[USER]

My folks received an inheritance from a relatives TSP account ($140K). We are transferring to an inherited IRA with Vanguard.

They are nearing 80 and I suggested they invest in a stable income fund as there is a very high probability of needing long term facility care in the future, and I want to preserve the funds.

They only have about $100K in other retirement assets, but house is paid off and worth $350-400k. I did find their stable income fund with average returns of 2-3% which is what I was thinking of going with.

But given any tax advantages with the IRA, and the fact that they have 10 years to withdraw the balance, is there any other funds we should be considering? CDs, muni / gov bonds?

Something else?

Related note – for various reasons, we are more interesting in private long term care facilities vs Medicaid facilities, so would want the funds available for that.

[Bill]

If you want very low risk, A stable fund at 2-3% is not the best option at this time.

You can get better than 4.4% in a 6-month treasury, 4.2% in a 1-yr Treasury, or a 4.1% in a 2-year Treasury.

If you think the money will be needed in the next year, I’d split it equally between the 6-month and 1-year, and in 6-months, when it matures put in a 1-year.

That way you have half of it maturing every 6 months. If something happens, and you need the money sooner, you can always sell the U.S.

Treasury, and might incur a very small loss or small gain since time to maturity is under 6 months.

[Kiana]

Wouldn’t it make more sense to put it in a high yield savings account with a 4. 4% rate? Am I missing something?

[Bob]

If you think they might need this money soon, while where to invest the money is important, you should come up with a plan to withdraw the money from the IRA as tax efficiently as possible.

As a married couple, they can have almost $130k of income in a year and still be in the 12% federal tax bracket.

We’re towards the end of 2024 so I would take as much as I could to max out the 12% tax bracket this year and then in 3 months, next tax year, do the same.

Not being sure about their income, but making a guess, that should put them in a position where if they needed the rest of the Inherited IRA, they probably won’t get put into the 22% tax bracket.

Yes, you can stretch the withdrawals out over 10 years, but the 12% tax bracket is only guaranteed for this year and next and if it’s a concern that they might actually need the money at their ages, it could be good to manage the taxes sooner at a low rate rather than waiting and get hit with higher taxes later on.

[Author]

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