What should I do in terms of RMD planning with an inherited IRA?

I am 25 years old and will be inheriting a Traditional IRA by the end of this year. The balance on the IRA is $310,000. After running a calculator on the withdrawals, I saw they start around $6,000 a year and will balloon quite higher.

Does it make more sense to pull out a higher amount early on from this account since I am still in a modest income bracket (15%) and look to be aggressive in investing? Or, should I stick to taking the minimum amounts and just make a lump sum max out of the retirement accounts?

Also, since this account is going to be progressively withdrawn from, does that change the investment strategy?

Financial Planning, Retirement, IRAs
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September 2017

Very smart planning (well above average) by thinking of all the issues, investments vs. taxes owed vs. long-term RMD (Required Minimum Distributions) vs. Tax-Bracket Planning (as I talked about in my R.I.T.E. Planning article).

I would NOT take it out lump sum amount as that will push you into higher tax brackets...but I would consider FULLY utilizing the15% tax bracket or even Teh 25% tax brackets (but not higher...to see your rate, check the previous link).  That can be done by taking the RMD + an amount that would only put your estimated income into the 15% or 25% income tax brackets.  For those not familiar, your taxes are bracketed where you pay the higher rate only on the income that falls in the bracket (it does NOT go back to the first dollar at the higher bracket).  

This strategy of taking some more now protects you also from paying higher taxes later if you have a higher income and/or if they raise taxes in the future.  If congress passes new tax laws in 2017 or 2018 to reduce taxes, this strategy will be even more valuable as those lower rates will most likely be temporary (as were the lower brackets under President Reagan in the 1980s).

As for the investment strategy, it mostly depends on whether you will be SPENDING the distributions or just re-investing them after you take them out of your IRA.

If you spend them, then I would keep the expected distributions for the coming 2 years realatively conservative (money market and/or shorter term bonds).  If you are going to re-invest them, then even if you sell out into a down market, you can re-buy in the after-tax account (a brokerage account you could set up to move the distribution into...at the same custodian if you like them to make things easier) and the market risk is less important.

Also, now that you have inherited a very nice sum, perhaps it is time to start looking a t your overall financial plan.  Check out my series of four articles in Investopedia called "Planing Through LIfe's Stages to Avoid Money Worries".

September 2017
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September 2017