[iX nOOky]

I know we have a bunch of financial savvy folks here. I have an inherited IRA currently sitting in a Vanguard account. It is over and above what I have already been saving for retirement, so more of a gift to me than an actual need, although it is nice.

If I take it all it puts us into an 8% higher tax bracket, so taking it all at once is out. I don't have to take any until the end of this year, so I can leave it in there and make some adjustments to how it is invested and let it ride. I don't have to take it all out at once as I have 10 years, but from what I have found I cannot convert it into anything else without paying the tax on it. If you're wondering how much I won't say, but it is not that much, about the cost of a new X5M.

I could also use it as an emergency fund. Ideally I'd just like to leave it alone and let it grow, Thoughts?

[Dan B]

Originally Posted by iX nOOky

I know we have a bunch of financial savvy folks here. I have an inherited IRA currently sitting in a Vanguard account. It is over and above what I have already been saving for retirement, so more of a gift to me than an actual need, although it is nice.

If I take it all it puts us into an 8% higher tax bracket, so taking it all at once is out. I don't have to take any until the end of this year, so I can leave it in there and make some adjustments to how it is invested and let it ride. I don't have to take it all out at once as I have 10 years, but from what I have found I cannot convert it into anything else without paying the tax on it. If you're wondering how much I won't say, but it is not that much, about the cost of a new X5M.

I could also use it as an emergency fund. Ideally I'd just like to leave it alone and let it grow, Thoughts?

Your #1 goal is to minimize the tax hit from inheriting the account.

Spend the $250 to talk to a professional for advice. Or open an account somewhere like Vanguard, take advantage of the free advice they can provide, and transfer the funds there.

And a lot depends on your current age, income, savings, and risk tolerance.

Lastly, if you cash out the account, I suspect you will take about a 20% hit plus income tax.

[MaxVO2]

Originally Posted by iX nOOky

I know we have a bunch of financial savvy folks here. I have an inherited IRA currently sitting in a Vanguard account. It is over and above what I have already been saving for retirement, so more of a gift to me than an actual need, although it is nice.

If I take it all it puts us into an 8% higher tax bracket, so taking it all at once is out. I don't have to take any until the end of this year, so I can leave it in there and make some adjustments to how it is invested and let it ride. I don't have to take it all out at once as I have 10 years, but from what I have found I cannot convert it into anything else without paying the tax on it. If you're wondering how much I won't say, but it is not that much, about the cost of a new X5M.

I could also use it as an emergency fund. Ideally I'd just like to leave it alone and let it grow, Thoughts?

****Depending upon which Vanguard account it should do well. Since it is inherited I assume there is a step up basis involved so that is very beneficial. If you have your own investment accounts with another broker, one can sometimes transfer it over broker to broker into either a new separate account and let it grow, and not take the tax hit from withdrawal into your account and then to the broker... It may bypass some of the tax liability but it depends upon what kind of IRA, etc..

Best to speak with an advisor for your particular situation. In terms of what to invest it in - if you do not need the money in the near future - there are *plenty* of great funds that have the potential to do quite well over time.

My favorites that have done me well are below. In addition consider VGT, BRK-B, and FXAIX which I have a significant amount of in another account and have made me real (not gas station) sushi money and then some these past 5 years or so.

Cheers and congrats.

[c1pher]

You shouldn’t be paying tax on the money unless it’s over $13M. Talk to a CPA or qualified accountant. Put the money in VOO or SCHD.

[iX nOOky]

Originally Posted by c1pher

You shouldn’t be paying tax on the money unless it’s over $13M. Talk to a CPA or qualified accountant. Put the money in VOO or SCHD.

It is not a Roth and it is taxed at normal income rates if I take it. If I cashed it in, as I wrote it would put me in a higher tax bracket and they'd take 32% federal taxes plus state taxes. I have not found a way to transfer it without paying taxes it looks like that is impossible.

I'm thinking my best bet is to move it into better funds at Vanguard and just take as little as possible.

[Tyga11]

Bitcoin. Thank me in 10 years.

[kscarrol]

As I recall you have 10 years to withdraw all the money from the time of the persons death. As noted above, depending on the size of the IRA and your current situation, best to spend a few dollars for proper advice. But at a minimum I would spread out the withdrawals over that 10 year window.

