11:55 pm
delamer wrote: Sun May 28, 2023 11:34 am I’m sorry for your loss.

Despite some assumptions made by earlier posters, inherited assets in a taxable account do not always receive a step-up in cost basis to the date of death. So it’s important that you know if that is the case for you before making any changes within the taxable account.
Yes, as I've mentioned in another reply, some of the holdings did have a step up in basis, while others did not. The ones that didn't have unrealized gains and losses. Some of the gains are significant. It's complex.
Once you start Medicare, your premiums can increase if your income is above a certain amount. Make sure you understand the implications of this — IRMAA — before you decide to hold off on withdrawals from the Inherited IRA. Hopefully, the IRA will grow significantly in value over the next 10 years too. So you won’t be just withdrawing today’s balance.
Medicare concerns me, but I don't understand much about the program and how premiums work yet. Do you have any resources I can study? Thank you for mentioning this!
Remember that moving into the next marginal tax brackets only changes the tax rate on additional income. For example, say you have enough income that you slip $100 into the 24% bracket (from 22%). You’ll pay $24 in taxes on that $100, but the tax owed on your other income won’t change.

Good luck, and take your time.
Thank you, delamer!
Here’s a link from the wiki on IRMAA: https://www.bogleheads.org/wiki/Income- ... nt_(IRMAA)
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

Freeadvice wrote: Mon May 29, 2023 5:58 am
sodastream wrote: Sun May 28, 2023 11:15 pm
Freeadvice wrote: Sat May 27, 2023 11:31 pm 10-Year Rule Number Two: When the Participant Dies on or After Their RBD
Under this 10-year rule, annual RMDs must be taken over the life expectancy of the designated beneficiary beginning by Dec. 31 of the year that follows the year the participant dies. In addition, the inherited account must be fully distributed by Dec. 31 of the 10th year following the year the participant dies.
https://www.morningstar.com/financial-a ... rited-iras
From what I've learned, the rules now say that non-spousal beneficiaries do not have to take out annual RMDs as long as the account is depleted in 10 years.
That’s not my understanding. The IRS waived the 50% penalty for those that had that misunderstanding last year and did not take the RMD. The IRS never said RMDs were waived.

Relief under Notice 2022-53 for beneficiaries subject to the 10-year rule
The IRS will not treat a beneficiary of an inherited account in a plan or IRA who was subject to the 10-year rule and who failed to take an RMD for 2021 and 2022 as having failed to take the correct RMD

https://www.irs.gov/retirement-plans/pl ... eneficiary

So I believe that we will need to take our RMDs.
Freeadvice, is it possible you are referring to a different category of beneficiary? I am not a spouse nor am I an eligible designated beneficiary. In the IRS doc you linked it says for the death of account owner in 2020 or later:
a designated beneficiary (not an eligible designated beneficiary) [must] follow the 10-year rule.
A Fidelity rep also confirmed that designated beneficiaries do not have to worry about RMDs; they only need to deplete the account in 10 years.
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

delamer wrote: Mon May 29, 2023 6:07 pm Here’s a link from the wiki on IRMAA: https://www.bogleheads.org/wiki/Income- ... nt_(IRMAA)
Thank you!
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

HomeStretch wrote: Mon May 29, 2023 9:30 am
sodastream wrote: Sun May 28, 2023 11:39 pm
HomeStretch wrote: Sun May 28, 2023 4:08 am Don’t reinvest any sale proceeds in the market that you need to pay for grad school tuition in 2024-5.
Got it. Where do you recommend I hold this? I'm thinking treasury bills or muni fund.

HomeStretch - T-Bills, brokered CD or a muni/treasury money market fund are good safer choices.
There are no tax consequences for changing holdings in tax deferred and Roth accounts. Consider:
(1) holding 100% of your desired bond allocation in the Inherited IRA. This should result in lower growth/lower RMDs during what you expect to be higher income/tax years until retirement.
(2) holding one total market equity fund in the Roth IRAs.
Bond allocation in the Inherited IRA makes sense, thank you. Which total market equity fund do you like?

