What AA glidepath to use for acct that will empty over next 4 years?

[UpQuark]

I have an inherited IRA (inherited under the old rules) that I want to empty over the next 4 years. It currently has an 80/20 AA.

I'm planning to take out 1/4 of it next year, then 1/3 the following year, then 1/2 the subsequent year, and will withdraw all the remaining money the fourth year.

Should I follow some sort of glidepath or just leave it as it currently is? Or should I change to 100% cash/bonds now?

 

[Luvtoride]

Are you relying on the money to live on? If not, then any way you see fit to invest it would work. Maybe a CD ladder if you are counting on the funds to cover specific spending needs.

 

[Exchme]

Tax efficient asset location may be helpful here as you can generally reduce your taxes by putting the slower growing asset (usually bonds) into your tax deferred accounts and put your stocks in taxable and Roth.

 

[FREE866]

Do you need the money for expenses? If not you can transfer in kind the securities into a taxable brokerage account and keep the money invested. As far as the AA allocation it all comes back to your investment time horizon for the money. That , and your own tolerance for volatility.

 

[FlaGator]

I see this as an asset preservation vs. market risk decision.

As others have said, you could match these funds to your AA, or do something more conservative depending on your near-term use for the funds.

A key factor for me would be the taxes due at distribution. If you need to manage income for ACA or Medicare, consider locking in what you by selling and buying T-bills/notes/CDs that will give you reasonable numbers to plan around. Maintaining the 80/20 introduces upside/downside market risk. That's good if you can tolerate it, don't need the money, or could extend the distribution period. Not so good if otherwise.

 

[ut2sua]

I have an inherited IRA (inherited under the old rules) that I want to empty over the next 4 years. It currently has an 80/20 AA.

I'm planning to take out 1/4 of it next year, then 1/3 the following year, then 1/2 the subsequent year, and will withdraw all the remaining money the fourth year.

Should I follow some sort of glidepath or just leave it as it currently is? Or should I change to 100% cash/bonds now?

The market may go up or down or side way in any of the next 4 years. You can't control that. And anyone who said they know is lying to you. What you can control is what you need/want to have. Do you want the amount to be the same? This is easy, fixed income will do. Do you want/hope the amount to increase? Then you need to take risk (or be OK with taking loss). This will be harder. You will need to allocate some $ to equity. The more equity, the more potential gain (and more potential loss). These are basically your choices from a high level. Good luck

 

[mrfeh]

I have an inherited IRA (inherited under the old rules) that I want to empty over the next 4 years. It currently has an 80/20 AA.

I'm planning to take out 1/4 of it next year, then 1/3 the following year, then 1/2 the subsequent year, and will withdraw all the remaining money the fourth year.

Should I follow some sort of glidepath or just leave it as it currently is? Or should I change to 100% cash/bonds now?

Not enough info...what percentage of your overall portfolio is this account? Will you use the withdrawals for expenses?

The AA of your entire portfolio is what is important, not any one account. That being said, a TIRA should hold fixed income (in most cases). Without knowing the answers to above questions, I'd have it all in T Bills or CDs.

 

[UpQuark]

Wow, thanks for all the responses. Although I had been hoping for a strong consensus to "do 'xyz' " so that I would not have to do any thinking/make any decisions on my own, it is very valuable to have the different perspectives about it.

I didn't know I could transfer in-kind to my taxable account, it had been set up to automatically pull the appropriate RMD amount each year, and it looked like the Fidelity auto-process changed a portion of the shares to cash and put the cash into my taxable core position, so I thought that was the way it had to be done.

I had assumed I would be spending the money (because I'm retired and I thought it would have to be withdrawn as cash, and since it would be taxed as income it seemed logical to use it as income), but the 'in-kind' option would make it less risky to leave a bunch in equities because I could avoid selling in a down market by doing the withdrawal in-kind and instead use cash/bonds from the taxable for that year(s) spending money.

Never occurred to me to use the inherited IRA to house bonds to adjust overall portfolio AA, but now that you guys have put that in my head I'm thinking that might be a good plan. I'm not sure how far off my target AA I am but since equities keep going up this year, it is probably time to shift a bit more into bonds.

So now it looks like my plan will be to modify the AA in the inherited IRA to be somewhat more conservative, then I'll empty the account over the four years with proportional selling of equities and bonds (and spend the money as income). But if the market is down I'll move equities in-kind to the taxable account while using some of the bonds to cover the taxes. Yay, I got a plan, thank you all!!

 

[mrfeh]

You cant move holdings in kind from a tIRA to a brokerage account. Anything you withdraw from the tIRA will be treated as regular income.

 

[FREE866]

You cant move holdings in kind from a tIRA to a brokerage account. Anything you withdraw from the tIRA will be treated as regular income.

Yes you can move securities in kind from an IRA into a brokerage account. Yes, it is a taxable event it will be treated as ordinary income though

 

[mrfeh]

Yes you can move securities in kind from an IRA into a brokerage account. Yes, it is a taxable event it will be treated as ordinary income though

Well, I don't know what the official definition of "in kind" is, but when I see that term, I think transfer from one account to another with no tax consequences, which wouldn't be the case here.

 

[UpQuark]

I didn't see the option in the user choices on Fidelity and their help page says if you don't need your RMD you can withdraw it and then "re-invest" it (i.e., the help page leaves out the option of withdrawing in-kind), but I called them just now and they said yes they can do the withdrawal in-kind. So I guess it is one of those things that are possible but require them to do it.

Sadly (or I guess wonderfully) my AA has drifted so much I'll need to put almost all (87%) of the inherited IRA into bonds if I want to use that account to adjust the overall portfolio AA. Seems a pity, I need to keep reminding myself I've switched to decumulation phase.

 

[FREE866]

Well, I don't know what the official definition of "in kind" is, but when I see that term, I think transfer from one account to another with no tax consequences, which wouldn't be the case here.

“ in kind” is simply transferring the securities but yes there is tax consequences. I do Roth conversions every year using this method.

 

[RetiredHappy]

Yes you can move securities in kind from an IRA into a brokerage account. Yes, it is a taxable event it will be treated as ordinary income though

Will the brokerage firm automatically adjust the cost basis to the day of transfer inside the brokerage account?

 

[FREE866]

Will the brokerage firm automatically adjust the cost basis to the day of transfer inside the brokerage account?

Good question. That I do not know. Given my securities I transfer in kind from IRA go into a Roth cost basis is irrelevant. Maybe ask the brokerage firm?

 

[RetiredHappy]

Good question. That I do not know. Given my securities I transfer in kind from IRA go into a Roth cost basis is irrelevant. Maybe ask the brokerage firm?

Which is why I think the brokerage firm may just sell the positions and deposit cash into the brokerage account, if they don't want to deal with resetting of the cost basis.

 

[mrfeh]

Will the brokerage firm automatically adjust the cost basis to the day of transfer inside the brokerage account?

I don't see how they couldn't. We might view such a transfer and just moving a security from one account to another, but technically it has to be a concurrent sell and buy.