Announcement

Collapse
No announcement yet.

inhereted IRA

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • inhereted IRA

    Just do not understand how to approach my inhereted IRA...

    I received an inhereted IRA 13+yrs ago, which was at Chase bank. It had high fees (front load, poor investments, i.e. all active investments). So, after beginning my WCI journey in 2019, I transferred it into Vanguard and divided up the investments into a basic 3-fund porfolio and just left it.

    Then last year I felt my mom (who had left me this inhereted IRA) suggesting that I use this money as my 5% risk taking with stocks (the rest of my retirement accounts are invested in 3-4 passive index funds). So, I got "lucky" and bought Tesla stock prior to the split. I had intended on just leaving it and letting it ride for awhile BUT...

    My question is not about when to sell/buy more Tesla, ha... it is:

    Given it has been 13 years since my mother's passing, did I miss some fine print that I "have" to take RMDs or even cash out on all of it by a certain time?

    I just do not seem to understand the language in inhereted IRA requirements.

    Can someone help?

    Thank you.

    ps my mother was 59 when she passed in '07 from recurrent breast cancer, so now would be 72 (going onto 73). Tough to even think of... she would truly be in love with her grandchildren that she never got to meet.


  • #2
    Yes RMDs based on your lifetime. You'll need to remove and send in request to not be subject to fines (50% ).

    Comment


    • #3
      Can you elaborate?
      I'm currently 47. So that means?

      Comment


      • #4
        The rules are a bit complicated. Maybe spirit rider will chime in.

        Comment


        • #5
          In the year following the year of death you were required to start taking RMDs based on the age based divisor from IRS Publication 590-B, Appendix B, Table I (Single Life Expectancy)(For Use by Beneficiaries).

          In each subsequent year you reduce the divisor by one (1). There was no RMD required for 2020, but the divisor was still decremented by one. In other words, your 2021 divisor is your 2019 divisor - 2.

          Any deficient RMD amounts are subject to a 50% penalty. If you have any such deficient amounts you need to take them ASAP and file the necessary Form 5329s (one for each missed year) to request a waiver of the 50% penalty.

          Comment


          • #6
            Not to mention, unless this is an Inherited Roth IRA. You made the worst possible choice by investing Inherited traditional IRA assets in highly returning assets. Highly returning assets should be prioritized first in Roth IRAs (first in non-inherited Roth IRAs), next in taxable and only in tax deferred if you have insufficient Roth and taxable investment space.

            By investing in Tesla with high returns in Inherited traditional IRA assets it had two very detrimental effects.
            1. You turned all earnings into ordinary income.
            2. You forced a portion of that increased balance to be distributed yearly subject to your marginal ordinary income tax rates.
            Inherited traditional IRA assets should be prioritized to the lowest returning asset class with the lowest standard deviation. Generally, this would be a total bond index fund or even better prioritize intermediate treasury bond index fund.

            Comment


            • #7
              live and learn. thanks.

              Comment


              • #8
                Don't feel bad. Inherited assets are considered separate from marital assets in most circumstances/jurisdictions, so there can be good reasons to have a separate asset allocation in an inherited IRA compared to your other portfolio. I keep my inherited IRA portfolio separate. I am very happy in my marriage but stuff happens. Likewise the beneficiaries on my inherited IRAs and even inherited taxable accounts are the trust my parents left my kids when they died. I have kept them as separate as possible.

                Also: sounds like you did well with Tesla. Celebrate that - money is money!

                Comment


                • #9
                  I realized that I had been receiving RMDs up until 2019. At that time I transferred the bene IRA from Chase to Vanguard. That is when I made the first error in not taking out RMDs. So, how do I determine how much to take out for 2019? And then, nothing was necessary in 2020, true? And then how much for 2021? Is there a formula to determine this?
                  Lastly, the second error in purchasing individual stocks (i.e. Tesla) in this retirement account, is it worth selling this and purchasing back VTSAX (i.e. an index fund)? I had merely intended to use this as my <5% of my portfolio to take a "higher" risk.

                  Thanks.

                  Comment


                  • #10
                    For 2019, use the account balance on Dec 31 2018 and the RMD divisor from 2018, and subtract 1.

                    For TSLA, sell this in your IRA, buy back something like VTSAX, and then exchange an equal amount of index fund or better yet cash designated to buy an index fund in your taxable account for TSLA. Don't incur any capital gains to do this.

                    Comment


                    • #11
                      thanks on the divisor info for the 2019 RMD, I did find the calculator for it too.
                      However, easier said than done for the selling of the TSLA stock - as I got it at a much lower price than it is selling at now. Thus, selling it and buying VTSAX feels like a potential loss, especially this was going to be my <5% portfolio "high risk" money. Ugh. Will give it some more thought. Thanks.

                      Comment


                      • #12
                        Originally posted by mjdevito View Post
                        thanks on the divisor info for the 2019 RMD, I did find the calculator for it too.
                        However, easier said than done for the selling of the TSLA stock - as I got it at a much lower price than it is selling at now. Thus, selling it and buying VTSAX feels like a potential loss, especially this was going to be my <5% portfolio "high risk" money. Ugh. Will give it some more thought. Thanks.
                        Reread Spiritrider post #6. Not smart tax strategy. You converted gains to ordinary income.

                        "Not to mention, unless this is an Inherited Roth IRA. You made the worst possible choice by investing Inherited traditional IRA assets in highly returning assets. Highly returning assets should be prioritized first in Roth IRAs (first in non-inherited Roth IRAs), next in taxable and only in tax deferred if you have insufficient Roth and taxable investment space." Better places for it. Sell and put it in the correct location. It causes no taxes and less tax in the future.

                        Comment


                        • #13
                          You should take the missed 2019 RMD as soon as you reasonably can and then file a 2019 Form 5329. Send this form by itself following the instructions exactly to request a waiver of the 50% penalty. In the best of times you may not get a response from the IRS for quite a while if ever. That should only be amplified given current circumstances.

                          As alluded to by Tim, if this is a traditional Inherited IRA. It should contain the lowest returning, lowest volatility assets of your asset allocation.

                          P.S. Vanguard as other IRA custodians has an automatic RMD feature. Simply enable this with how often and when you want the RMD occur. They will calculate and distribute the RMD,

                          Comment


                          • #14
                            Thanks... it was not enabled when I had transferred the inherited IRA back in 2019. It is now enabled, so should be smooth sailing from here. Thanks!

                            Comment


                            • #15
                              Originally posted by spiritrider View Post
                              You should take the missed 2019 RMD as soon as you reasonably can and then file a 2019 Form 5329. Send this form by itself following the instructions exactly to request a waiver of the 50% penalty. In the best of times you may not get a response from the IRS for quite a while if ever. That should only be amplified given current circumstances.

                              As alluded to by Tim, if this is a traditional Inherited IRA. It should contain the lowest returning, lowest volatility assets of your asset allocation.

                              P.S. Vanguard as other IRA custodians has an automatic RMD feature. Simply enable this with how often and when you want the RMD occur. They will calculate and distribute the RMD,
                              I'm going to ask a stupid question here... if one has a Traditional inherited IRA but based on the IPS/AA preference chooses to be nearly 100% stocks, there isn't an issue with selecting something like VTSAX for these funds, right?

                              I always think of Dr. Dahle saying his "tax dog/tail" analogy and wonder if that's what I would be doing here by changing my VTSAX funds into something like you suggest (bonds) just because it's better from a tax standpoint.

                              Thoughts?

                              Comment

                              Working...
                              X