HomeStretch - At Schwab, I would use a Schwab TSM fund such as SWTSX (US) or SWISX (International) or an ETF. Or use a S&P 500 fund/ETF if you decide to hold a TSM fund/ETF in Taxable to avoid wash sales.
As you expect to have a lower future marginal tax rate in retirement, continuing to make Traditional 401k contributions likely makes sense for the tax benefit. Does the 401k allow a mega backdoor Roth (MBR)? If yes, (assuming sufficient compensation) contribute to the MBR up to the IRS limit ($66,000 for employEE/ER + catch-up of $7,500 for 2023) each year to get more $ into Roth. If the W-2 take home pay becomes too low due to the MBR, use the Taxable account to cover living expenses. Roth accounts grow tax free whereas Taxable accounts do not. In addition, you and your spouse can make annual Roth IRA contributions either directly or via backdoor Roth.
Yeah, this is what I've been thinking. It seems like the company does offer a MBR (although they don't call it that)...the description says they allow in-plan Roth rollovers: "In-plan Roth rollovers let you convert your eligible pre-tax and/or after-tax balances to the Roth savings within the Plan." Now to figure out how to execute on this strategy.
HomeStretch - That’s great that your 401k allows a MBR. Fully utilize it even if you need to withdraw from the Taxable account for spending due to the lower payroll check. The BH wiki MBR page may be helpful:
https://www.bogleheads.org/wiki/Mega-backdoor_Roth
HomeStretch, thanks!
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

retiredjg wrote: Mon May 29, 2023 6:41 am With the new information, here is a further suggestion.

1. In taxable, sell every share (not just every position) that has a loss and keep watching for losses as the market moves around and sell them when you can.

2. Dump the ones already pointed out above because they are the tax-inefficient funds (even if some of the shares may not be at a loss).

3. Use the losses to offset other gains which will allow you to dump some of those silly little slices that are nothing more than clutter.

4. Decide if it is best to keep total stock or 500 index in taxable....then eliminate that same fund from your other accounts...to avoid wash sales. If that means using a target fund in the 401k or other accounts for awhile, so be it. You can change back later if you want.

5. Consider your charitable donations. There is little sense in donating cash when you can donate appreciated shares of things you no longer want in taxable and not pay taxes to get rid of the stuff. At your ages, this can be done directly or through a donor advised fund at your brokerage.

6. Realize that moving into the next tax bracket for one year is not really much of a problem. It only affects the money that goes over the line and one year is just one year. The stress of struggling to stay under a certain bracket is not really worth it.

7. IRMAA is something you need to learn about before reaching age 63 so you have a little time to put that off. Short story, your income at 63 determines what you pay for Medicare at 65. And so on...every year, there is always a 2 year look back. There are exceptions - like retiring - which can overcome the look back income.

8. I suggest that you not use VT. There is more flexibility if you hold total stock and total international separately, especially in a taxable account.
Amazing and specific suggestions. Thank you, thank you!
Freeadvice
Posts: 261
Joined: Wed Nov 27, 2019 12:42 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by Freeadvice »

sodastream wrote: Mon May 29, 2023 9:48 pm
Freeadvice wrote: Mon May 29, 2023 5:58 am
sodastream wrote: Sun May 28, 2023 11:15 pm
Freeadvice wrote: Sat May 27, 2023 11:31 pm 10-Year Rule Number Two: When the Participant Dies on or After Their RBD
Under this 10-year rule, annual RMDs must be taken over the life expectancy of the designated beneficiary beginning by Dec. 31 of the year that follows the year the participant dies. In addition, the inherited account must be fully distributed by Dec. 31 of the 10th year following the year the participant dies.
https://www.morningstar.com/financial-a ... rited-iras
From what I've learned, the rules now say that non-spousal beneficiaries do not have to take out annual RMDs as long as the account is depleted in 10 years.
That’s not my understanding. The IRS waived the 50% penalty for those that had that misunderstanding last year and did not take the RMD. The IRS never said RMDs were waived.

