Ask Terry Questions Inherited IRA

Inherited IRA

By Terry Savage on February 24, 2020 | Financial Planning / Retirement

I recently inherited a SEP/IRA plan from my mother who passed away last year at the age of 75. I have until the end of this year to begin drawing it down. My financial adviser is recommending purchasing an annuity and stretching the payouts over 10 to 15 years. Is this better than doing a stretch IRA? Whenever I ask, I am told it is a lot riskier because of the market. I currently have a pension for work and am also contributing to my 401k and personal IRA. I turn 50 this year so any money I start receiving (either from the annuity or the stretch IRA) will be prioritized for going back into my 401k and IRA with the catch up provision . I would also like to setup a Roth IRA and build up savings. Thanks

Terry Says

Your “financial advisor” is a salesperson, who is working on his OWN retirement — not yours!
Fortunately, since your mother died last year, you can still use the original “stretch” IRA — pulling money out over YOUR lifetime (and not the new rules, which would require withdrawal over the next 10 years for IRAs inherited after Jan 1, 2020.)
What you do with that inherited IRA and how you invest it is UP TO YOU!
My suggestion, contact Fideity or Vanguard and have them hold the inherited IRA. They will advise you on the amount to be withdrawn every year. And they can give you a very conservative choice of investment — or you can leave half of it in a money market fund! That truly minimizes your risk.

And you are correct that you can use those withdrawals in any way you want — spend the money withdrawn for living expenses, while adding more to your 40l(k) to get the company match — OR if you are still working an qualify based on salary, you can open a ROTH IRA.

There is absolutely NO REASON to buy an annuity with this money. Shame on this “financial advisor”!!

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