[Dan B]

Originally Posted by MaxVO2

****Depending upon which Vanguard account it should do well....

My favorites that have done me well are below. In addition consider VGT, BRK-B, and FXAIX which I have a significant amount of in another account and have made me real (not gas station) sushi money and then some these past 5 years or so.

Cheers and congrats.

Vanguard has been crushing it for me. I have a number of different funds with them.

My Son wanted to invest all of his odd job, b-day, and Xmas money. I got him into VIGAX at $177 and change. It hit $200 and suddenly he wants to learn a lot more about investing. lol

[iX nOOky]

It's currently allocated as follows:

VASGX 7.96%
VFIAX 37.29%
VSCGX 8.88%
VTINX 45.87%

I will have time this weekend to sit down and see if I want to shuffle things around, but apparently I can only do this during business hours so I have time.

[MaxVO2]

Originally Posted by Dan B

Vanguard has been crushing it for me. I have a number of different funds with them.

My Son wanted to invest all of his odd job, b-day, and Xmas money. I got him into VIGAX at $177 and change. It hit $200 and suddenly he wants to learn a lot more about investing. lol

****Good. Hopefully you nurture that and discuss money, investing, etc.. in an age appropriate way and if he can read and is ready get him some simpler books regarding investing or even books like Rich Dad, Poor Dad, The Truth about Money, etc..

If he learns early about the power of investing, compound interest, etc.. he might one day buy a boat and invite you on it....

[Ab28]

Originally Posted by c1pher

You shouldn’t be paying tax on the money unless it’s over $13M.

Respectfully, this comment has absolutely nothing to do with any particulars the OP asked about. The lifetime gift exclusion does not apply here.

[DrVenture]

Yes, one has 10 years to take an inherited IRA from the date of the original owner's death. There are RMDs starting in 2025. Letting it grow as long as possible and taking advantage of tax-deferred compounding is a good plan. I would consider putting it 50/50 in an index and large cap growth fund. Some of the current funds are conservative for a young(er) person.

No penalty for withdrawal, only the income tax. That is unavoidable. Married filing jointly, the 22% bracket is up to $206,700 in 2025. Remember that you will only pay tax on earnings, not the basis or entire amount.

[iX nOOky]

Yes thank you, I should probably put it in something that earns more despite being riskier, I'm going to have to research some, but I think some of the lazy portfolios look interesting for two or three mutual fund picks.

[chassis]

Originally Posted by iX nOOky

Ideally I'd just like to leave it alone and let it grow, Thoughts?

Congrats. Do that.

[kscarrol]

I’d take half of it, go to Vegas and bet on red at a roulette table….

[ppointer]

Originally Posted by iX nOOky

Yes thank you, I should probably put it in something that earns more despite being riskier, I'm going to have to research some, but I think some of the lazy portfolios look interesting for two or three mutual fund picks.

You have not said your age. If you are medicare minus 10 (55 years old), I would consider converting it to a Roth. You would have to pay tax now, but nothing when you withdrawal after your 59.5 birthday.

Whether Roth or regular IRA, I would consider moving from the funds into the Mag-7 -- Alphabet, Apple, Amazon, Meta, Nvidia, Microsoft, and Tesla. If you want to get more aggressive, there are some other AI stocks.

Not investment advice. Just something that has worked for me.

[DrVenture]

While a good notion, non-spouse beneficiaries cannot convert an inherited IRA to a Roth IRA.

Though technically you could withdraw a portion each year, pay the tax and fund a Roth up to the annual limit. But, you could do that regardless. No backdoor Roth option is available for the total amount though.

[ZL9M2]

Talk to a competent tax advisor. regarding the distribution rules. Everything mentioned here previously could be correct or not depending on your exact situation. Was the owner already taking their RMD's or were they pre-RMD age? Are you not more than 10 years younger than the owner? These two elements alone invalidate all prior advice. And of course all of this assumes the death of the owner was in 2020 or later.

[RockCrusher]

Originally Posted by iX nOOky

I know we have a bunch of financial savvy folks here. I have an inherited IRA currently sitting in a Vanguard account. It is over and above what I have already been saving for retirement, so more of a gift to me than an actual need, although it is nice.