Relief under Notice 2022-53 for beneficiaries subject to the 10-year rule
The IRS will not treat a beneficiary of an inherited account in a plan or IRA who was subject to the 10-year rule and who failed to take an RMD for 2021 and 2022 as having failed to take the correct RMD

https://www.irs.gov/retirement-plans/pl ... eneficiary

So I believe that we will need to take our RMDs.
Freeadvice, is it possible you are referring to a different category of beneficiary? I am not a spouse nor am I an eligible designated beneficiary. In the IRS doc you linked it says for the death of account owner in 2020 or later:
a designated beneficiary (not an eligible designated beneficiary) [must] follow the 10-year rule.
A Fidelity rep also confirmed that designated beneficiaries do not have to worry about RMDs; they only need to deplete the account in 10 years.
No. Your Fidelity rep is mistaken. I’m going through this too because my mom also died a few months ago. The 10 year rule does not negate RMDs. It’s very clear, unless the IRS changes it’s mind, you’ll be subject to a 50% penalty so I wouldn’t ignore it.

Did you read the notice I told you about? https://www.irs.gov/pub/irs-drop/n-22-53.pdf
The IRS says people are confusing it with the 5 year rule.

I would go with what the IRS says over a Fidelity rep. Ask your Fidelity rep to link to where the IRS says you don’t need to take RMDs.
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

Freeadvice wrote: Tue May 30, 2023 5:48 am
sodastream wrote: Mon May 29, 2023 9:48 pm
Freeadvice wrote: Mon May 29, 2023 5:58 am
sodastream wrote: Sun May 28, 2023 11:15 pm
Freeadvice wrote: Sat May 27, 2023 11:31 pm 10-Year Rule Number Two: When the Participant Dies on or After Their RBD
Under this 10-year rule, annual RMDs must be taken over the life expectancy of the designated beneficiary beginning by Dec. 31 of the year that follows the year the participant dies. In addition, the inherited account must be fully distributed by Dec. 31 of the 10th year following the year the participant dies.
https://www.morningstar.com/financial-a ... rited-iras
From what I've learned, the rules now say that non-spousal beneficiaries do not have to take out annual RMDs as long as the account is depleted in 10 years.
That’s not my understanding. The IRS waived the 50% penalty for those that had that misunderstanding last year and did not take the RMD. The IRS never said RMDs were waived.

Relief under Notice 2022-53 for beneficiaries subject to the 10-year rule
The IRS will not treat a beneficiary of an inherited account in a plan or IRA who was subject to the 10-year rule and who failed to take an RMD for 2021 and 2022 as having failed to take the correct RMD

https://www.irs.gov/retirement-plans/pl ... eneficiary

So I believe that we will need to take our RMDs.
Freeadvice, is it possible you are referring to a different category of beneficiary? I am not a spouse nor am I an eligible designated beneficiary. In the IRS doc you linked it says for the death of account owner in 2020 or later:
a designated beneficiary (not an eligible designated beneficiary) [must] follow the 10-year rule.
A Fidelity rep also confirmed that designated beneficiaries do not have to worry about RMDs; they only need to deplete the account in 10 years.
No. Your Fidelity rep is mistaken. I’m going through this too because my mom also died a few months ago. The 10 year rule does not negate RMDs. It’s very clear, unless the IRS changes it’s mind, you’ll be subject to a 50% penalty so I wouldn’t ignore it.

Did you read the notice I told you about? https://www.irs.gov/pub/irs-drop/n-22-53.pdf
The IRS says people are confusing it with the 5 year rule.

I would go with what the IRS says over a Fidelity rep. Ask your Fidelity rep to link to where the IRS says you don’t need to take RMDs.
Ahhh it's so confusing. I believe you're right. I think where the confusion stems from is whether the decedent had passed their RBD or not. My mom had already been receiving RMDs so it looks like I will need to take RMDs too. To top it off, a CPA agreed that no RMDs were necessary (I'm firing him, this is not the only inaccurate thing he's told me). This new revelation will affect my planning. Thanks, Freeadvice!
novicemoney
Posts: 380
Joined: Fri Aug 01, 2014 10:36 am

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by novicemoney »

Freeadvice wrote: Tue May 30, 2023 5:48 am
sodastream wrote: Mon May 29, 2023 9:48 pm
Freeadvice wrote: Mon May 29, 2023 5:58 am
sodastream wrote: Sun May 28, 2023 11:15 pm
Freeadvice wrote: Sat May 27, 2023 11:31 pm 10-Year Rule Number Two: When the Participant Dies on or After Their RBD
Under this 10-year rule, annual RMDs must be taken over the life expectancy of the designated beneficiary beginning by Dec. 31 of the year that follows the year the participant dies. In addition, the inherited account must be fully distributed by Dec. 31 of the 10th year following the year the participant dies.
https://www.morningstar.com/financial-a ... rited-iras
From what I've learned, the rules now say that non-spousal beneficiaries do not have to take out annual RMDs as long as the account is depleted in 10 years.
That’s not my understanding. The IRS waived the 50% penalty for those that had that misunderstanding last year and did not take the RMD. The IRS never said RMDs were waived.

