Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Inherited IRA and Vanguard
Old 05-12-2018, 05:55 PM   #1
Recycles dryer sheets
 
Join Date: Feb 2011
Location: Nottingham
Posts: 91
Inherited IRA and Vanguard

Evening -

I read a good book recently by Ed Slott on IRAs. Was hoping to get real world experiences from those on this blog.

Basically my wife and I each have traditional and Roth IRAs. Financially it looks like we will not need to tap into them before RMD time. We probably won't need the RMD for living expenses.

Our ultimate goal is to allow our two children to inherit our IRAs in the best financially means possible so as the funds can continue to grow as best as can be.

Was hoping for anyone on this blog who has dealt with IRAs at Vanguard and how they set them up (e.g., beneficiary titling,...) so they could be inherited by their children.

Also - in his book, Ed Slott advises getting a life insurance policy (hefty price for sure of those of us in our 60s) paid via our taxable funds so that the life insurance can pay for any of the RMD taxes (so none of the inherited IRA assets need to be taken out, except for RMD). Has anyone done this??

Thank you much for any feedback.

Kannon
__________________

kannon 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 05-12-2018, 06:06 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 9,027
Ed Slott's books are out of date. He also pretty much writes for the ultra-wealthy and not folks who typically post at early-retirement.org. The Slott book I read had terrible advice for me, so I ignored it.

We have inherited IRAs. My wife's inherited IRA is held at Vanguard. The primary beneficiary is me and the secondary beneficiaries are our children. I don't see any problems with that. That's the way our regular traditional/rollover IRAs and Roth IRAs are set up, too.

I would not do the life insurance thing that Ed Slott wrote about because the RMD taxes would be so low as to not be worth it. Have you calculated the possible RMD taxes? I suggest that you do. I think Slott is writing about inheriting a $400 million+ IRA or something.

Also note that if your children inherit Roth IRAs, they won't pay any taxes on the RMDs. It is up to you to do Roth conversions if you can in order to save your beneficiaries taxes if that's what you want to do.
__________________

LOL! is offline   Reply With Quote
Old 05-12-2018, 06:16 PM   #3
Recycles dryer sheets
 
Join Date: Feb 2011
Location: Nottingham
Posts: 91
Did you specify in Vanguard's website Account Maintenance that your spouse was primary and kids were secondary using the "To my descendants who survive me, per stirpes" statement or should I put specific names and %? According to the book you have to make sure you have a "designated beneficiary" in order to work a stretch IRA.
kannon is offline   Reply With Quote
Old 05-12-2018, 06:24 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 9,027
We don't use "per stirpes", but have always put specific names and percentages. That may change if our kids get married.
LOL! is offline   Reply With Quote
Old 05-12-2018, 06:24 PM   #5
Thinks s/he gets paid by the post
Souschef's Avatar
 
Join Date: Dec 2015
Location: Santa Paula
Posts: 1,490
I have an IRA with Morgan Stanley, and have my 2 sons as beneficiaries. The each will get 50 % of the IRA. They will have to take the RMD based on their age in the table, but the number is small, compared to the RMD at age 70. I would certainly not get life insurance to cover it.
As an example, if the beneficiary is age 51 at the time of parent's death, the RMD is only 3%. On a $500 K IRA, that is only $15 K, which the IRA can certainly afford. The RMD can be taken as cash, or moved to a taxable account. I have done this both for myself and my wife, but it also works for an inherited IRA
Here is the lowdown:
Generally, a non-spouse beneficiary of either a Traditional or the entire account as a lump sum or begin taking required minimum distributions (RMDs) each year from the Inherited IRA beginning in the year following the owner's death (he or she can always take more). In the latter case, the annual RMD amount usually is based on the beneficiary's life expectancy (according to IRS Life Expectancy tables). The younger the beneficiary, the smaller the initial required withdrawal amount will be as a percentage of each prior year-end Inherited IRA balance. An additional five-year distribution option is available to beneficiaries of owners who died before achieving their required beginning dates.
As an example, based on the life expectancy of the beneficiary, RMD amounts are calculated as follows: In the calendar year following the year in which the owner dies, the beneficiary should consult the applicable IRS Single Life Expectancy table (available at irs.gov) and identify the factor that corresponds with the age he or she will turn that year. The beneficiary then takes the balance of the Inherited IRA as of December 31 of the prior calendar year and divides the dollar amount by the factor from the IRS table. The result is the minimum amount that beneficiary is required to withdraw from the Inherited IRA by December 31 of that year. (He or she always can withdraw more.) For subsequent years, the beneficiary should repeat the RMD calculation using the original life expectancy factor minus one each year. (There is no need to go to the table for a new factor.) Any beneficiaries of the Inherited IRA after the first beneficiary could continue to use the RMD calculation factor based on the life expectancy of the original Inherited IRA owner—again subtracting one from that factor for each year thereafter
__________________
Retired Jan 2009 Have not looked back.
AA 50/45/5 considering SS and pensions a SP annuity
WR 2% SI 2SS & 2 Pensions
Souschef is offline   Reply With Quote
Old 05-12-2018, 06:40 PM   #6
Thinks s/he gets paid by the post
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 2,717
Quote:
Originally Posted by kannon View Post
Did you specify in Vanguard's website Account Maintenance that your spouse was primary and kids were secondary using the "To my descendants who survive me, per stirpes" statement or should I put specific names and %? According to the book you have to make sure you have a "designated beneficiary" in order to work a stretch IRA.
My Mom was very interested in stretch IRAs so she made very sure that she and my Dad did everything correctly.

