re: Inheritance what to do

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tigerrocket

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Thanks. This is what I needed answered. I figured my assumptions were correct, but am far from an expert.

Changed my mind on maxing out my 401k and Roth. I will continue to contribute up to company match. Then going to go with high dividend mutual fund or municiple bonds. I want low risk and if possible high reward but will take low reward. Just don't want to lose a lot. I have $150k tied up in my mom's ira that she left us and $60k between my 401k and Roth. Can touch that conceivably for another 19 years. Would rather pay my house off and invest the rest. Also will put into it since I won't have the mortgage note.

Agreed. Just want the piece of mind knowing I own my own home. Something to be said about that.

I am going to be selling it soon, so doesn't make sense. Gonna find a similar place, so hoping lateral move but will get a better rate than now.

Considered renting but most of the people I know dislike it when they did it.

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Then save the rest in a low risk investment, i.e. CD's

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Over the next 20 yrs a well diversified growth objective will probably avg better than 4.75%/yr.

I would continue with the investments as long as they were quality. The stepped up cost basis would allow you to rebalance and make some slight changes and limit tax consequences.

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Question is if I want to take all the money out, other than ordinary income tax would I have to pay a penalty as well?

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No penalty, could put you in a higher tax bracket. I would focus on the mix of assets in the inherited IRA and ensure they make sense to provide long term growth to support the increasing $ amount of future mandated withdrawals, if you are concerned about fluctuations in value keep enough $ in low volatility holdings in the IRA to meet your withdrawal requirements the next 1-3 years. You don't want it all in something ultra conservative or you will short change yourself.

With your step up basis on assets from your grandmother it would not be much of a tax hit to sell and seek more diversified investments than just a few stock holdings. You mention muni's, you are an accountant, study your tax returns and determine whether muni's are a proper fit for your marginal tax rate, they may not. If you choose something that generates dividends in a taxable account you want to check the amount of qualified dividends it throws off, and you want a high % of QDI as it could be tax free to you depending on your income level/marginal rate. Something like this would be SCHD, which is a high quality ETF that had 100% QDI in 2014 and has a very low expense ratio, 7 basis points. Not recommending you buy it, just giving an example.

IRS: "Qualified Dividends

Qualified dividends are the ordinary dividends subject to the same 0%, 15%, or 20% maximum tax rate that applies to net capital gain. They should be shown in box 1b of the Form 1099-DIV you receive.

The maximum rate of tax on qualified dividends is:

0% on any amount that otherwise would be taxed at a 10% or 15% rate.

15% on any amount that otherwise would be taxed at rates greater than 15% but less than 39.6%.

20% on any amount that otherwise would be taxed at a 39.6% rate.

To qualify for the maximum rate, all of the following requirements must be met.

The dividends must have been paid by a U.S. corporation or a qualified foreign corporation. (See Qualified foreign corporation , later.)

The dividends are not of the type listed later under Dividends that are not qualified dividends .

You meet the holding period (discussed next)."



If I were selling my house in the next 6 months I would not pay off the mortgage, something may come up and you may be tapped out of cash. I have been around the block a few times, money passed on to you should be well stewarded, but not overly conservative, as you may have 40+ years ahead of you and want to beat inflation and taxes.