Relief under Notice 2022-53 for beneficiaries subject to the 10-year rule
The IRS will not treat a beneficiary of an inherited account in a plan or IRA who was subject to the 10-year rule and who failed to take an RMD for 2021 and 2022 as having failed to take the correct RMD

https://www.irs.gov/retirement-plans/pl ... eneficiary

So I believe that we will need to take our RMDs.
Freeadvice, is it possible you are referring to a different category of beneficiary? I am not a spouse nor am I an eligible designated beneficiary. In the IRS doc you linked it says for the death of account owner in 2020 or later:
a designated beneficiary (not an eligible designated beneficiary) [must] follow the 10-year rule.
A Fidelity rep also confirmed that designated beneficiaries do not have to worry about RMDs; they only need to deplete the account in 10 years.
No. Your Fidelity rep is mistaken. I’m going through this too because my mom also died a few months ago. The 10 year rule does not negate RMDs. It’s very clear, unless the IRS changes it’s mind, you’ll be subject to a 50% penalty so I wouldn’t ignore it.

Did you read the notice I told you about? https://www.irs.gov/pub/irs-drop/n-22-53.pdf
The IRS says people are confusing it with the 5 year rule.

I would go with what the IRS says over a Fidelity rep. Ask your Fidelity rep to link to where the IRS says you don’t need to take RMDs.
The Vanguard are saying what the Fidelity people are saying. After talking with a Vanguard rep, he stated that they don't even have a calculator available. FWIW and to confuse the issue more(sorry).
Outer Marker
Posts: 4360
Joined: Sun Mar 08, 2009 8:01 am

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by Outer Marker »

This has me second-guessing myself! If it's an inherited Roth IRA, no RMD applies, and its only subject to the 10-year complete withdrawal, right?
novicemoney
Posts: 380
Joined: Fri Aug 01, 2014 10:36 am

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by novicemoney »

Freeadvice wrote: Tue May 30, 2023 5:48 am
sodastream wrote: Mon May 29, 2023 9:48 pm
Freeadvice wrote: Mon May 29, 2023 5:58 am
sodastream wrote: Sun May 28, 2023 11:15 pm
Freeadvice wrote: Sat May 27, 2023 11:31 pm 10-Year Rule Number Two: When the Participant Dies on or After Their RBD
Under this 10-year rule, annual RMDs must be taken over the life expectancy of the designated beneficiary beginning by Dec. 31 of the year that follows the year the participant dies. In addition, the inherited account must be fully distributed by Dec. 31 of the 10th year following the year the participant dies.
https://www.morningstar.com/financial-a ... rited-iras
From what I've learned, the rules now say that non-spousal beneficiaries do not have to take out annual RMDs as long as the account is depleted in 10 years.
That’s not my understanding. The IRS waived the 50% penalty for those that had that misunderstanding last year and did not take the RMD. The IRS never said RMDs were waived.

Relief under Notice 2022-53 for beneficiaries subject to the 10-year rule
The IRS will not treat a beneficiary of an inherited account in a plan or IRA who was subject to the 10-year rule and who failed to take an RMD for 2021 and 2022 as having failed to take the correct RMD

https://www.irs.gov/retirement-plans/pl ... eneficiary

So I believe that we will need to take our RMDs.
Freeadvice, is it possible you are referring to a different category of beneficiary? I am not a spouse nor am I an eligible designated beneficiary. In the IRS doc you linked it says for the death of account owner in 2020 or later:
a designated beneficiary (not an eligible designated beneficiary) [must] follow the 10-year rule.
A Fidelity rep also confirmed that designated beneficiaries do not have to worry about RMDs; they only need to deplete the account in 10 years.
No. Your Fidelity rep is mistaken. I’m going through this too because my mom also died a few months ago. The 10 year rule does not negate RMDs. It’s very clear, unless the IRS changes it’s mind, you’ll be subject to a 50% penalty so I wouldn’t ignore it.

