Therese (3:26)

Absolutely. And some snow to come, too. So what more can you ask for?

Jill (3:30)

I mean, you guys are love. You just want there to be like a snow bowl every single weekend. It's so much fun. Yeah, we're hardcore here, obviously. Therese, what can we do for you today?

Therese (3:41)

Well, my question centers on if and when it might be a good idea to bring assets under management with a CFP for a percentage, and if so, what a reasonable percentage might be.

Jill (3:56)

Okay, so just basically, when do I hire an advisor, essentially, Right?

Therese (4:00)

That's right. And my circumstances have changed in the sense that I. A little bit of background. For most of my adult working life, I've managed my own investments online with a brokerage and a Roth ira. But my circumstances have changed in the sense that I received. I was the beneficiary of an inheritance and which is quite a bit more than what I'm used to managing. And I'm wondering at this juncture in my life if it would be wise so that I shepherd these funds well to have some more advice, especially because part of the accounts are inherited IRAs. So I will have to take RMDs over the next few years of quite a substantial amount. And so that's my situation right now.

Jill (4:51)

Wow. Well, I'm sorry for your loss. Whoever left you this money, let's talk about kind of where you stand right now. So an easy one. You ready for your big first question?

Therese (5:02)

I'm ready.

Jill (5:02)

Take a deep breath. Great. How old are you?

Therese (5:06)

45.

Jill (5:07)

See, that was so easy. Are you single, married, partnered?

Therese (5:12)

Yep, Single.

Jill (5:13)

Okay. And you're working full time?

Therese (5:16)

That's correct.

Jill (5:17)

And how much do you earn right.

Therese (5:19)

Now about $107,000 per year.

Jill (5:22)

Okay. And do you use a retirement account through work?

Therese (5:28)

I do have a New York State deferred comp retirement account.

Jill (5:33)

It sounds to me like when you say New York State deferred comp account, that there's also going to be a pension. But tell me, how much is in the deferred comp account?

Therese (5:40)

147,000.

Jill (5:42)

And will there also be a pension?

Therese (5:44)

Yes.

Jill (5:45)

Yay. How much will that be?

Therese (5:48)

It could be anywhere, depending on when I retire, between 30,000 and 70,000.

Jill (5:53)

So, okay, so you're 45. So you're young and, you know, before you had this inheritance, were you thinking, like, hey, I'm going to gut it out for 20 more years? Like, what were your thoughts before this inheritance?

Therese (6:06)

Sure. I'm in a good place right now, so I feel like, you know, I feel pretty secure in what I'm doing and enjoying it. That being said, who knows what might change? But, yeah, I'm probably in it for the long haul.

Jill (6:23)

Okay. Despite. Regardless of the inheritance.

Therese (6:27)

Correct.

Jill (6:27)

Okay. So when. When you say the long haul, is that 60, 65, what does that mean to you?

Therese (6:34)

I would probably say 60.

Jill (6:36)

Okay. And at age 60, if you were to just keep doing what you're doing, does that mean the pension ends up being more like, you know, 60 or 70 grand?

Therese (6:45)

Yes. So it would be. Right. Graduated based on the years put in.

Jill (6:49)

Okay, so I'm going to just say 60 grand for the heck of it. Just so I have a number, a placeholder for you. How's that?

Therese (6:56)

Sounds Great.

Jill (6:57)

All right. 60 grand. It's age 60, 147 in your deferred comp. Do you have other retirement assets? Don't. Listen, I'm not doing the inheritance yet. Just like what you came into pre inheritance, Therese.

Therese (7:09)

Sure. So I mentioned I have a Roth IRA, 93,000. My brokerage account is at 136,000. And then I have some CDs at about 140,000. And emergency fund slash bank account about 60,000, which I have to move some funds out of there, but I'm waiting to figure out what to do.

Jill (7:32)

Okay. Do you own your own home or do you rent?

Therese (7:34)

I do own my own home.

Jill (7:36)

How much would you guess it's worth?

Therese (7:38)

300,000.

Jill (7:40)

Do you have an outstanding mortgage on it?

Therese (7:42)

I do not.

Jill (7:43)

Oh, hello. Hello, Therese.

Therese (7:46)

So, I means as I've been hoping to do.

Jill (7:50)

Yes, that's great. And any rental property, vacation stuff, anything like that?

Therese (7:55)

Nothing. No, nothing along those lines.