My Mom passed away about two years ago and my Dad moved her IRA into his.

He has his beneficiaries of both his traditional and Roth IRAs at Vanguard set up as follows:

"[Oldest child's name] per stirpes 33.34%"
"[Middle child's name] per stirpes 33.33%"
"[secondcor521] per stirpes 33.33%"

Mainly he wants to divide everything equally between his three kids. The above does that (albeit my oldest sister gets an extra 0.01% due to the way fractions and Vanguard's website work - not an issue obviously).

In the off chance that any of his kids predecease him, he confirmed that he wanted that portion of his IRAs to go to the predeceased child's children, so the above accomplishes that also.

The other thing, which is sort of obscure, is that if I wanted to, I could partially disclaim either or both or a portion of either or both of my portion of his IRAs. That disclaimer would have the effect of passing the disclaimed portions to my children, and they would be able to do a stretch IRA over their lifetimes. This is an option I probably won't exercise simply because it complicates things financially, but it's an option the way things are worded.

...

Note that there are other requirements to successfully execute a stretch IRA. The main other requirement I can recall is that the IRA must be divided among the beneficiaries with a certain amount of time after death (September of the year following or something like that). There may be others, so make sure your heirs are aware of the requirements if it's important to you.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is offline   Reply With Quote
Old 05-12-2018, 07:53 PM   #7
Recycles dryer sheets
 
Join Date: Feb 2011
Location: Nottingham
Posts: 91
How do you title for your kids in Vanguard's account maintenance?

Is it Individual/Individual Name like "John H Doe"
or
is it Individual/Individual Name like " Iam Father (Deceased 1/1/2018), IRA, FBO John H Doe"
kannon is offline   Reply With Quote
Old 05-12-2018, 09:27 PM   #8
Thinks s/he gets paid by the post
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 2,717
I don't really know, as I haven't had to know yet. I do know that there is a proper way to title inherited IRAs, and I believe you are supposed to include the name of the deceased in the titling, so more like your second example. I figure when the time comes Vanguard or my Dad's estate attorney will be able to properly advise on titling.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is offline   Reply With Quote
Old 05-12-2018, 10:08 PM   #9
Recycles dryer sheets
 
Join Date: Jul 2004
Posts: 478
Quote:
Originally Posted by kannon View Post
How do you title for your kids in Vanguard's account maintenance?

Is it Individual/Individual Name like "John H Doe"
or
is it Individual/Individual Name like " Iam Father (Deceased 1/1/2018), IRA, FBO John H Doe"
When you specify the beneficiaries, you just specify their names (John H Doe, in your example).

When the IRA account owner dies, then Beneficiary/Inherited IRA's are created for the beneficiaries and those will have the special titling you refer to above.
gindie is online now   Reply With Quote
Old 05-12-2018, 10:42 PM   #10
Full time employment: Posting here.
 
Join Date: Mar 2008
Posts: 743
I believe it works the no matter what broker you’re using. Upon proof of death, the broker will divide assets according to the specified beneficiaries percentages. They will correctly title the accounts and suggest each beneficiary set up automatic RMDs. It will be up to the beneficiary to ensure enough cash is available in the account to cover the RMD, otherwise you risk penalties.