Did you read the notice I told you about? https://www.irs.gov/pub/irs-drop/n-22-53.pdf
The IRS says people are confusing it with the 5 year rule.

I would go with what the IRS says over a Fidelity rep. Ask your Fidelity rep to link to where the IRS says you don’t need to take RMDs.
The Vanguard people are saying what the Fidelity people are saying. After talking with a Vanguard rep, he stated that they don't even have a calculator available. FWIW and to confuse the issue more(sorry).
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

Outer Marker wrote: Tue May 30, 2023 1:04 pm This has me second-guessing myself! If it's an inherited Roth IRA, no RMD applies, and its only subject to the 10-year complete withdrawal, right?
That's what I had originally heard (as a non-spouse beneficiary)! Ahhhh....

Edit: Oh, I see now that Outer Marker said it's a Roth, which goes by different rules.
Last edited by sodastream on Tue May 30, 2023 1:44 pm, edited 1 time in total.
HomeStretch
Posts: 11334
Joined: Thu Dec 27, 2018 2:06 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by HomeStretch »

sodastream wrote: Tue May 30, 2023 12:33 pm … To top it off, a CPA agreed that no RMDs were necessary (I'm firing him, this is not the only inaccurate thing he's told me). This new revelation will affect my planning.
Consider not firing your CPA if your conversation was prior to the 10/17/22 issuance of IRS Notice 2022-53 linked previously in this thread.
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

HomeStretch wrote: Tue May 30, 2023 1:33 pm
sodastream wrote: Tue May 30, 2023 12:33 pm … To top it off, a CPA agreed that no RMDs were necessary (I'm firing him, this is not the only inaccurate thing he's told me). This new revelation will affect my planning.
Consider not firing your CPA if your conversation was prior to the 10/17/22 issuance of IRS Notice 2022-53 linked previously in this thread.
He was actually my mom's CPA, not mine, and I just met with him last week to go over her file. I asked, I only have to follow the 10-year rule, right? He said yes. But he also told me that my dad's irrevocable trust account (passed away years ago) would get a double step up basis, which I later discovered is wrong. Then after doing some research found out that he has multiple citations from our state's Board of Accountancy, including not fulfilling his continuing education credit requirements and also not doing the mandatory peer reviews. Yikes!
Freeadvice
Posts: 261
Joined: Wed Nov 27, 2019 12:42 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by Freeadvice »

sodastream wrote: Tue May 30, 2023 1:32 pm
Outer Marker wrote: Tue May 30, 2023 1:04 pm This has me second-guessing myself! If it's an inherited Roth IRA, no RMD applies, and its only subject to the 10-year complete withdrawal, right?
That's what I had originally heard (as a non-spouse beneficiary)! Ahhhh....
I believe that is correct for Roths.
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

novicemoney wrote: Tue May 30, 2023 1:05 pm The Vanguard people are saying what the Fidelity people are saying. After talking with a Vanguard rep, he stated that they don't even have a calculator available. FWIW and to confuse the issue more(sorry).
Oh boy, everyone seems confused.
Freeadvice
Posts: 261
Joined: Wed Nov 27, 2019 12:42 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by Freeadvice »

Both the Fidelity and the Morgan Stanley reps told me I would get a step up basis for my mother’s annuity. These salespeople have no idea what they’re talking about.
Freeadvice
Posts: 261
Joined: Wed Nov 27, 2019 12:42 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by Freeadvice »

sodastream wrote: Tue May 30, 2023 1:42 pm
novicemoney wrote: Tue May 30, 2023 1:05 pm The Vanguard people are saying what the Fidelity people are saying. After talking with a Vanguard rep, he stated that they don't even have a calculator available. FWIW and to confuse the issue more(sorry).
Oh boy, everyone seems confused.
It was simply wishful thinking for the “experts” to assume RMDs were replaced by the 10 year rule. The IRS secure act NEVER said no more RMDs. And even now that the IRS has clarified it they wish to remain confused. It’s not finalized so maybe the IRS will change their minds but that’s just wishful thinking on my part.
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

