If I transfer my Vanguard inherited rollover traditional IRA funds to another broker, do I have to payoff the remaining RMD total first? If not, will the new account have its own RMD?
[quote=“soldieradvocate, post:1, topic:4324, full:true”]
If I transfer my Vanguard inherited rollover traditional IRA funds to another broker, do I have to payoff the remaining RMD total first? If not, will the new account have its own RMD?[/quote]
If you do a TRANSFER (not a withdrawal of funds), then the only thing that will change is who manages the fund and how much do they charge for that? One question is “Why do you want to move the free money?” Vanguard is near the the low-cost leader in mutual funds, so why would you spend time and effort to move your inherited free money? It makes no sense.
If you do withdraw the funds from the traditional inherited IRA, you will have to pay the tax due on whatever amount you withdraw, whether it is 5% or 100% of the remaining amount. Of course, if you do a silly transfer, your new account with a new, probably higher-cost, broker will be treated the same as your old account, with a Required Minimum Distribution each year, that, by tax law, grows larger at a faster rate every year.
There are two easy ways to eliminate those RMDs. One is to withdraw ALL of the money and pay ALL of the income tax in one large hunk. The other is to convert the money to a Roth IRA over a period of years so that the tax each year is not too much to bear. There are a few other ways. One is to die early, Then you won’t have to worry about it any more.
Yes. RMDs ar not eligible for rollover; the first dollarrs out of an IRA are considered to be the RMD.
I appreciate your detailed response. I personally would have left the money in Vanguard for the reasons you gave. However, young family members tend to act first then ask for information later… Very frustrating but I value this site so at least I can be educated.
There is no reason that young family members can not make a second transfer to a better fund. Transfers are generally free, but RMDs always cost tax money, regardless of which fund your family members are in. They will only have to make one RMD per year, regardless of how many transfers between investment companies. For an Inherited IRA, the fund must be emptied out in 10 years. The hard choice is between pulling it all out soon and ending the nice tax-deferred growth, or to wait until the last year to pull out any money other than the annual RMDs.
Many people ASSUME that they have to put all their investment money into one big basket. I have found that to be false, and also dangerous. One money basket can lead to one big catastrophe (like Bernie Madoff) that leads to a wipe-out. This is the computer age, not the paper & pencil age. Three accounts in different companies can be managed with little more computer time than one.
Yes you can transfer the inherited IRA to another brokerage, tax-free, as long as you take the RMD from one or the other sometime this year. You’ll probably want to contact the company you want to transfer TO first because they’ll be more eager to get your money over to them than Vanguard will want to let go of it. You’ll have to choose a fund/funds to put it in at the new place, and make sure you mention inherited IRA and that the title of the new account says that.
Can’t do that with an inherited IRA.
What other brokers are low fees like Vanguard? Also, what funds are hands off like Target Retirement Funds?
I think you can convert an Inherited IRA if you are the spousal beneficiary, under the new Secure Act rules. Other beneficiaries can take up to 10 years to withdraw the money and pay taxes on it.
Fidelity and Schwab are good choices. But target-date retirement funds are not necessarily “hands off”. You can sell shares in those at any time. What target-date funds do is invest your money based on your target-date age. At younger ages, a large percentage goes into stock funds. As you get older, money is shifted into some bonds or bond funds. After retirement, a large percentage is in bonds and fixed income investments (60 to 80% or more). If that matches your personal goals, then target funds are for you (or your relatives.) For me, I like to do my own asset allocation between the various categories based on my own situation. If you don’t want to do that, then target-date funds may be a wise choice. To prevent having too much in bonds, I recommend a target date about 10 to 15 years lower than your retirement age.