What to do with inheritance? (Favorite tax-efficient funds?)

[finnime]

Good strategy, lurkyloo. It should keep it easier to manage than alternatives, too.

[Rukh O'Rorke]

Jun 20, 2023 5:56:25 GMT -5 lurkyloo said:

Jun 11, 2023 13:22:28 GMT -5 Rukh O'Rorke said:

minnesotapaintlady for YM president!

Seconded!

I signed the paperwork last Monday to generate the beneficiary IRA. She thought it would take about 10 business days to get it up and running. At that point I can initiate the rollover to Fidelity. I’m not 100% sure if I should do the RMD based on 10% of 1/3 of the value on Dec 31 2022 or on the opening balance, but I don’t think they’ll be too different. Current plan is to just take the RMD this year then the next couple of years I’ll have more space in the 35% bracket and estimate a withdrawal up to the edge of the 37% tax bracket. Still trying to find a CPA that will actually call me back on the strategy.

Planning to basically put the IRA in a money market to limit additional pretax growth, which creates an additional incentive to get the money out so I can put it to work.

 There’s been progress on the real estate there; I have the deed for 2 of the 3 pieces. Just heard from the finance guy yesterday about the proposed initial distribution, which is to bring the three of us to equal footing based on the assessed value of the RE.  I’m slated to get about 32K in CEF (gold and silver fund, slight gain) and 120K in ICAFX which has a slight loss.  They are trying to keep the distributions tax neutral where possible.  Unfortunately it sounds like there are bonds in the remaining part which will be tricky to split up fairly.

are you taking other monies out of safeties and putting those into stocks to compensate? I'm confused as to how this fits in with your asset allocation and overall strategy. 

[lurkyloo]

Jun 20, 2023 18:54:46 GMT -5 Rukh O'Rorke said:

Jun 20, 2023 5:56:25 GMT -5 lurkyloo said:

Seconded!

I signed the paperwork last Monday to generate the beneficiary IRA. She thought it would take about 10 business days to get it up and running. At that point I can initiate the rollover to Fidelity. I’m not 100% sure if I should do the RMD based on 10% of 1/3 of the value on Dec 31 2022 or on the opening balance, but I don’t think they’ll be too different. Current plan is to just take the RMD this year then the next couple of years I’ll have more space in the 35% bracket and estimate a withdrawal up to the edge of the 37% tax bracket. Still trying to find a CPA that will actually call me back on the strategy.

Planning to basically put the IRA in a money market to limit additional pretax growth, which creates an additional incentive to get the money out so I can put it to work.

 There’s been progress on the real estate there; I have the deed for 2 of the 3 pieces. Just heard from the finance guy yesterday about the proposed initial distribution, which is to bring the three of us to equal footing based on the assessed value of the RE.  I’m slated to get about 32K in CEF (gold and silver fund, slight gain) and 120K in ICAFX which has a slight loss.  They are trying to keep the distributions tax neutral where possible.  Unfortunately it sounds like there are bonds in the remaining part which will be tricky to split up fairly.

are you taking other monies out of safeties and putting those into stocks to compensate? I'm confused as to how this fits in with your asset allocation and overall strategy. 

No.  I’m already a little too heavy in stocks, 90% or more I think depending on the day, and had thought of moving equities to a bond fund in my 401k.  When the dust settles I expect this would put me temporarily around 70% stocks which is fine.  I’ll reinvest some of the distributions which will bring the stocks ratio back up and basically half the value will go poof to taxes anyway   but will also spend some e.g. maintenance and HOA on the FL condo, donations (will formally donate appreciated stock and replace it with a less annoying fund).  Also plotting to splurge on laser hair removal before my leg hair goes entirely white 

[Rukh O'Rorke]

Jun 20, 2023 21:54:28 GMT -5 lurkyloo said:

Jun 20, 2023 18:54:46 GMT -5 Rukh O'Rorke said:

are you taking other monies out of safeties and putting those into stocks to compensate? I'm confused as to how this fits in with your asset allocation and overall strategy. 

No.  I’m already a little too heavy in stocks, 90% or more I think depending on the day, and had thought of moving equities to a bond fund in my 401k.  When the dust settles I expect this would put me temporarily around 70% stocks which is fine.  I’ll reinvest some of the distributions which will bring the stocks ratio back up and basically half the value will go poof to taxes anyway   but will also spend some e.g. maintenance and HOA on the FL condo, donations (will formally donate appreciated stock and replace it with a less annoying fund).  Also plotting to splurge on laser hair removal before my leg hair goes entirely white 

I think it makes sense if you are seeing it as part of a planned change to AA.....but if it is just to avoid taxes on gains - I'd think that piece through a little bit. 