If I take it all it puts us into an 8% higher tax bracket, so taking it all at once is out. I don't have to take any until the end of this year, so I can leave it in there and make some adjustments to how it is invested and let it ride. I don't have to take it all out at once as I have 10 years, but from what I have found I cannot convert it into anything else without paying the tax on it. If you're wondering how much I won't say, but it is not that much, about the cost of a new X5M.

I could also use it as an emergency fund. Ideally I'd just like to leave it alone and let it grow, Thoughts?

Haven't read all the replies but my experience inheriting an IRA when my parents died is I left the money in the what is referred to as a beneficiary IRA at the mutual fund company.

Dad had the money invested in a mix of US stocks, bonds, and foreign stocks. It was doing just ok.

I redid the investments and put all the funds into a S&P 500 Index fund. Oh this back in 2015.

The beneficiary IRA has grown by about 25% and this is with my having to take an RMD every year. To be sure the S&P 500 Index is up quite a bit over that span of time but a gain in value is a gain in value. If a rising tide is the cause so be it.

If having to take a RMD out impacts your taxes you can look into a charitable donation from the fund. I forget the type of donation but the money has to come from the fund and go to the charity directly. This is a tax free distribution to the charity. And you get whatever tax help from the charity donation.

Obviously the above is at best just a superficial coverage of this process. Ok for online but in the real world you need to speak to a tax advisor.

Maybe you can convert the IRA to a Roth IRA? This can of course seriously impact your taxes the year or years if you do this in stages but later when you have to withdraw the money it is tax free.

But again you need to speak with a tax advisor to see if this is even doable in your case and if doable what the pluses and negatives are.

[iX nOOky]

Thank you for the replies. Given my age right now, 56, this might be enough bridge money to allow me to retire early.

I should be able to take out the minimum RMD amount for the next 6-7 years, and quit working when I am 62 or so. Then I could take lump sums over 2-3 years since I will have no income, and use it for living expenses such as health insurance etc. I'm also hammering away the max I can for my HSA etc.

My wife is self-employed, hence health insurance costs are a big deal as I carry employer health insurance for us. She's 2 years older and wants to retire before 65, but I don't want her to lol.

[RockCrusher]

Originally Posted by iX nOOky

Thank you for the replies. Given my age right now, 56, this might be enough bridge money to allow me to retire early.

I should be able to take out the minimum RMD amount for the next 6-7 years, and quit working when I am 62 or so. Then I could take lump sums over 2-3 years since I will have no income, and use it for living expenses such as health insurance etc. I'm also hammering away the max I can for my HSA etc.

My wife is self-employed, hence health insurance costs are a big deal as I carry employer health insurance for us. She's 2 years older and wants to retire before 65, but I don't want her to lol.

An early retirement can be nice.

But an early retirement means whatever you have to sustain you -- in terms of money/income -- has to last you and your wife longer.

You could retire at 62 (my Dad did) and you could live long enough you could be retired longer than you worked. Which is again my Dad's situation. He retired at 62 and lived to 95+. Thus he was retired for 34 years. But he worked only 32 years: From 1950 to 1982.

[MaxVO2]

Originally Posted by RockCrusher

An early retirement can be nice.

But an early retirement means whatever you have to sustain you -- in terms of money/income -- has to last you and your wife longer.

You could retire at 62 (my Dad did) and you could live long enough you could be retired longer than you worked. Which is again my Dad's situation. He retired at 62 and lived to 95+. Thus he was retired for 34 years. But he worked only 32 years: From 1950 to 1982.

***Wow. That's a long time to be retired. That requires a LOT of money, be it a pension or other retirement income, etc..

Many people aren't good at planning for things that will happen far in the future and want to live the good life now figuring they can start saving or investing for retirement later, or keel over dead from partying with hookers and blow in a binge week at some point...

A lot of elderly people live on just Social Security here in the USA and it doesn't seem like the best way to go about.

Ironically, one of my friends from college did well financially, was always a planner for the future, and died of a massive heart attack in his mid 40's... Bad genetics, but also poor lifestyle habits and allowing himself to get way too heavy and sedentary. His widow at least now has a ton of money to spend and never needs to work again.

Best to plan ahead and hope you make it.