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

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

I can't thank you all enough. I'm starting to digest all the wisdom given above. I now have a better feel for what I'm going to do, and now I'm taking a deeper dive into the preferred asset locations.
retiredjg wrote: Sat May 27, 2023 7:38 pm 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.

...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.
Duckie wrote: Sat May 27, 2023 6:35 pm
sodastream wrote: Sat May 27, 2023 5:09 pm Her Roth IRA
Holding IVV in taxable and IRAs mean potential wash sales. Consider holding just VTI here.
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
HomeStretch wrote: Sun May 28, 2023 4:08 am 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.
The consensus seems to be to separate the positions, using S&P 500 for one type of account (taxable or tax-advantaged) and Total Stock for the other accounts to prevent potential wash sales.

Although many suggested a Total Stock fund for the taxable, I am realizing I should keep the IVV (S&P500) ETF there because the inherited IVV position has >$374K in unrealized gains. Even if I take some IVV gains now, I don’t want to take them all. (I also plan on donating some appreciated shares but it will not make a huge dent in the position.)

Outer Marker- suggested keeping the current positions in IEFA, IEMG, IJH, VEU in taxable too. Retiredjg - as you said I could use the VEU position in taxable for my international allocation. Should I add to these positions?

Keeping IVV in taxable means I need to liquidate IVV in the Inherited IRA, 401k and Roth accounts. The Inherited IRA is simple; I could replace it with 100% bonds there. For Total Stock I plan to buy VTI, but where should I do it—in the 401k, Roth 401k (planned mega backdoor), or 2 Roth IRAs? And if I buy VTI for one, what other ETFs/funds should I buy for the other retirement accounts to avoid wash sales? Wouldn't I want the highest growth for the Roth accounts?

Should I consider a 2030 target date fund? I wasn't a big fan (sold out of one earlier), but maybe it's an option for one of the retirement funds.

For the 30% non-equity allocation: I will buy all bonds (Treasuries? BND? Another?) for the Inherited IRA (17% of portfolio), some bonds (already have VGIT) in 401k (7%), and finally the rest (6%) in CDs, I-Bonds, T-bills, MMFs, and (maybe) Muni's in Taxable for liquidity, grad school, and monthly expenses (to do mega backdoor).

Thoughts?
User avatar
Duckie
Posts: 9777
Joined: Thu Mar 08, 2007 1:55 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by Duckie »

sodastream wrote: Wed May 31, 2023 3:00 pm Keeping IVV in taxable means I need to liquidate IVV in the Inherited IRA, 401k and Roth accounts. The Inherited IRA is simple; I could replace it with 100% bonds there. For Total Stock I plan to buy VTI, but where should I do it—in the 401k, Roth 401k (planned mega backdoor), or 2 Roth IRAs? And if I buy VTI for one, what other ETFs/funds should I buy for the other retirement accounts to avoid wash sales?
Wash sales are created when you sell something for a loss in taxable and buy it back in any account including tax-sheltered within the 61-day window. If you do not hold VTI in taxable you can hold it in any or all tax-sheltered accounts without worrying about a wash sale. If you want something else, alternatives to VTI would be SCHB, ITOT, IWV, VTHR, VV, IWB, and SCHX.
Wouldn't I want the highest growth for the Roth accounts?
Yes. But as long as you don't put a 500 Index fund in your Roth accounts, you're fine.
Should I consider a 2030 target date fund? I wasn't a big fan (sold out of one earlier), but maybe it's an option for one of the retirement funds.
Holding individual stocks or funds plus target-date funds makes figuring your AA and rebalancing difficult. In your situation with the large taxable account go with all individual funds, not target-date funds.
For the 30% non-equity allocation: I will buy all bonds (Treasuries? BND? Another?) for the Inherited IRA (17% of portfolio), some bonds (already have VGIT) in 401k (7%), and finally the rest (6%) in CDs, I-Bonds, T-bills, MMFs, and (maybe) Muni's in Taxable for liquidity, grad school, and monthly expenses (to do mega backdoor).
I don't think you need municipal bonds but the rest sounds good.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by retiredjg »

Here is an idea to model. It adds up to a little more than 100%, but just ignore that.

Our Taxable 67.1% - $2M
500 index
Some kind of total international <--yes, add to this until it is 20% of your stock allocation
Whatever else you need to keep
Could hold a little bit of CA tax-exempt bonds if you want

Inherited IRA 16.1% - $550K
all or almost all bonds

His 401k[17.1% - $550K
SWTSX: Schwab Total Stock Market Index Fund (.035)
the rest of the bond allocation.


His Roth IRA at Schwab.14%
.14% Individual Stocks

Her Roth IRA at Schwab 1.1%
Schwab total stock


Your taxable account is going to be cluttered up for awhile. Do what you can with it and don't worry about the rest.