Even at the highest tax rates - you still get to keep some of the gains  . And conversely - if the ultimate goal is to have more equities, a temporary dip in the market could bring lower taxes at some points in your distirbution of this. And if not, then you've definitely won the game!

Then the other piece is figuring out what your perma or final AA will be, which is tough. At least I'm finding it so! I've been pretty much 100% stocks 100% of the time, but after getting close to thinking I could quit at the market peak, and then having my NW plummet severely gave me some real pause. I still haven't figure it out yet! But getting closer I think! I do think I'd have an easier time if I had more money, lol . I need to be a little more cautious than I originally thought I needed to be.....

so definitely have this account keep your low risk/cash type investments - but I wouldn't inflate that percentage just to avoid taxes on potential gains. That would be like cutting off your nose to spite your face.

[lurkyloo]

 I’m currently at about 95% equities in my own non-RE holdings and would prefer 80/20. If the inheritance didn’t exist I would probably be looking to move at least 10-15% more into bonds. 70% stock is a temporary overshoot on safe money but I’m okay with it if I’m planning to frontload the withdrawals in the 2nd and 3rd years (and invest some/most of the withdrawals).  Definitely okay with having the “safe” stuff in tax deferred accounts, and MM rates are around 5% rn.  If plans change, money market yields go down a lot and/or stocks go on sale I’ll consider changing the allocation appropriately.  It’s also possible I’ll feel more motivated to do something more ambitious once I get my to-do list down to a manageable level.  

Again, privileged position.  I expect to have some breathing room and not need to squeeze every bit of performance out.

Still haven’t managed to track down a CPA    Not sure I’ll have the bandwidth to do it before the trip next Friday either. Work yesterday was interesting and fun but also long and kinda draining for this introvert...still have to get something notarized and deal with the f*****ng mva again, plus dental work Fri, hosting friend and kids Sat.  And packing!

Interestingly, there’s a current thread over on Bogleheads asking about asset allocation for an inherited ira with a 7-8 year withdrawal time frame and getting told to just leave it in a treasury ladder. 

[lurkyloo]

I talked to a CPA today!  One called me back.  She was leaning toward draining the IRA sooner than later and just taking the tax hit all at once-will consider that for 2024 or 2025.  Also recommended doing the charitable donation in 2023 (high tax year). But she did have a good tip, which is that since we’re just under the itemized deduction being better than standard, we should go ahead and itemize bc it will save us a lot more on state taxes.  Also warned to maintain the original documents on DH’s stock bonuses and look for the supplemental statements.

I will consider calling her back to make arrangements if I decide I want to upload all our information and run various tax scenarios…but first I’m going to play around with a retirement calculator I downloaded, and turbo tax    Anyway, I feel better.

Progress on the distribution front:  the beneficiary IRA and an initial post-tax distribution of about 150K should be accessible late this week or early next.  Once I have the account numbers I can initiate the rollover to Fidelity. I should bug them for the IRA account balance as of Dec 31, since I presume 1/3 of that will be the RMD.

I am however considering putting 10% or so of the bIRA in VTI or similar, thanks to our own rukh 

[wvugurl26]

Sounds like she gave good advice. I definitely second itemizing if you are anywhere close. I think I left $2500 on the table versus standard and we still came out $700 ahead with itemizing. I don't understand why the state is like that. My boss has a side tax practice and told me to do it.

[lurkyloo]

I am hoping they get rid of the 10K cap on SALT in 2026 and don’t reinstate it, because without the cap us itemizing is a no brainer.  It doesn’t get much more fun than paying taxes on money that went to pay taxes    Yes, looks like it’d take our MD tax bill down 2K as well.

[minnesotapaintlady]

Jul 12, 2023 16:49:00 GMT -5 lurkyloo said:

I am hoping they get rid of the 10K cap on SALT in 2026 and don’t reinstate it, because without the cap us itemizing is a no brainer.  It doesn’t get much more fun than paying taxes on money that went to pay taxes    Yes, looks like it’d take our MD tax bill down 2K as well.

Especially if the standard deduction gets reverts to half the current amount also.

