My 83 year old mom has just inherited a non-spousal 401K approx $450,000.
She and my dad have a small account at Vanguard. Would it make sense
to just roll it over there or is there a better company we should look at.
I want to make this a smooth as possible. I’m assuming that since she is the beneficiary, then
it will have to be an individual account (her name only) and not an account in both my mom and dad’s name.
Vanguard is a solid choice they offer low fees and good support for retirement accounts.
For an 83 year old I’d just keep it all in one place and not try to move things around. Keep it steady and stable. New accounts these days get special security surveillance, it’s an industry phenomenon, and I’d hate to see her account get locked down because she’s a new customer and then as an octogenarian she has to try to figure all of that out.
It gets worse if kids get on the phone call with the rep, kids who aren’t listed as having Power of Attorney with the brokerage firm, at that point they will hang up and totally lock up the account pending an elder abuse investigation. Which could take weeks or months. Fidelity is very keen to do that sort of thing.
The easiest thing to do would be to move the 401(k) to an inherited IRA at Vanguard. She should call Vanguard, tell them she inherited the 401(k) and would like to move the money to them. She will need to provide the details, and Vanguard will do the work to pull the money over. She will need to choose some funds to put the money into once it arrives at Vanguard. Then she’ll have to deplete the account in 10 years or less. If it’s a traditional 401(k), distributions will be taxed at her ordinary income rate (if it’s a Roth 401(k), no taxes). She should name a beneficiary to the account in case she dies before she depletes it.
Sorry about the loss of the original 401(k) owner.
Vanguard is an excellent choice, offering very low-cost index funds. Will your mother require assistance with her decisions concerning assets intended for her and your father’s living expenses, and possibly her heirs or charitable contributions? Vanguard has affordable advisory services (another option for low-cost advisory services is to engage an hourly-only advisor).
Note that the 10-year withdrawal rule for inherited IRAs varies based on whether the original owner had begun taking Required Minimum Distributions (RMDs) prior to their passing.
That’s old rules. New rules:
For non-spouse beneficiaries inheriting in 2020 or later, only minor children of the account owner, disabled or chronically ill individuals, or those not more than ten years younger than the account owner at the time of their death can take RMDs based on their life expectancy.
Why these rules are so complicated?
You are referring to the rules for individuals who are eligible designated beneficiary. The Mom in this case is a non-eligible designated beneficiary. The current rule for non-eligible designated beneficiaries that I was referring to- “Non-Eligible Designated Beneficiaries who inherit(ed) a retirement account from someone who died before their Required Beginning Date only have to empty the inherited retirement account by the end of the 10th year after the owner’s death. By contrast, Non-Eligible Designated Beneficiaries who inherit(ed) a retirement account from someone who died on or after their Required Beginning Date… RMDs must be taken in years 1–9 after the year of death, with any and all remaining amounts in the account distributed by the end of the 10th year after death”
It makes inheriting an IRA or 401(k) unappealing, doesn’t it?
Still better than not inheriting an IRA or 401(k).
Oh my goodness. What follows is opinion, based on my experience.
BLUF: Run!!!
Once upon a time Clark spoke kindly of Vanguard. I had long running unhappy experience with Fidelity (as a 401k custodian for Mutilnational Hi-Tech, a ficticious company). My kid graduated and started making good money. He asked me what he should do. Considering the bad blood with Fidelity, I suggested he look into Vanguard, and he did.
Then, my kid died, and I had to deal with Vanguard. Even with all the proper documentation such as death certificate and Letters of Independent Administration, it was a hassle. Most of it I got by opening a like-titled account elsewhere and having them yank it. Then it came down to dregs, like maybe a dividend or something. Many calls and lots of baloney. I was about to simply abandon it when they finally came thru.
With all that said, Vanguard surpasses Fidelity on my no-go list. Your mileage may vary.
I generally have good luck with Charles Schwab. You might also check your local Edward Jones…
Ed Jones is recognized as an expensive, expensive place! They do things to help themselves to your money. They put you into proprietary expensive mutual funds that are incapable of leaving their four walls… so if you have a taxable account, and a large capital gain, you have to liquidate to cash in order to move the assets, which is a taxable event.
I recommend Schwab, and Fidelity could be OK if you dot every i and cross every t so you don’t raise the ire of their Backoffice Security Team. I’m in both places. I’ve heard bad things about Ally Bank’s investing company.
When I worked in real estate from 2001 to 2011 I had a Realtor friend who swore by Edward Jones. I used Vanguard for 90% of my investments. We were both in our sixties and I stuck to VNEX and VGSTX mutual funds, he allowed his Edward Jones advisor to make decisions for him. Both were in the mid-six figures.
We compared our experience each year. My portfolio ranged from annual returns of 5% to 9% and his was consistently from 3% to 7%. Mine averaged 7.5% during that time period.
OK first some comments on Edward Jones from my perspective… I would not have anything there but did inherit when Mama passed. I view E-J as a company that is suited for people who really need good help with finances. Local office was great help to Mama when Dad expired; they spent many hours going thru his stuff. So yes I concur they will cost more, though my adviser argued they were competitive. I have ordinary positions but cannot stand E-J web or mobile interfaces. I would liken them more to a full service type of house.
Ally bank bad words? Don’t get me started! First understand that Ally is merely a re-named GMAC! Had I known that I would have likely steered away. But I had a nice-interest paying savings for several years. Then they decided they did not like my “physical” address and they slammed my account shut! Reason, I think, is attributable to the onerous so-called Patriot Act, more appropriately called Tyranny act. They say we must know where you live, and the street address of your post office is no good, even though it is USPS supported. That was the end of Ally. Chase has pulled the same stunt on me.