Jill (7:58)

Okay. And no kids.

Therese (8:00)

Correct.

Jill (8:01)

Anyone Depending on you, sibling, niece, nephew, anything like that?

Therese (8:07)

No, it's really me.

Jill (8:08)

Okay. And so now tell us about this inheritance. How much did you inherit?

Therese (8:15)

Sure. So altogether it's about $2 million.

Jill (8:19)

Wow.

Therese (8:20)

Yes, I know. It was really generous and very shocking. And I should say at this juncture maybe that I want to make sure that this is not just used for myself, but it honors the legacy of the person who gifted it to me. So I want it to be able to grow and maybe do something substantial with it for other people, not just myself.

Jill (8:43)

That's so nice, but I really care only about you.

Therese (8:46)

Well, I just want to put it out there. Just.

Jill (8:48)

Yeah, yeah, yeah, I got you. So when you. So 2 million, how much of that is inherited? IRAs?

Therese (8:55)

Yes. So there are two accounts. So one is about 750,000 and the other is 75,000.

Jill (9:08)

Okay.

Therese (9:09)

So what that sort of, I think means over the next 10 years is that I would have to take, if I take it over 10 years would be about $80,000 per year in RMDs.

Jill (9:19)

I think that's exactly right. It doesn't have to be all in equal parts. And it probably considering that you're going to continue working, you might as well do equal parts just to kind of manage your tax liability a little bit, you know. So, you know, if you said to me, well, I'm not going to work in five years, I'll stop working, then we would change. We would just backload it. But you're going to keep working. And so that will mean that, you know, essentially you'll be in the highest tax bracket of, let's say 24% is probably where you'll be in terms of a bracket. Okay, you, you know, let's see, you make 107. There's probably some income from other stuff, but yeah, I mean, I think that's about right. I think the, the top of the single bracket of 24% this year is just about $192,000. So that I think that's kind of where you would be.

Therese (10:11)

Sure.

Jill (10:12)

So that would be argue for sure. You know, certainly take out this, you know, 80,000 or so over the next 10 years. You can do it. You don't have to do it in equal payments, but it would be fine if you did. Okay, so we have 825. And so does that mean you have 1.175 in a brokerage account that you inherited?

Therese (10:31)

There is. Yes, that's correct. And that's maybe one of the questions too is that I really am More used to passive investing, so looking towards someone who can help me along the way to move some of these more actively managed funds into a more passive investing vehicle, which is what I'm, I think, more comfortable with.

Jill (10:52)

Aren't we all, babe? This active thing, I don't know how people do it. It's exhausting. So tell me about. When you say, I want to honor the legacy of the decedent, the person who left you the money. Tell me about the person. Like, what do we need to think about? Is this like, a charitable portion of it? Like, how do you think about it?

Therese (11:13)

Yeah, I do think about it. I'm not really sure what this is yet in my mind, but something that would have to do with a charity or donations or scholarships or something along those lines.

Jill (11:26)

Okay, that's great. Here is the magic question. You say you live below your means. How much do you think you spend right now?

Therese (11:36)

I think it's about right now. 3,100 per month.

Jill (11:41)

Stop it, stop it. That's like, nothing. Wait, shouldn't we spend more? You're an heiress now, so.

Therese (11:49)

Well, and again, it's. It's really about making sure that I'm just being cognizant of stewarding these funds. Well, again, just not myself, but hopefully maybe someone else, too, or others. Yeah.

Jill (12:01)

Yep. That's very. It's so. It's very kind. Okay, well, so putting aside the inheritance for one moment, which I know is silly because it's $2 million, but obviously you're in great shape. You are socking away money. You're living beneath your knee. Means if you work for 15 more years, you have this, you'll have a pension. You'll also be entitled to Social Security. Will you or not?

Therese (12:27)

Correct.

Jill (12:27)

Okay. So you've got plenty of money. Right? And you're going to be able to live however you want to live. And that's great. The extra money, are you the kind of person who could force yourself to spend a little bit more, enjoy life a little more?

Mark (12:40)

Or not.

Therese (12:42)

There are things that, you know, I've wanted to do, like maybe a little bit more travel and.

Jill (12:46)

Yes, yes, do it. There's nothing to worry about. I mean, you've got so much money now, and you're not going to just. If even if we said, oh, you know what, it's not going to be 3,000amonth or 3,100amonth, can you spend 5,000amonth? That's fine. You're going to be fine.