[lurkyloo]

Jul 12, 2023 17:58:04 GMT -5 minnesotapaintlady said:

Jul 12, 2023 16:49:00 GMT -5 lurkyloo said:

I am hoping they get rid of the 10K cap on SALT in 2026 and don’t reinstate it, because without the cap us itemizing is a no brainer.  It doesn’t get much more fun than paying taxes on money that went to pay taxes    Yes, looks like it’d take our MD tax bill down 2K as well.

Especially if the standard deduction gets reverts to half the current amount also.

Even without that…   Just looked at the totals owed for our 2022 returns and really wish I hadn’t. 
I guess AMT returning will dampen the deductions some.  And our base state tax (pre-IRA) will go down some after 2023 bc it was just the two years of ridiculous stock bonuses.

[minnesotapaintlady]

Jul 13, 2023 10:42:59 GMT -5 lurkyloo said:

Jul 12, 2023 17:58:04 GMT -5 minnesotapaintlady said:

Especially if the standard deduction gets reverts to half the current amount also.

Even without that…   Just looked at the totals owed for our 2022 returns and really wish I hadn’t. 
I guess AMT returning will dampen the deductions some.  And our base state tax (pre-IRA) will go down some after 2023 bc it was just the two years of ridiculous stock bonuses.

No real knowing how it will be in 2026.  Some or all of the provisions could be made permanent instead of sunsetting or maybe they gut the whole thing and it's all completely different than what it was in 2017 or 2023.    I've got so much going on in the next few years tax-wise with kids aging out of stuff, financial aid window for youngest opening and myself maybe retiring that the looming changes make planning just all that much more complicated.  

[Rukh O'Rorke]

Jul 12, 2023 17:58:04 GMT -5 minnesotapaintlady said:

Jul 12, 2023 16:49:00 GMT -5 lurkyloo said:

I am hoping they get rid of the 10K cap on SALT in 2026 and don’t reinstate it, because without the cap us itemizing is a no brainer.  It doesn’t get much more fun than paying taxes on money that went to pay taxes    Yes, looks like it’d take our MD tax bill down 2K as well.

Especially if the standard deduction gets reverts to half the current amount also.

wait....what's happening??

[minnesotapaintlady]

Jul 15, 2023 11:38:18 GMT -5 Rukh O'Rorke said:

Jul 12, 2023 17:58:04 GMT -5 minnesotapaintlady said:

Especially if the standard deduction gets reverts to half the current amount also.

wait....what's happening??

The 2017 tax law changes that are currently set to sunset after 2025 tax year.

thomaskopelman.com/2023/05/tax-changes-if-trump-provisions-sunset-2026/

[Rukh O'Rorke]

Jul 15, 2023 12:07:05 GMT -5 minnesotapaintlady said:

Jul 15, 2023 11:38:18 GMT -5 Rukh O'Rorke said:

wait....what's happening??

The 2017 tax law changes that are currently set to sunset after 2025 tax year.

thomaskopelman.com/2023/05/tax-changes-if-trump-provisions-sunset-2026/

yikes!

wow - this plus student loan payments coming back will be a real change for me.....like, I don't know how I'll make it, lol!

Have been toying with backing down on the 401k maxing to have a little fun,    , but I might have to do it just to keep on where I'm at.  .

Very unpleasant!

I know alot of people made very lucrative job jumps the past 3-4 years. For those of us who didn't, and never got raises in line with inflation, this is going to hurt.

[minnesotapaintlady]

Jul 15, 2023 13:09:28 GMT -5 Rukh O'Rorke said:

Jul 15, 2023 12:07:05 GMT -5 minnesotapaintlady said:

The 2017 tax law changes that are currently set to sunset after 2025 tax year.

thomaskopelman.com/2023/05/tax-changes-if-trump-provisions-sunset-2026/

yikes!

wow - this plus student loan payments coming back will be a real change for me.....like, I don't know how I'll make it, lol!

Have been toying with backing down on the 401k maxing to have a little fun,    , but I might have to do it just to keep on where I'm at.  .

Very unpleasant!

I know alot of people made very lucrative job jumps the past 3-4 years. For those of us who didn't, and never got raises in line with inflation, this is going to hurt.

You're probably another one that would benefit from removing the SALT limit and going back to itemizing, no?

[Rukh O'Rorke]

Jul 15, 2023 14:41:14 GMT -5 minnesotapaintlady said:

Jul 15, 2023 13:09:28 GMT -5 Rukh O'Rorke said:

yikes!

wow - this plus student loan payments coming back will be a real change for me.....like, I don't know how I'll make it, lol!

