Inheritable Ira

[moandjo]

I have an inherited Ira from my dad who passed last year. There is 25k in it. I'm planning on taking it out over the first 5 years, equally each year so we don't get totally screwed in taxes. It is currently in a money market account earning virtually nothing.

Would you switch it to an index type fund even though it will all be coming out within 5 years? Let it ride in the money market?

[SJ]

I would not leave it in cash.

[Pom]

Oct 7, 2015 9:26:56 GMT -5 moandjo said:

I have an inherited Ira from my dad who passed last year. There is 25k in it. I'm planning on taking it out over the first 5 years, equally each year so we don't get totally screwed in taxes. It is currently in a money market account earning virtually nothing.

Would you switch it to an index type fund even though it will all be coming out within 5 years? Let it ride in the money market?

Did you talk to the institution where the IRA is currently held and ask if transferring to other investment options are available to you?  The cash/Money Market would not be my first choice.

[njohnson1972]

Have you thought about taking it over your lifetime? That would defer a lot of your tax liability and allow it grow.

[Noblegirl]

We inherited an IRA from DH's dad. His dad's retirement fund was through Vanguard, so they helped us with flipping it to an inherited IRA. It was painless and there were a lot of options.

We opted to take it out over our lifetime. We're required to take a minimum distribution each year (that we pay taxes on), but the remainder stays put.

We could take additional out at any time if we needed/wanted--but it's nice to get a surprise check in July.

[cjeanette]

Oct 7, 2015 13:04:58 GMT -5 njohnson1972 said:

Have you thought about taking it over your lifetime? That would defer a lot of your tax liability and allow it grow.

This! 

[Deleted]

I'm glad you asked about this, but I also inherited 2 IRA, one Roth, one Traditional.

I guess there is a forced dispersemsnt of maybe $6k or so a year?

I will make sure the money in the accounts are invested in a good selection of stocks and maybe a small percentage cash or bonds.

Can I take that $6k a year and put it in a non-retirement fund? Roths for DH and I? I could start a 529, but I don't love that it can only be used for school.

What do people usually do in those cases?

[SJ]

Oct 7, 2015 19:53:48 GMT -5 @kcpokergal said:

I'm glad you asked about this, but I also inherited 2 IRA, one Roth, one Traditional.

I guess there is a forced dispersemsnt of maybe $6k or so a year?

I will make sure the money in the accounts are invested in a good selection of stocks and maybe a small percentage cash or bonds.

Can I take that $6k a year and put it in a non-retirement fund? Roths for DH and I? I could start a 529, but I don't love that it can only be used for school.

Yes. You can do whatever you want with that $6K. 

In both cases, you can either withdraw the funds within the first 5 years, or "stretch" them out over your own lifespan, which is what was recommended above.

The "forced" disbursements from the inherited Traditional IRA will be taxed like ordinary income. You will get a 1099-R showing these and then you have to pay taxes on the amount. You can have the brokerage withhold taxes for you.

The "forced" disbursements from the inherited Roth IRA will not be taxed

[Deleted]

So you only get the option to take the money in 5 years or start withdrawing it at your own retirement?

[moandjo]

Oct 7, 2015 22:46:38 GMT -5 @kcpokergal said:

So you only get the option to take the money in 5 years or start withdrawing it at your own retirement?

I think I can either withdraw it over 5 years or take yearly mandatory distributions forever?

[njohnson1972]

You can take it all at once - and pay lots of taxes.
You can take it over 5 years - pay the taxes over 5 years.
You can take it over your lifetime - pay a lesser amount of taxes each year.

If the person who passed away was over 70 1/2, you can't do the 5 year method.

By taking it over your lifetime, you allow the funds to grow. You will be required to take a minimum out each year and the amount required to take out is less the younger you are. Each year the amount you have to take out will likely increase (markets movements can impact how much you have to take out).

[Deleted]

I may have to figure out how to take my funds over 5 years then. I was hoping to use the money for my son's college fund and I liked the idea of having it available in case of financial catastrophe which I guess these funds really do not accommodate.

Or I guess if I just take the disbursements I can transfer that money annually to a fund for my son, but I'm SOL if I ever wanted to empty the account without paying penalties.