Investment advice?

I have a fair amount parked in Vanguard Target Retirement Funds. I’m retired and plan to leave it there for my adult kids as an inheritance. I also have some in savings which is making minimum interest with Chase. Im just going to leave Vanguard alone and hope it recovers. What’s the best investment for the cash? Treasury Bills or Savings accounts or CDs? Which has the highest investment rate of return? Ill keep a slush fund and maybe invest the rest or should I just leave it in savings?

A mixture of Treasury bills and Inflation bonds might work. The I bonds have deferred taxation up to 30 years whereas the Treasury bills mature and create a taxable event for that year. There are no state taxes on Treasury bills and I believe likewise for I bonds.

What is the time horizon for your cash ? That would help dictate how much risk you can take on…

10 years? Just want to leave it to my kids.

If it were me with that timeframe I would put it in the market. The rolling 10-year return of the S&P500 is positive over 96% of the time and we just came off a 20% down year. In addition, we are near the top of the rising interest rate cycle. You could even DCA into the index over the next year to further hedge your bet. Just some food for thought…

Some links for reference:

How about gifting some of it over the next 10 years, and let them invest it?


With 10 years to spare, I’d go with @butler’s advice. You’ll probably get a much better return in the market than anywhere else.

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If the account is an IRA or 401k, you will be required to take distributions at some point (based on your age)

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If the account is an IRA or 401k, you will be required to take distributions at some point (based on your age)

Plus, I say this as someone who inherited 401k/IRA money – your kids will be paying the taxes on it and they must do it within 10 years of inheriting. I’m not complaining- I inherited some money- but it does mess with my tax bracket, etc. It’s also fair, because my dad didn’t pay taxes on the money left in the account, ever. He got the tax breaks, but now I’m paying the taxes!! It has made me think about how to leave IRA money to my family members, knowing they get the tax headaches.

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Well, if you leave Roth IRA money then there are no tax consequences. Obviously, your Dad did not have that option when he started saving, but you do.

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Yes, that’s what I was getting at – people want to leave all of their money in regular IRAs or 401k plans, thinking only about their own tax burden, and they don’t consider that they are inflicting on their heirs, who must withdraw and pay all taxes within 10 years.

So I’ll have the taxes paid on my inheritance probably in a few years, because then I want to start looking at moving IRA/403b money. I don’t have tons of money, but I don’t want to saddle my heirs with tax headaches either.

I have noticed this attitude of people afraid to take out more than the RMD from IRAs because taxes!!! But they got the tax breaks for years, decades even, and should be in a lower tax bracket in retirement. They act like they are losing their money forever, which is not true at all - they can continue to invest and earn money. They aren’t losing money, they are just paying up on the tax break they had for years.

I wish there were a way to resolve the tax issue upon the person’s death, rather than inflicting it on the heirs. Why shouldn’t the person who got the tax benefit then pay the taxes when their estate is settled?

It’s probably less likely to have a higher tax bracket to pay the taxes over 10 years though this depends on the tax rate of the deceased vs the tax rates of the inheritance recipient(s) over the 10 years.

I don’t know if the executor of the estate has the option to cash out the IRAs while the property of the estate and distribute the proceeds or if recipients must receive the IRA proceeds.

I like a 70/30 allocation if your plan is 10 years. You could further consider a spendthrift trust.

Sounds reasonable to me…convert any pre-tax money into post-tax at the time of death as part of the estate and pay the taxes out of the estate. The problem is that estates pay a very high tax rate if I understand the tax code (which I am not an expert in this area). So unless we change that…its probably better for the inherited IRA taxes to be spread out over time at a lower rate.

Personally I am not a fan of the estate tax anyway, but that’s a whole other discussion.

My understanding is that “estate tax” kicks in a something like $11 million, far beyond most regular folks. My dad didn’t really have an “estate” at the end (house sold, etc, in nursing home). He had Vanguard $$ (direct to beneficiaries) and a checking account. But we still had to file his personal income tax (income from SS, pension, interest, cap gains, etc). I don’t think that everyone who passes pays a federal “estate tax” (states may vary?) His was a regular annual income tax filing for the year of his death, both federal and state.

Like I said, I inherited some $$, but now I have to account for it as I withdraw it within 10 years.
It makes me think twice about what I pass on to any heirs – I’d like them to have $$, but not a tax issue!! (note- Roth is tax-free, but counts for income in things like medicare premiums, if heirs are of that age. Not sure about other ages’ issues for Roth–financial aid for example?)

Some state tax inheritance; many don’t. It seems that federal taxing the IRA at the decedant’s tax bracket rate before passing the inheritance on as non-taxed inheritance, or into a Roth for the inheritor might be a reasonable choice.

That’s been my thinking – the whole point was to delay paying taxes until retirement/lower tax bracket. But then heirs who inherit are not necessarily in that lower tax bracket. And though they have 10 years to withdraw the IRA money, it becomes a tax issue to consider for 10 years!

I think that retired people should consider withdrawing more than the RMD. It’s not like they’re losing money – it’s just paying the taxes due, then they can invest in some safe or even tax-free investments. I think retired people get in this mindset of not touching their IRA because taxes, but they don’t think about how they are inflicting their tax burden on their heirs!

There’s also some offset from the step up in tax basis; any shares held till one’s death get a step up or down in cost basis

no–no offset – not for the IRA/401k money – it was never taxed in the first place.

There is a step up in basis for non-IRA/401k accounts. So I inherited a small amount of non-IRA money – the gains I now pay taxes on are based on gains since I inherited the account. The original money was already taxed (as income, or ST cap gains, etc).

But for inherited IRA/401k accounts, there is no offset. I pay tax on the whole amount that is withdrawn from an inherited account, not just on the gains since death, because the money was never ever taxed. I’m paying the taxes that my dad did not! Again, not a complaint, but it’s something to consider – that if you do this to your heirs, you are leaving them a 1-10 year tax burden.
I’m thinking/planning how I can best draw down my own IRA money so heirs don’t have to do this, or at least, minimize how much they would be taxed on. I don’t think financial planners discuss this with older people, so they hoard money to save themselves taxes, but not their heirs!

Yes you’re correct. I was referring to a taxable account not an annuity or tax deferred account that gives up the step up in cost basis

It’s definitely a good idea to convert traditional ira money to Roth IRA and it can make sense to move some money even to a taxable account for estate planning purposes. Of course you don’t want to expose yourself to too high of a tax bracket which would depend on how much you’re leaving someone and how tax efficient your investments are

Of course consult a tax advisor so you can determine what’s the best for your situation and the likely cost of each decision. Of course the tax bracket of the recipient matters too

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