Have been toying with backing down on the 401k maxing to have a little fun,    , but I might have to do it just to keep on where I'm at.  .

Very unpleasant!

I know alot of people made very lucrative job jumps the past 3-4 years. For those of us who didn't, and never got raises in line with inflation, this is going to hurt.

You're probably another one that would benefit from removing the SALT limit and going back to itemizing, no?

does that include property tax? Looks like my state income taxes were over 7k in 2022, property tax was about 11k I think.

[minnesotapaintlady]

Jul 15, 2023 16:02:32 GMT -5 Rukh O'Rorke said:

Jul 15, 2023 14:41:14 GMT -5 minnesotapaintlady said:

You're probably another one that would benefit from removing the SALT limit and going back to itemizing, no?

does that include property tax? Looks like my state income taxes were over 7k in 2022, property tax was about 11k I think.

Yes, so 18K vs 14K (or 7K if it reverts) plus you could itemize mortgage interest and charitable contributions (student loan interest too?)

[Rukh O'Rorke]

Jul 15, 2023 16:34:26 GMT -5 minnesotapaintlady said:

Jul 15, 2023 16:02:32 GMT -5 Rukh O'Rorke said:

does that include property tax? Looks like my state income taxes were over 7k in 2022, property tax was about 11k I think.

Yes, so 18K vs 14K (or 7K if it reverts) plus you could itemize mortgage interest and charitable contributions (student loan interest too?)

i guess that might even things out a bit...guess will have to see how it works out....

[haapai]

Eh?  What are you two talking about?  The student loan interest deduction was always before the line.  It was not an itemized deduction.  There's also a phase-out (based on modified AGI) that never touched me but really reduces the value of the deduction if you make decent money.  The last time that I tried to understand the phase out was over 10 years ago and it seemed to begin just when you got out of the 15% Federal income tax bracket and the credit appeared to completely phase out once you left the 25% bracket. 

Definitely check out the credit instead of my decade-old memories.  But just don't entertain the thought that this is itemizable. 

[tallguy]

Jul 16, 2023 13:19:29 GMT -5 haapai said:

Eh?  What are you two talking about?  The student loan interest deduction was always before the line.  It was not an itemized deduction.  There's also a phase-out (based on modified AGI) that never touched me but really reduces the value of the deduction if you make decent money.  The last time that I tried to understand the phase out was over 10 years ago and it seemed to begin just when you got out of the 15% Federal income tax bracket and the credit appeared to completely phase out once you left the 25% bracket. 

Definitely check out the credit instead of my decade-old memories.  But just don't entertain the thought that this is itemizable. 

If you are referring to the last few posts, they are talking about SALT (State And Local Taxes) which has nothing to do with student loan interest.  In the Trump tax cut plan, Republicans tried to stick it to those in HCOL areas (mostly Democratic states along the coasts) by limiting the deduction for state and local taxes to $10,000.  My recollection is that you could deduct both your property tax and either your state income or sales tax.  Many people in more expensive areas were hurt by the limit.   

[minnesotapaintlady]

Jul 16, 2023 13:19:29 GMT -5 haapai said:

Eh?  What are you two talking about?  The student loan interest deduction was always before the line.  It was not an itemized deduction.  There's also a phase-out (based on modified AGI) that never touched me but really reduces the value of the deduction if you make decent money.  The last time that I tried to understand the phase out was over 10 years ago and it seemed to begin just when you got out of the 15% Federal income tax bracket and the credit appeared to completely phase out once you left the 25% bracket. 

Definitely check out the credit instead of my decade-old memories.  But just don't entertain the thought that this is itemizable. 

Yes, the point of my post was discussing how eliminating the SALT limit would benefit Rukh.  I wasn't sure if student loan interest was deductible or not or if she qualified to do so which is why I put it in parenthesis with a ?.  Taking a look at the IRS pub 970 it is unlikely she is, so not relevant anyhow.  There is no tax credit for student loan interest, just the deduction (with a max of $2500 allowed).

[lurkyloo]

The Pease reduction for high income deductions is also currently in abeyance and will/may come back in 2026.  This year is definitely one for major charitable donations if I’m going to do them.

