Ask the Grumpies: Do I need to see a financial planner about a 300K inheritance?

A asks:

Tl;dr: Would a windfall that doubled your (age appropriate but not amazing) savings overnight change your savings/investment strategy?

My dad died recently; my mom died a while ago. They were both relatively young and had saved extensively. The bulk of his assets, around 300k, are in various types of IRAs and we plan to roll them over as inherited IRAs and opt for option to take the required minimum distribution over my life expectancy, with the understanding that we can draw down more if we wish.  These assets are currently split nearly evenly between various stocks and bond funds. Additional property based assets also exist but the valuation is less clear – this will likely come to us as cash but at a much later date.

Having been saving appropriately ourselves for retirement, my spouse and I, at 40, have around $350k in various index funds through TIAA CREF and Vanguard – we have in the past several years fully funded our Roths, made our maximum contributions to our own IRAs, and done some “catch up” saving to offset the time my spouse spent in grad school/not working to his full potential.  We have planned/budgeted to continue to do so for the foreseeable future. We also had planned to pay off our house over the next 2-4 years in lieu of investing in bonds.  Our allocations are nearly all in small set of mid-large cap domestic and international index funds.

My question is, given this windfall, which nearly doubles our total savings, should we simply allocate the new funds into our existing allocation? Should we reconsider our savings rate into IRAs? Should we change our financial goals ~ 1) pay off house 2) save for retirement 3) save for other things (kids’ college/travel/etc).  We both like our careers but we also view savings as a means of having choices – to quit a job, to take a leave of absence, or to stay in a job we love that isn’t paying what it should.

We are getting some pressure (from family/from our tax attorney) to find a financial advisor and engage in more expensive actively managed investing.  We aren’t sure about this – should we engage someone for short term advice and pay for it? Should we keep doing what we are doing, which is reading up and figuring it out ourselves? Neither of us works in this area…

Thoughts and advice?

So sorry to hear about your loss.

This is a tough one.  If it were me, 300k isn’t so much that it seems like it needs special financial planning above and beyond what you are already doing.  On the other hand this whole inherited IRA thing could be tricky and have tax consequences that I don’t understand but you sound like you’ve looked into them.

When #2’s husband got a large lump sum from stock options he just added more to the investments he already had using the same strategy as before (also some of that went towards a wedding and moving expenses– they still can’t afford a house where they live).

If it were me I would do 1. Retirement 2. House 3. Other.  You also want as much of that as possible put into vehicles that you can hide from colleges (like retirement and your house) because 300k in cash means you pay 100% tuition etc. while 650k in retirement doesn’t, depending on your income.  So if making those moves is complicated or you don’t know how colleges are going to treat different assets, it might be worth it to talk to a professional.  But that seems more in the realm of your tax person than a financial planner.

Active investing is almost never a good thing and I can’t see 300k being so big that you need it.  It’s not like you’re trying to dodge an inheritance tax at age 40 with less than 700k plus a home.  It’s not a big enough portfolio to really benefit from munis.  So I’m not really sure what active management would add.

On the other hand, when my father dies, my mom already has a firm (apparently a branch of Charles Schwab does this) picked out to forensically untangle all of his investments.  Simplifying them in a way that doesn’t create massive taxes will be the next step.  That’s not active management but it will take a professional in the short term.

So I guess a fee only financial planner might be worth it if this is beyond your tax person’s abilities, but not one who is going to encourage active management.  Instead someone who will help your figure out how to get the right asset mix (which you probably already know), how to avoid excess taxes, and how to maximize financial aid.  So like one or two meetings rather than them taking over your portfolio.

Grumpy Nation, what would you do in A’s situation?

18 Responses to “Ask the Grumpies: Do I need to see a financial planner about a 300K inheritance?”

  1. Emily Jividen Says:

    I’m not sure I’d use a financial advisor to reallocate investments away from a strategy that’s working, but it might be a good idea to get some help making sure all the t’s are crossed when setting up the inherited IRAs. It’s such a great deal, but the rules are very strict.

  2. Leah Says:

    I’d do exactly what you said. Also, since the asker has TIAA-CREF . . . something interesting I just learned is that they may do fee-free advising as a benefit of having your portfolio there. I’m unsure if it’s a perk of my personal job or a perk of having an account with them, but we get free advising. I literally found this out this week, as I went to an advising meeting and the lady let me know that additional meetings were also free if we needed them. Something about their non-profit status and founding mission from Andrew Carnegie. Might be a good idea to call them and ask. I suppose the one main risk is that they’d want you to roll everything over to them. If you prefer Vanguard, call them and ask about advising too. I know my Schwab account offers a free “talk with an advisor” phone call every so often too.