Therese (13:04)

Okay.

Jill (13:05)

You really are. Okay, so even if you said, I'm taking. Holy smokes. I've never done this before. I'm taking a $15,000 vacation every year. Do it.

Therese (13:12)

Oh, my goodness.

Jill (13:14)

Do it, Mark and I will help you. So now I think let's talk a little bit about how you feel about this money and how to manage it. I mean, yes, for all intents and purposes, there is no difference between managing $2 million as there is handling $200,000. You know, that zero doesn't really change your outlook. Okay, now, where is the brokerage account held right now?

Therese (13:39)

There are two separate entities.

Jill (13:42)

Meaning, though, I mean your own before you ever mine.

Therese (13:45)

Mine is at Vanguard.

Jill (13:47)

And you like Vanguard.

Therese (13:48)

I've had some success, I think, in. In just kind of going with the formulas that I've read about in the past with Vanguard. What I feel like my deficit is, is in understanding how I might move, you know, heavily traded stocks into something that's more of a mutual fund and doing that with taxes in mind and all of that kind of thing. So that's where I think my big maybe knowledge gap might be.

Jill (14:16)

So the brokerage account with the. The other brokerage account. So you've got your Vanguard, you've got mutual funds or exchange charity funds, right?

Therese (14:24)

That's correct.

Jill (14:25)

Very boring, very easy. You're like, great, I make sense. Same thing with your Roth.

Therese (14:30)

That's correct.

Jill (14:31)

Okay, great. Now let's talk a little bit about the. The. You've got the inherited IRAs, where you're going to have this 825 grand. And one thing that you could consider is very easy, is saying, you know what? I'm just going to roll that. I'm going to take those accounts. There's two accounts. I'm going to go to Vanguard, I'm going to make that. I'm going to title that as a inherited IRA, will be 825 grand in there, and then you can just allocate the money. That's easy because there's no tax liability on that. Okay, Right. So there's nothing to. You could blow out every single stock that's held in those accounts. You can go to cash, and then you can then pick, you know, four or five different exchange traded funds and allocate the funds that way. The only thing with that account, and I'm not saying you have to do this, I'm just saying that in your Benny Ira at this 825,000, the only thing you need to think about is that, like every year, I want to make sure that I start the year by pulling out $80,000 or $85,000 in cash.

Therese (15:44)

Okay.

Jill (15:44)

So that you can take your distribution and have that done. You can do it right at like, January 2nd as far as I'm concerned.

Therese (15:50)

Okay.

Jill (15:51)

So that's kind of easy that every year you would just make sure as you come into the year, hey, you know what I need to do? I got to free up my 85 so that I take my distribution. Easy peasy. Gotcha again. No tax liability in selling everything in that account, going and going to cash and starting over with Vanguard funds. No tax hit at all.

Therese (16:14)

All right.

Jill (16:15)

Okay. The tax hit is the 80 or $85,000 that comes out every year.

Therese (16:20)

Okay.

Jill (16:21)

That's taxable income to you. And it'll just get added. You will be able to say, I took $85,000. And Vanguard's going to send you a note that says, yeah, you took this money out the withdrawal. Okay. That's kind of the easy part. It sounds like there's also a problem with this brokerage account or there are a couple of brokerage accounts from the decedent that you inherited. So of the 1.17 5,000, there are how many brokerage accounts for that?

Therese (16:51)

Two.

Jill (16:52)

Okay. And that's where you have a bunch of stocks, right?

Therese (16:55)

That is correct. Really actively managed stocks.

Jill (16:59)

Okay. And when. What is the date of the person's death?

Therese (17:05)

This was over the summer.

Jill (17:06)

Okay. So over the summer, what you need to know is that these accounts, it's as if you inherited this money. You were. You were not on this account at all. This is an account that you inherited. So you will get a step up in cost basis. Does that. Is that. Does that sound familiar as a term?

Therese (17:26)

Yes. That sort of resonates with me. Although I could use a refresher.