HomeStretch wrote: Sun May 28, 2023 4:08 am Does the 401k allow a mega backdoor Roth (MBR)? If yes, (assuming sufficient compensation) contribute to the MBR up to the IRS limit ($66,000 for employEE/ER + catch-up of $7,500 for 2023) each year to get more $ into Roth. If the W-2 take home pay becomes too low due to the MBR, use the Taxable account to cover living expenses. Roth accounts grow tax free whereas Taxable accounts do not. In addition, you and your spouse can make annual Roth IRA contributions either directly or via backdoor Roth.
Checking to make sure I have the right figures for a MBR:

$73,500 ($66,000 + $7,500) - max 401k contribution for 2023
-$30,000 - my max pre-tax 401k contribution
- $5,000 - max employer match
$38,500 - how much I can contribute in 2023 to post-tax > MBR

Does that sound right?
queenofthemadhouse
Posts: 307
Joined: Fri Jun 04, 2021 5:26 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by queenofthemadhouse »

sodastream wrote: Tue May 30, 2023 3:32 pm
HomeStretch wrote: Sun May 28, 2023 4:08 am Does the 401k allow a mega backdoor Roth (MBR)? If yes, (assuming sufficient compensation) contribute to the MBR up to the IRS limit ($66,000 for employEE/ER + catch-up of $7,500 for 2023) each year to get more $ into Roth. If the W-2 take home pay becomes too low due to the MBR, use the Taxable account to cover living expenses. Roth accounts grow tax free whereas Taxable accounts do not. In addition, you and your spouse can make annual Roth IRA contributions either directly or via backdoor Roth.
Checking to make sure I have the right figures for a MBR:

$73,500 ($66,000 + $7,500) - max 401k contribution for 2023
-$30,000 - my max pre-tax 401k contribution
- $5,000 - max employer match
$38,500 - how much I can contribute in 2023 to post-tax > MBR

Does that sound right?
That is correct.
HomeStretch
Posts: 11334
Joined: Thu Dec 27, 2018 2:06 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by HomeStretch »

sodastream wrote: Tue May 30, 2023 3:32 pm
HomeStretch wrote: Sun May 28, 2023 4:08 am Does the 401k allow a mega backdoor Roth (MBR)? If yes, (assuming sufficient compensation) contribute to the MBR up to the IRS limit ($66,000 for employEE/ER + catch-up of $7,500 for 2023) each year to get more $ into Roth. If the W-2 take home pay becomes too low due to the MBR, use the Taxable account to cover living expenses. Roth accounts grow tax free whereas Taxable accounts do not. In addition, you and your spouse can make annual Roth IRA contributions either directly or via backdoor Roth.
Checking to make sure I have the right figures for a MBR:

$73,500 ($66,000 + $7,500) - max 401k contribution for 2023
-$30,000 - my max pre-tax 401k contribution
- $5,000 - max employer match
$38,500 - how much I can contribute in 2023 to post-tax > MBR

Does that sound right?
$38,500 is correct assuming you have sufficient compensation and there are no employer/HCE (highly compensated employee) plan contribution limits.
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

Freeadvice wrote: Tue May 30, 2023 1:46 pm
sodastream wrote: Tue May 30, 2023 1:42 pm
novicemoney wrote: Tue May 30, 2023 1:05 pm The Vanguard people are saying what the Fidelity people are saying. After talking with a Vanguard rep, he stated that they don't even have a calculator available. FWIW and to confuse the issue more(sorry).
Oh boy, everyone seems confused.
It was simply wishful thinking for the “experts” to assume RMDs were replaced by the 10 year rule. The IRS secure act NEVER said no more RMDs. And even now that the IRS has clarified it they wish to remain confused. It’s not finalized so maybe the IRS will change their minds but that’s just wishful thinking on my part.
Just met with our estate attorney and asked him about Inherited IRAs. He is confident that the IRS will come out with guidance by the end of the year that they will be requiring RMDs. ~sigh~
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

queenofthemadhouse wrote: Tue May 30, 2023 4:09 pm
sodastream wrote: Tue May 30, 2023 3:32 pm Checking to make sure I have the right figures for a MBR:
That is correct.
HomeStretch wrote: Tue May 30, 2023 4:25 pm $38,500 is correct assuming you have sufficient compensation and there are no employer/HCE (highly compensated employee) plan contribution limits.
Thanks!
Post Reply