Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
ER strategies with an inherited IRA
Old 02-19-2015, 12:39 PM   #1
Recycles dryer sheets
FrankiesGirl's Avatar
 
Join Date: Feb 2015
Posts: 67
ER strategies with an inherited IRA

I am set to RE very, very soon and pretty much know how to manage my drawdowns at this point, but wanted to see if anyone had any insights on the wild card that is a substantial inherited IRA (it was a pretty nice size when I received it, but have grown it quite a bit since I inherited).

I am taking the MRDs already, having taxes withheld at 20% so as to ensure I don't get a surprise at tax time. So far the MRDs are small enough to not really hurt my overall withdrawal plan or incur any issues tax-wise, but it's grown so much that I'm having to take thousands more each year, and will keep growing, and I just found out I'm not allowed to do a Roth conversion out of an inherited IRA (which was my first inclination, darn it).

I can take out more than the MRD penalty free as long as I pay taxes on the amounts. I thought about just using this as my main source of living expenses the first 10 years (instead of tapping the taxable's cap gains/dividends), but it will mean paying out about 7% average to taxes (while still staying in the 15% taxable bracket). And I'd like to minimize the tax payouts as much as possible - if it wasn't for that account and the potential growth, I'd be able to pay no taxes ever again (via GoCurryCracker's method).


TL/DR:
Basically, I have about 12 years' living expenses (LE) in a taxable account, about 10 years of LE in the inherited IRA and roughly 5-8 more years LE in my 401k, Roths and cash. Since I can't do conversions on the inherited account, I'm concerned that the only option I have to stop the ever-growing MRDs is to take out more, and pay more taxes to move it to taxable/fund Roths (if I have earned income - which I may not after this year).

Any ideas?

And yes, I realize that this is a great problem to have in the grand scheme of things.
__________________

__________________
FIRE as of spring 2015!
FrankiesGirl is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-19-2015, 12:54 PM   #2
Moderator
Alan's Avatar
 
Join Date: Jul 2005
Location: Eee Bah Gum
Posts: 21,085
Maybe begin converting your 401k to a ROTH (if that is an option now but certainly after you retire). You can pay the taxes of the conversions with distributions from the inherited IRA. That would be a way to at least get some of the inherited IRA into a ROTH.
__________________

__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Now it's adventure before dementia
Alan is offline   Reply With Quote
Old 02-19-2015, 01:42 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 2,357
Take out the RMD early in the year and invest it more tax-efficiently outside the IRA. Doing so avoids that year's gains being hit with tax at ordinary rates.
__________________
GrayHare is online now   Reply With Quote
Old 02-19-2015, 01:46 PM   #4
Full time employment: Posting here.
jjquantz's Avatar
 
Join Date: Jan 2014
Location: Northern Virginia
Posts: 847
Quote:
Originally Posted by GrayHare View Post
Take out the RMD early in the year and invest it more tax-efficiently outside the IRA. Doing so avoids that year's gains being hit with tax at ordinary rates.
Bingo! DW inherited a smallish IRA and this is what we are doing.
__________________
jjquantz is offline   Reply With Quote
Old 02-19-2015, 02:30 PM   #5
Recycles dryer sheets
FrankiesGirl's Avatar
 
Join Date: Feb 2015
Posts: 67
I do already take the MRD early in the year and reinvest (been using it to fund the Roths). Problem is (example) if my last MRD was ~10K, and the IRA makes like 50K a year in growth/dividends, I'm not even treading water. I'm seeing growth that just laughs at the tiny amounts I am required to take out.

I guess my only real option is to take out largish chunks now in the early days (which again, we'll probably just use mostly for the yearly expenses) before I hit MRDs on my other accounts when I can still somewhat control what I'm being required to take, and just pay the taxes. I hope I still have room to do conversions on my 401k to get that moved over fast enough to avoid MRDs on that one too.

And all of my buckets/funds are as streamlined as they can be - index funds all the way round, with the less tax efficient ones in the tax deferred accounts.

We're stuffing the Roths for myself and the husband with $5,500 each every year we can, and only have the 401K conversion to manipulate after we both RE. After this year, we may not have earned income to fund the regular Roth contributions, so access to stuff tax deferred accounts is going to be limited.
__________________
FIRE as of spring 2015!
FrankiesGirl is offline   Reply With Quote
Old 02-19-2015, 03:01 PM   #6
Full time employment: Posting here.
gcgang's Avatar
 
Join Date: Sep 2012
Posts: 924
Quote:
Originally Posted by FrankiesGirl View Post
I Problem is (example) if my last MRD was ~10K, and the IRA makes like 50K a year in growth/dividends, I'm not even treading water. I'm seeing growth that just laughs at the tiny amounts I am required to take out.

.

Wait until the next bear market. Your "problem" will disappear.


Sent from my iPhone using Early Retirement Forum
__________________
In theory, there's no difference between theory and practice. In practice, there is. YB
gcgang is offline   Reply With Quote
Old 02-19-2015, 03:38 PM   #7
Recycles dryer sheets
FrankiesGirl's Avatar
 
Join Date: Feb 2015
Posts: 67
Quote:
Originally Posted by gcgang View Post
Wait until the next bear market. Your "problem" will disappear.


Sent from my iPhone using Early Retirement Forum


Yup. For the duration of the bear market. I get that. The nice thing is that in a bear, I will probably hit that account exclusively and give all my other accounts plenty of time to recover from any drops. Unless anyone else has any workable suggestions I haven't considered, this appears to be the best option - just keep using this as my main drawdown account until it's depleted (which may happen faster in a bear market).
__________________
FIRE as of spring 2015!
FrankiesGirl is offline   Reply With Quote
Old 02-19-2015, 06:10 PM   #8
Recycles dryer sheets
 
Join Date: Jul 2013
Posts: 344
Quote:
Originally Posted by gcgang View Post
Wait until the next bear market. Your "problem" will disappear.
I remember friends who retired in 1999 saying 'Why not go? Anybody can make 15% in the market!"
__________________

__________________
Clone is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Strategies for inherited IRA -- 2 generations BarbWire FIRE and Money 12 07-18-2015 06:16 AM
RMD for inherited IRA - determining life expectancy steelyman FIRE and Money 12 09-02-2013 07:42 PM
Jointly Owned Non-spousal inherited IRA WilliamG FIRE and Money 24 03-24-2013 04:49 PM
Advice on withdrawals from inherited IRA? mb FIRE and Money 1 07-28-2008 10:38 PM
Inherited IRA, when to take RMD this year? Gworker Other topics 11 01-28-2008 01:38 PM

 

 
All times are GMT -6. The time now is 07:50 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.