Cashing Out Inhherited Mutual Fund

[AMYMARIE71]

I inherited a mutual fund (IRA) from my mother upon her death a couple years ago and did not touch it. I also did not contribute due to my own personal financial situation. The amount is very small and only about $1300.00.

I just received a letter stating that the maintenance fee on the account will raise from $25 a year to $10 quarterly ($40 a year). Hearing this has made me make the decision to cash it out and close the account...maybe put the money in a CD.

Me, personally, cannot see keeping a fund like this open when I am not contributing and they are going to take $40/year out for maintenenace for an account balance of around $1300.00. I am losing money and not making any. Any suggestions? What about the taxes that would need to be paid on it an the end of the year when I receive a 1099-R? I would think it would be worth it since the amount in the account is small.

Thanks for your help in advance

[terces]

Why not roll it over to custodian that doesn't charge such high fees like TRowe or Vanguard?

I'm not sure what taxes or penalties you pay if you withdraw it.

[AMYMARIE71]

Why not roll it over to custodian that doesn't charge such high fees like TRowe or Vanguard?

I'm not sure what taxes or penalties you pay if you withdraw it.

The advisor told me it cannot be rolled-over so either it stays where it is and they rob me to death or I close and cash out the account

[jIM_Ohio]

I inherited a mutual fund (IRA) from my mother upon her death a couple years ago and did not touch it. I also did not contribute due to my own personal financial situation. The amount is very small and only about $1300.00.

I just received a letter stating that the maintenance fee on the account will raise from $25 a year to $10 quarterly ($40 a year). Hearing this has made me make the decision to cash it out and close the account...maybe put the money in a CD.

Me, personally, cannot see keeping a fund like this open when I am not contributing and they are going to take $40/year out for maintenenace for an account balance of around $1300.00. I am losing money and not making any. Any suggestions? What about the taxes that would need to be paid on it an the end of the year when I receive a 1099-R? I would think it would be worth it since the amount in the account is small.

Thanks for your help in advance

what was the mutual fund worth on date of mother's death. Aprox value is good enough for IRS as long as you are fair.

[creditcardfree]

Because you are a non spouse inheriting this IRA you cannot make contributions to it. I would absolutely withdraw it and consider starting your own Roth IRA with the money at another institution. You could invest in mutual funds or a CD...either can be identified as a Roth. If your young, pick a growth mutual fund.

Please refer to IRS Publication 590: Taking balance within 5 years. A beneficiary who is an individual may be required to take the entire account by the end of the fifth year following the year of the owner's death. If this rule applies, no distribution is required for any year before that fifth year.


You will receive a 1099-R for the year you receive the distribution. This will be recored on your tax return, just like your regular income. You can chose to have taxes withheld when you withdraw the funds. If you are in the 15% tax bracket, you would pay $195 in taxes. Your normal withholding from your job MAY even cover this...one way to know is if you normally get a large refund.

[moneybags]

I beleive you are actually required to take out a "required minimum distribution" annually, excluding 2009 when the gov't gave a reprieve to RMDs. You can get penalized for not taking the minimum out. Also, you can't add to an inherited IRA. You will be taxed on the amount withdrawn, not a capital gain.

[creditcardfree]

I beleive you are actually required to take out a "required minimum distribution" annually, excluding 2010 when the gov't gave a reprieve to RMDs. You can get penalized for not taking the minimum out. Also, you can't add to an inherited IRA. You will be taxed on the amount withdrawn, not a capital gain.

This used to be the case about the required minimum and still is if you want to withdraw the money over more than 5 years. In OP's case, as a non spouse individual who has not taken any distribution, the all the money must be withdrawn within 5 years. Again refer to IRS Publication 590 for specific instructions.

Correct: You cannot add to inherited IRA and you will be taxed on amount withdrawn, as reported on the 1099-R.

[BadSaver]

Tax bomb?

Often people who inherit IRAs forget that the person who piled the money away in the IRA did not pay taxes on that money. Because IRAs are tax deferred. When you inherit the IRA, it's a good time to consider how's the best method to get that money out of the IRA - to minimize your tax consequences. Since the IRA is small it's probably not a big deal and can be taken out right away without too much tax planing.

Large IRAs sometimes end up being a tax bomb for a non-spouse.

When you pull the money out of the IRA, you'll receive a 1099-R which will flow to your 1040 and possibly be taxed depending on your income.

[poundwise]

Read this guide, which has solid information in a concise format, and learn about your options before making a decision.

[AMYMARIE71]

Well, it seems that I do not have that many CHOICES..since the 5 year mark is long gone, I cannot contribute and I cannot roll-over so it seems my only option IS to cash it out and then think of where to put the funds.

Local credit unions, at least around here where I live in PA, have great rates and are far more superior in many ways than the banks. What should I be looking for if I want to invest the money with them?

[creditcardfree]

You need to determine what your goal for the money is.

Are you going to keep it for your own retirement? Then contribute the money to a Roth IRA.

If you are looking at CD's at your credit union, think about how long you want to keep the money invested. There are pentalties for early withdrawal, so pick a CD length that works for your goals.

[AMYMARIE71]

You need to determine what your goal for the money is.

Are you going to keep it for your own retirement? Then contribute the money to a Roth IRA.

If you are looking at CD's at your credit union, think about how long you want to keep the money invested. There are pentalties for early withdrawal, so pick a CD length that works for your goals.

I was considering some sort of IRA but I would never be able to contribute to it..I have not contributed to any of my accounts for over 2 years due to the economy and I do not see anything changing in that respect. With that said, should I still consider an IRA or go with a CD? I currently have monies in an 18-month CD at my credit union and might combine the two (what is in the CD and the monies coming from my mom's IRA).

Also, I have about 30K in a 401k but it is just sitting there from a previous employer. My current employer does not have any retirement savings program for their employees but it look like that is going to change. We are going union so I am keeping it where it is until I see if we get a 401k program in a contract. Then I can do a roll-over.

So, what about the IRA option with my situation? Yea or Nea?

[creditcardfree]

Yes, an IRA or Roth IRA is a great idea! As long as you have earned income for this tax year and have not yet reached the maximum contribution, which is $5K per year.

A Roth IRA would allow the money to be withdrawn tax free in retirement. If you do a traditional IRA, you could deduct the contribution from your income, which if you do the withdrawal and contribution in the same year would end up offsetting each other for tax purposes. Withdrawals from traditional IRA's are taxable when withdrawn in retirement or any other time for that matter!

[AMYMARIE71]

Yes, an IRA or Roth IRA is a great idea! As long as you have earned income for this tax year and have not yet reached the maximum contribution, which is $5K per year.

A Roth IRA would allow the money to be withdrawn tax free in retirement. If you do a traditional IRA, you could deduct the contribution from your income, which if you do the withdrawal and contribution in the same year would end up offsetting each other for tax purposes. Withdrawals from traditional IRA's are taxable when withdrawn in retirement or any other time for that matter!

But to really get the most out of an IRA, shouldn't you contribute? I am asking because I cannot and looks like I will not be able to. Thats why last year I opened an 18-month CD with my credit union.

[creditcardfree]

But to really get the most out of an IRA, shouldn't you contribute? I am asking because I cannot and looks like I will not be able to. Thats why last year I opened an 18-month CD with my credit union.

Well, yes the more you invest over time the better. This holds true of any investment. You can own a CD and title it as an IRA and can get this at your credit union.

The real question is do you want to save this money for retirement and if not what is the goal for the money. Once you know what your goals are, then you should be able to choose an appropriate investment vehicle.

I think you need to provide more specifics to your financial situation for us to provide the best advice.