Also, you can usually assign primary and secondary beneficiaries. One option is to name your spouse as the primary beneficiary and children as secondary. That way, you can postpone RMDs if you’re under 70.5, versus your children having to make withdrawals immediately for the deceased spouse.
akck is offline   Reply With Quote
Old 05-13-2018, 03:35 AM   #11
Recycles dryer sheets
 
Join Date: Feb 2011
Location: Nottingham
Posts: 91
Thank you Everyone!! Just the information I need.
kannon is offline   Reply With Quote
Old 05-13-2018, 06:11 AM   #12
Full time employment: Posting here.
racy's Avatar
 
Join Date: May 2007
Posts: 518
My wife and I have IRAs. Primary beneficiary of each is the spouse. Secondary beneficiary is our Trust (which we update occasionally as things change).
__________________
The Big Lebowski: Are you employed, sir?
The Dude: Employed?
racy is offline   Reply With Quote
Old 05-13-2018, 09:48 AM   #13
Thinks s/he gets paid by the post
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 2,717
Quote:
Originally Posted by gindie View Post
When you specify the beneficiaries, you just specify their names (John H Doe, in your example).

When the IRA account owner dies, then Beneficiary/Inherited IRA's are created for the beneficiaries and those will have the special titling you refer to above.
My reply in #8 was because I was a little unclear on what your question was, but because you used the word "titling" in your question, I assumed you were referring to how the inherited IRAs should be titled after the original IRA owner passed. In my situation, the original IRA owner is my father, who is still living.

gindie's answer above is clearer, because it also addresses the situation where you are naming beneficiaries, which is probably what you were actually asking, now that I reread your question.

The only thing I would add is that if you simply name your child as beneficiary ("John Doe") AND have multiple beneficiaries AND one of those beneficiaries predeceases you AND you don't change anything, THEN that beneficiaries' share will generally be distributed to the other beneficiaries' portions. This may be OK if you have young children but may not be what you want if that beneficiary has children.

That is our situation. My Dad has IRAs and three kids, each of whom also has three kids. So if my Dad listed his IRA beneficiary as "secondcor521" and I died before he did, my 1/3 would go to my two sisters, who would both get 1/2; it would not go to my three kids. Since that is not what my Dad wants, he has listed his beneficiaries as "secondcor521 per stirpes". In that same scenario, if I died before he did, my sisters would get their 1/3 portion and each of my three kids would receive 1/9 of my Dad's IRA.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is offline   Reply With Quote
Old 05-13-2018, 01:09 PM   #14
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 2,511
Quote:
Originally Posted by kannon View Post
Evening -

I read a good book recently by Ed Slott on IRAs. Was hoping to get real world experiences from those on this blog.

Basically my wife and I each have traditional and Roth IRAs. Financially it looks like we will not need to tap into them before RMD time. We probably won't need the RMD for living expenses.

Our ultimate goal is to allow our two children to inherit our IRAs in the best financially means possible so as the funds can continue to grow as best as can be.

Was hoping for anyone on this blog who has dealt with IRAs at Vanguard and how they set them up (e.g., beneficiary titling,...) so they could be inherited by their children.

Kannon
Your IRA is not an "inherited IRA" until you die. You don't do anything to "title" it differently while you are alive.

If your children inherit your IRA when you die, it is divided among them as you have designated and each child's new account is titled as

Child's full name
BENEFICIARY of Your Name

My Dad's IRA was at Wells Fargo. My sister and I were beneficiaries at 50% each. When he died it was split between my sister and I and Wells Fargo opened an Inherited IRA for each of us. Soon after I transferred mine to Vanguard, my sister moved hers to Schwab. My Vanguard account is an Inherited IRA titled as I mentioned above, separate from my Roth and Traditional IRAs.

An Inherited IRA has a different RMD table than your own IRA. Vanguard handles this very easily.
__________________
Married, both 63. DH retired June, 2010. I have a pleasant little part time job.
Sue J is online now   Reply With Quote
Old 05-18-2018, 03:06 PM   #15
Recycles dryer sheets
 
Join Date: Dec 2017
Location: Honolulu
Posts: 207
My mother had an IRA at another financial institution. I wanted to move it to Vanguard, as an inherited IRA. This was a three-step process. 1) Set up an Inherited IRA account at Vanguard; 2) Transfer ownership of the IRA from my mother to me in the form of a Beneficiary IRA; 3) Submit the transfer paperwork to Vanguard, and they took care of moving the funds from the third party to Vanguard. Not too bad. But having the funds all at Vanguard, and planning to leave them there makes it as simple as designating beneficiaries, and when you die, they just have to prove the death by providing a death certificate, and VG will transfer the funds to a properly titled beneficiary IRA. Another thought would be to gift each person $15K annually until then, as this would not be subject to income taxes under current law (gift tax limit for 2018).
HNL Bill is online now   Reply With Quote
Old 05-18-2018, 05:59 PM   #16
Thinks s/he gets paid by the post
MooreBonds's Avatar
 
Join Date: Aug 2004
Location: St. Louis
Posts: 2,130
Quote:
Originally Posted by kannon View Post
Our ultimate goal is to allow our two children to inherit our IRAs in the best financially means possible so as the funds can continue to grow as best as can be.