I also saw this weekend on bogleheads that they are extending the grace period on enforcement of the RMD for inherited IRAs for 2023- i.e. I could wait until January to take my first distribution.  I’m not sure whether that makes sense.  I’m inclined to go ahead with taking a distribution although I might reduce the size a bit.  I think the goal is to reduce the IRA size to be able to stay in the 35% tax bracket for 2026 and beyond; ideally to stay in the 15% capital gains bracket as well…although as MPL notes it’d be great to have some clarity as to WTE the tax code will look like in 2026 

[lurkyloo]

Just got the invitation to activate my online account with Dad’s brokerage.  I will look at that tonight. 

[lurkyloo]

Looking at it now, and kind of sad.  911k in the ira, including a couple of stocks that DH or I would have to disclose if I held on to them.  156K in the taxable so far.  I am mildly annoyed that it includes about 4K of capital gains, 1.3K just today .  Might hold off a bit to see if the market would like to oblige me and deflate a hair before I transfer that.  There will be more coming anyway so I can’t close the account altogether till the disbursement is complete.

[Rukh O'Rorke]

Good luck with however it turn out!!

[Rukh O'Rorke]

Jul 16, 2023 20:58:22 GMT -5 minnesotapaintlady said:

Jul 16, 2023 13:19:29 GMT -5 haapai said:

Eh?  What are you two talking about?  The student loan interest deduction was always before the line.  It was not an itemized deduction.  There's also a phase-out (based on modified AGI) that never touched me but really reduces the value of the deduction if you make decent money.  The last time that I tried to understand the phase out was over 10 years ago and it seemed to begin just when you got out of the 15% Federal income tax bracket and the credit appeared to completely phase out once you left the 25% bracket. 

Definitely check out the credit instead of my decade-old memories.  But just don't entertain the thought that this is itemizable. 

Yes, the point of my post was discussing how eliminating the SALT limit would benefit Rukh.  I wasn't sure if student loan interest was deductible or not or if she qualified to do so which is why I put it in parenthesis with a ?.  Taking a look at the IRS pub 970 it is unlikely she is, so not relevant anyhow.  There is no tax credit for student loan interest, just the deduction (with a max of $2500 allowed).

well then there is this being floated.....


www.msn.com/en-us/money/taxes/how-a-chicago-income-tax-could-solve-the-city-s-revenue-problem-without-touching-property-taxes/ar-AA1ecOWr?ocid=hpmsn&cvid=76b28f354f264365a341e3bc38981c50&ei=27


trying to catch up for lost time financially - but they are after me, lol!

Hope this doesn't go through....but seems they will get me one way or another.....

[lurkyloo]

Submitted the beneficiary IRA transfer request from RJ to Fidelity.  RJ is also mailing a check for DS’ bequest, so I will toddle over to the physical office when that arrives.  And, car registration is finalized.

Still a lot of moving parts-even the transfer is supposed to take a couple of weeks.  Progress, though. 

[Deleted]

Jul 27, 2023 12:40:19 GMT -5 lurkyloo said:

Submitted the beneficiary IRA transfer request from RJ to Fidelity.  RJ is also mailing a check for DS’ bequest, so I will toddle over to the physical office when that arrives.  And, car registration is finalized.

Still a lot of moving parts-even the transfer is supposed to take a couple of weeks.  Progress, though. 

That's a lot of progress - I know the IRA thing has been hanging over you for a bit.  

[lurkyloo]

Jul 27, 2023 14:54:42 GMT -5 soupandstew said:

Jul 27, 2023 12:40:19 GMT -5 lurkyloo said:

Submitted the beneficiary IRA transfer request from RJ to Fidelity.  RJ is also mailing a check for DS’ bequest, so I will toddle over to the physical office when that arrives.  And, car registration is finalized.

Still a lot of moving parts-even the transfer is supposed to take a couple of weeks.  Progress, though. 

That's a lot of progress - I know the IRA thing has been hanging over you for a bit.  

It’s a mental block.  I have Dad’s car, the family farmland, the carved bedroom set my great-great grandparents bought for my great-grandparents, the Swiss army knife he used to clean his pipe, a million other remembrances.  It shouldn’t be this hard; asset allocation for an 80yo is not the same as for mid-40s and some of the stocks could be mildly problematic for me or DH in terms of disclosing them at work.  Still.  I was perfectly happy not having the responsibility.    Then I justify procrastinating with super weak reasons. 
I appreciate the support 

[snapdragon]

I so completely understand and symphonize lurkyloo.



It's very difficult to mentally wrap your head around sometimes. I am on year 3 of my adventure.