Htown Harry
Thinks s/he gets paid by the post
- Joined
- May 13, 2007
- Messages
- 1,525
The value of current annuities that are subject to federal taxes and the IRA money, (approx $100K), causes me the most concern.
I'm not familiar with the tax issues on the annuities, but there are three basic withdrawal options on the share of the IRA you have inherited: withdraw it all by the end of the year after the decedent's death, withdraw it all on a 5 year schedule or withdraw it over a longer period using a table of Required Minimum Distributions (RMDs). The applicable RMD table is not the same as for over-70 withdrawals from your our IRA account, but the concept is the same: the percentage starts out low and grows a bit each year.
All three methods result in the amount withdrawn being reported to the IRS as taxable income via a 1099-R. Any of the three have the option to accelerate taxable withdrawals if you need the cash or if your tax planning has some ceiling room for additional taxable income before hitting the top of a tax bracket or an income target.
It sounds like the RMD option would be best for you, minimizing taxable income in the years you hope to qualify for an ACA subsidy.
I'll give an example of how setting up an Inherited IRA at Vanguard has worked for DW over the past few months.
DW's mother died in September. She left a traditional IRA at Broker X to two beneficiaries named back when she set up the accounts - DW and my BIL. We're on the home stretch of a multi-step process that will end with DW's 50% share being held in a self-managed Vanguard Inherited IRA.
- Death was reported to the IRA custodian a few weeks after the event. The only immediate action was to stop any scheduled distributions and to confirm beneficiary status for DW and her brother. (Roughly where you are in the process.)
- Each beneficiary acts separately. BIL wanted the cash, so he submitted a distribution request. DW submits paperwork to set up a beneficiary account with X, in this case an “Broker X Inherited IRA Application.”
- X sends a “thank you for choosing us” new account package by mail. DW uses the new account number to set up online access, showing a $0 balance.
- After several weeks of no change in the balance, we call X. “Oh, I see you haven’t submitted the Inherited IRA Distribution form.” We go to the local X office to complete the form, have it notarized, and turn it in.
- About that time, we call Vanguard for some guidance. We mail a “please set up a $0 account to receive a transfer” letter with the Vanguard “IRA Asset Transfer” form.
- A week after sending the forms to X, 50% of the fund shares in MIL’s account are transferred to DW’s account. DW now owns shares in a dozen high-fee mutual funds.
- A few days later, the new Vanguard account is established and shows up on DW’s online account page.
- Next - with both an origin and destination account number now available - we initiate the trustee-to-trustee transfer by mailing an account-specific “IRA Asset Transfer” form to Vanguard.
- A week later, a “transfer in progress” message appears on the Vanguard account page, with another 12 days estimated for completion
- X calls by phone the next week. They have received Vanguard’s request, but there were a couple of points to confirm. The most important thing was they wanted DW to go on-line herself to sell all the mutual funds that were formerly in MIL’s account. (This saved some money vs. them liquidating the mutual funds on our behalf.)
- X mails a check to Vanguard the next day.
- A week later, the funds have arrived and have been used to purchase a MMF in DW’s Vanguard Inherited IRA account.
- At the end of January, statements from X arrive and say that there is a $6 balance in DW’s X account, due to some lagging dividend postings.
- X sends the $6 to the Vanguard account a week later, with no prompting.
- Right now, we’re waiting to see the $6 posted to the Vanguard account.
Keep good notes as you go along.