  3. Leigh Says:

    I’m sorry about your loss. The great thing about these assets being in IRAs is that you don’t need to keep them invested as they are – you can accept the gift of $300k in IRAs and invest it as you two choose. Remember that the people who care the most about your money are *you* and not anyone else. I would consider not discussing your plans with this money with family or your tax attorney other than thanking them for their help in acquiring it. It sounds like you two already have a solid investment strategy of index funds and that works great no matter how much you have invested. As nicoleandmaggie said, the only type of advice I would only consider is from a fee only financial planner and that would only to be to make sure you structure these IRAs you received from your parents correctly.

    Similar to what Leah said, if you roll this money into an account at Vanguard, their customer service should be able to help you get the money into the accounts titled correctly.

    The one catch that I would consider is considering this inheritance is about the same value as your current total investments whether you want to be careful to not commingle it with your marital assets. Inheritances in most states are by default separate property and it sounds like you have more coming, so this would be a substantial portion of assets that really technically is just yours and not your spouse’s. Something to consider, depending on your thoughts on marital finances.

    So yes, you should simply allocate the funds in your existing allocation. The complicated bits here are ensuring they are titled appropriately when you transfer them to Vanguard or TIAA CREF and whether you want to keep them separate from your marital assets.

  4. SP Says:

    I agree with the above – I would not change my overall strategy. I would ensure I had appropriate expertise to handle the inherited IRA. It seems like you can tell from google whether or not that requires professional help, but if it does, it would be a one time thing.

    The advice for active management is misguided. A lot of smart/wealthy people do it, but just because you’ve doubled your savings doesn’t mean your well researched strategies really need to change. I would thank them for their advice, but ignore it overall. :)

  5. chacha1 Says:

    I agree with the grumpy advice. “Active management” often = “churning;” and transaction fees, plus fees from the investment vehicles themselves, can eat up any gains. And management fees are not tax-deductible, unlike capital losses, as far as I know.

    This amount of money is nice to have, but no compensation for losing parents so young. :( Sounds like the questioner is doing reasonable things, from where I sit.

    • Contingent Cassandra Says:

      And even good (non-“churning,” set-fee-based) active management entails some management of the manager, especially if your means are more modest than those of the manager’s average client (some of the better managers only work with portfolios of one million and up; I ended up in this situation because one agreed to take on a family grouping to which I belonged that added up — just — to that number, but my proportion was considerably less, and as a result I got some less-than-appropriate though well-meant advice, because, for instance, most of his clients weren’t eligible to contribute to a Roth, so he didn’t know much about them).

  6. First Gen American Says:

    I engaged an active for fee financial planner for about 6 months after my 2nd kid was born. I had a bunch of 401k money to roll over into an external account and I needed to diversify and I just didn’t have the time. It was right before the 2008 crash. The guy took his 3% and his decisions did much worse than the already nosediving market. What a bad decision and huge financial mistake. I don’t even want to think about the money I lost during that time. After 6 months I fired him and put it all in a total stock market fund. I figured that beating the market doesn’t need to be my goal and the likelihood of someone being able to beat the market enough to consistently offset their exhorbitant fees and make it worth my while was also unlikely. I’ve recently changed things around to be more appropriate for my age.

    I do think it’s a good idea to see a good tax/estate attorney and get advise on how best to roll over and allocate the money to minimize the tax burden but I have a bad taste in my mouth on fee based planners. They get rich gambling with other people’s money and even if the gamble doesn’t pay off, they still line their pockets. What a scam.

  7. Bardiac Says:

    I think if you’re just starting investing, you may want advice. But you may be able to get a start by reading basic investment stuff, and thinking “low fees” and “index (mutual) funds.” But it sounds like you’re already doing a good job, so just make sure you’re doing stuff legally correctly, and yes, if it makes even minimal sense, keep the money not co-mingled.

  8. Ask the Grumpies: What to do with a windfall/how much to keep in cash/etc. | Grumpy Rumblings (of the formerly untenured) Says:

    […] I see a financial planner about a 300K inheritance?  This one has some commentary on college […]

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