Was hoping for anyone on this blog who has dealt with IRAs at Vanguard and how they set them up (e.g., beneficiary titling,...) so they could be inherited by their children.
Do a forum search for "Vanguard service". You will see numerous posts about the quality of Vanguard's customer service in many instances (I'll give you an executive summary: Vanguard is great for ultralow expenses...but not-so-great at back of house operations).

My own experience (on transferring my grandmother's IRA to my father, myself, and my siblings as her heirs) coupled with others' makes me leery of interacting with Vanguard for account actions.

Granted, once you finally go through the hoops and get everything retitled/transferred, it's not bad....but not only is Vanguard's web interface not the best (albeit much better than in years past), but that coupled with customer service frustrations would lead me to strongly recommend other brokers, unless there are specific funds/ETFs that you really, really, really want to own through Vanguard and not available through other brokers.

If you are only leaning towards Vanguard because you want to save $10 on commissions on a few Vanguard ETFs....save your heirs a few gray hairs and use a different broker for an IRA to will them.
__________________
Dryer sheets Schmyer sheets
MooreBonds is online now   Reply With Quote
Old 05-19-2018, 12:42 PM   #17
Recycles dryer sheets
 
Join Date: Jul 2009
Posts: 51
Quote:
Originally Posted by racy View Post
My wife and I have IRAs. Primary beneficiary of each is the spouse. Secondary beneficiary is our Trust (which we update occasionally as things change).

Isn't there an issue with a trust being the beneficary of an IRA since a trust doesn't have a life expectancy? If I remember correctly, the trust would have to pay income taxes on the entire IRA when the trust takes ownership of the IRA.
Bogie is online now   Reply With Quote
Old 05-19-2018, 12:45 PM   #18
Thinks s/he gets paid by the post
 
Join Date: Jun 2004
Location: E. Wash
Posts: 1,121
Quote:
Originally Posted by moorebonds View Post
do a forum search for "vanguard service". You will see numerous posts about the quality of vanguard's customer service in many instances (i'll give you an executive summary: Vanguard is great for ultralow expenses...but not-so-great at back of house operations).

My own experience (on transferring my grandmother's ira to my father, myself, and my siblings as her heirs) coupled with others' makes me leery of interacting with vanguard for account actions.

Granted, once you finally go through the hoops and get everything retitled/transferred, it's not bad....but not only is vanguard's web interface not the best (albeit much better than in years past), but that coupled with customer service frustrations would lead me to strongly recommend other brokers, unless there are specific funds/etfs that you really, really, really want to own through vanguard and not available through other brokers.

If you are only leaning towards vanguard because you want to save $10 on commissions on a few vanguard etfs....save your heirs a few gray hairs and use a different broker for an ira to will them.
+1 amem
nwsteve is online now   Reply With Quote
Old 05-19-2018, 01:57 PM   #19
Recycles dryer sheets
 
Join Date: Jul 2004
Posts: 478
Quote:
Originally Posted by HNL Bill View Post
Another thought would be to gift each person $15K annually until then, as this would not be subject to income taxes under current law (gift tax limit for 2018).
Want to make sure I understand. You are referring to non-IRA funds, correct?
gindie is online now   Reply With Quote
Old 05-19-2018, 05:04 PM   #20
Thinks s/he gets paid by the post
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 2,717
Quote:
Originally Posted by Bogie View Post
Isn't there an issue with a trust being the beneficary of an IRA since a trust doesn't have a life expectancy? If I remember correctly, the trust would have to pay income taxes on the entire IRA when the trust takes ownership of the IRA.
This is my understanding as well, except that I think the trust has to / can liquidate over five years. Still not as stretchy as people with life expectancies.
__________________

__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 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
Inherited IRA and 457 Plan ripper1 FIRE and Money 8 12-10-2017 10:07 AM
Funding ER in Your 50s, and Inherited IRA Questions googily FIRE and Money 6 07-24-2017 08:02 PM
Inherited IRA and turbo tax question on RMDs DFW_M5 FIRE and Money 12 02-08-2016 06:26 AM
Fidelity and Inherited IRA Corporate ORphan FIRE and Money 6 01-15-2015 06:17 AM
Inherited IRA, when to take RMD this year? Gworker Other topics 11 01-28-2008 12:38 PM

 

 
All times are GMT -6. The time now is 09:18 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2018, vBulletin Solutions, Inc.