You are 60ish and an 80/20 portfolio is very aggressive for your ages. You do not need to take that much risk. I suggest you dial it back a bit unless you have so much extra money that you are purely investing for your kids, not yourselves.
Topic Author
sodastream
Posts: 88
Joined: Tue May 23, 2023 6:05 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by sodastream »

Duckie wrote: Wed May 31, 2023 3:53 pm
sodastream wrote: Wed May 31, 2023 3:00 pm Keeping IVV in taxable means I need to liquidate IVV in the Inherited IRA, 401k and Roth accounts. The Inherited IRA is simple; I could replace it with 100% bonds there. For Total Stock I plan to buy VTI, but where should I do it—in the 401k, Roth 401k (planned mega backdoor), or 2 Roth IRAs? And if I buy VTI for one, what other ETFs/funds should I buy for the other retirement accounts to avoid wash sales?
Wash sales are created when you sell something for a loss in taxable and buy it back in any account including tax-sheltered within the 61-day window. If you do not hold VTI in taxable you can hold it in any or all tax-sheltered accounts without worrying about a wash sale. If you want something else, alternatives to VTI would be SCHB, ITOT, IWV, VTHR, VV, IWB, and SCHX.
Ohhh, yes. Major brain fog here. (I'm slapping my head.) I got it now. Thank you for listing some great alternatives.
Should I consider a 2030 target date fund? I wasn't a big fan (sold out of one earlier), but maybe it's an option for one of the retirement funds.
Holding individual stocks or funds plus target-date funds makes figuring your AA and rebalancing difficult. In your situation with the large taxable account go with all individual funds, not target-date funds.
This makes sense.
For the 30% non-equity allocation: I will buy all bonds (Treasuries? BND? Another?) for the Inherited IRA (17% of portfolio), some bonds (already have VGIT) in 401k (7%), and finally the rest (6%) in CDs, I-Bonds, T-bills, MMFs, and (maybe) Muni's in Taxable for liquidity, grad school, and monthly expenses (to do mega backdoor).
I don't think you need municipal bonds but the rest sounds good.
Thanks for the feedback!
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: Wed May 31, 2023 4:22 pm Here is an idea to model. It adds up to a little more than 100%, but just ignore that.

Our Taxable 67.1% - $2M
500 index
Some kind of total international <--yes, add to this until it is 20% of your stock allocation
Whatever else you need to keep
Could hold a little bit of CA tax-exempt bonds if you want

Inherited IRA 16.1% - $550K
all or almost all bonds

His 401k[17.1% - $550K
SWTSX: Schwab Total Stock Market Index Fund (.035)
the rest of the bond allocation.


His Roth IRA at Schwab.14%
.14% Individual Stocks

Her Roth IRA at Schwab 1.1%
Schwab total stock


Your taxable account is going to be cluttered up for awhile. Do what you can with it and don't worry about the rest.

You are 60ish and an 80/20 portfolio is very aggressive for your ages. You do not need to take that much risk. I suggest you dial it back a bit unless you have so much extra money that you are purely investing for your kids, not yourselves.
Thanks, retiredjg. I posted earlier upthread that after a good night's sleep I've decided on a 70/30 portfolio for now (and dialing it to 60/40 in retirement).

Your model portfolio suggestions look solid. If I were to do a mega backdoor Roth, contributing around $38K this year, would you suggest I also do Total Stock in that account as well?
SpideyIndexer
Posts: 866
Joined: Thu Apr 02, 2015 10:13 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by SpideyIndexer »

delamer wrote: Sun May 28, 2023 11:34 am
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.
In what cases would the step-up in cost basis for inherited assets in a taxable account not be applicable?
HomeStretch
Posts: 11415
Joined: Thu Dec 27, 2018 2:06 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by HomeStretch »

sodastream wrote: Wed May 31, 2023 10:20 pm … If I were to do a mega backdoor Roth, contributing around $38K this year, would you suggest I also do Total Stock in that account as well? …
Does your 401k plan allow you to invest your Traditional 401k and Roth 401k balances differently or must they be invested identically? This varies by Plan.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by retiredjg »

sodastream wrote: Wed May 31, 2023 10:20 pm
retiredjg wrote: Wed May 31, 2023 4:22 pm Here is an idea to model. It adds up to a little more than 100%, but just ignore that.

Our Taxable 67.1% - $2M
500 index
Some kind of total international <--yes, add to this until it is 20% of your stock allocation
Whatever else you need to keep
Could hold a little bit of CA tax-exempt bonds if you want

Inherited IRA 16.1% - $550K
all or almost all bonds

His 401k[17.1% - $550K
SWTSX: Schwab Total Stock Market Index Fund (.035)
the rest of the bond allocation.


His Roth IRA at Schwab.14%
.14% Individual Stocks

Her Roth IRA at Schwab 1.1%
Schwab total stock


Your taxable account is going to be cluttered up for awhile. Do what you can with it and don't worry about the rest.

You are 60ish and an 80/20 portfolio is very aggressive for your ages. You do not need to take that much risk. I suggest you dial it back a bit unless you have so much extra money that you are purely investing for your kids, not yourselves.
Thanks, retiredjg. I posted earlier upthread that after a good night's sleep I've decided on a 70/30 portfolio for now (and dialing it to 60/40 in retirement).

Your model portfolio suggestions look solid. If I were to do a mega backdoor Roth, contributing around $38K this year, would you suggest I also do Total Stock in that account as well?
If you do mega-backdoor Roth, you will need to choose from whatever is available in your 401k. It seems that part of your bond allocation and total stock would be the logical choices.
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: Portfolio Review: Messy Portfolio After Inheritance

Post by delamer »

SpideyIndexer wrote: Wed May 31, 2023 11:37 pm
delamer wrote: Sun May 28, 2023 11:34 am
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.
In what cases would the step-up in cost basis for inherited assets in a taxable account not be applicable?
Credit shelter trusts are irrevocable trusts established at the death of the first spouse to reduce or eliminate estate taxes. The cost bases for the assets are set at the time the trust is established. So there is no step-up when the surviving spouse dies and the assets go to the heirs.

In my parents’ case, there was a 15-year gap between the time the trust was established (at my father’s death) and when I inherted the assets (at my mother’s death). The capital gains were significant.

There may be other situations in which the step-up doesn’t happen, but the above is the one with which I’m familiar.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Post Reply