Jill (17:30)

Okay, so let's say the person who passed away, let's just call him Mark. Sorry, Mark. He just died. Mark buys all of this stuff in a brokerage account, like a hundred different stocks. And Overall, this total 1.175 million, he paid total of 300,000 for it. He just kept investing it, investing it, investing it. If he had sold it during his life, he'd have to pay capital gains. Right. But the way that the tax code works is that when you inherit an asset, you don't inherit their cost basis. You get a step up in cost basis to the date of death valuation. And so that means that what would be helpful for you in this process is these brokerage accounts, they need to provide you with the date of death valuation of this account. These accounts okay. The reason that's really important is whatever you're going to sell, you're not going to start the clock where the decedent bought it. It's this summer's date of death valuation. So let's just say that from the summer, the account was valued at $1 million, and now it's 1.175. Your cost basis, if you're selling any of these securities, would be that date of death valuation.

Therese (18:55)

Okay.

Jill (18:56)

Okay. It's a huge advantage. That's why people like inheriting assets, because you get a better cost basis.

Therese (19:02)

Mm.

Jill (19:04)

So, again, you don't have to do this yourself. I just want you to understand the process.

Therese (19:08)

Sure.

Jill (19:09)

The thing that's very important about this process that you should need. That you need to know, Therese and everybody should know. It's really important that you sort of play along with the idea that, hey, I might keep my accounts with you. Advisor to my decedent, friend or relative.

Therese (19:31)

Okay.

Jill (19:32)

This is a white lie. It. Because when you try to get cost basis information or date of death valuations, it is extremely hard to get that if people think you're walking out the door.

Therese (19:48)

Interesting.

Jill (19:49)

So what you want to be able to do is go to the people who are managing these. Go to these active managers and say, very important. Hey, for the estate process, I really would. Could you please provide me with a detailed accounting of the date of death valuation for the brokerage account?

Therese (20:12)

Okay.

Jill (20:12)

So you need to know.

Therese (20:13)

Okay.

Jill (20:15)

All right. Now, and even if you decide you're going to hire another financial advisor, it is still important that we get this information for that new advisor.

Therese (20:26)

Okay.

Jill (20:27)

Because it's going to be a pain in the neck if we transfer out and we don't get. It doesn't matter for the inherited IRAs, because there's no cost basis issue. It's just like we're going to have. We got to get. It's basically like we got to get the money out of the account over the next 10 years from the date of death. That's the issue. Okay. All right. So now it should not actually be so terrible, but if you want to hire somebody for this process of money management and financial planning, because you want a little bit of both, what it will cost you is if, you know, let's say you say to somebody, you know, I got a million, $1.2 million, maybe you want to handle just the brokerage account. Maybe you'll handle the beneficiary IRA. We'll see. It'll probably cost you about 1% of the money. That's in that account. So that may seem daunting because it's like 10 grand. The other alternative is to try to find somebody who will help you with this process and then, and maybe provide you with a one time financial plan. Maybe you say, hey, you know what I'd like to do? I'd like you to pay you ten grand for a financial plan for me, one time only, and I'll execute it. And you could potentially do that because obviously if you hand the assets over for someone to manage that money management issue, then that 1% is going to be every year, forever, for as long as they manage the accounts.

Therese (22:03)

Sure. So maybe a corollary question with that might be is it reasonable to think that you could bring assets under management for a shorter span, like one to three years and then take them back? Or is that a bad idea?

Jill (22:15)

No, that's fine. I just don't. I wouldn't want you to go in telling them that.

Therese (22:18)

Sure, sure, sure.

Jill (22:20)

And there's one other idea that is possible and that is to work with Vanguard because they have a service called the Vanguard Personal Service Advisor. But I think you need a 50 or 100 grand minimum. I can't remember what you need these days. And they'll bring an advisor into your world to help you manage this.

Therese (22:39)

Okay.

Jill (22:40)

So you could do that or you could say, this is so daunting. I want someone to do it and really to educate me and to help me with this process. And in that case, you might say, you know that person. You can say, I will, you know, I'm going to turn over the. They'll want to know everything else you have. Right.

Therese (23:02)

Okay.

Jill (23:03)

So they're going to see the beneficiary ira, they're going to ask you about all this and you say, I want to have a plan. I'm happy to have you manage the actively managed brokerage account and help me move into a passive model. And I'm happy to have you walk me through that. Fine. That's all well and good, but again, you're sort of freaked out because of the dollars are so much bigger, but the process is not any different.

Therese (23:32)

Okay.

Jill (23:33)

Is it freaky for you? You sound scared.

Therese (23:36)

I think that again, it's just about making sure that I honor a legacy in a way that this person would want me to.

Jill (23:44)

So I think what might also be really good for you, like you have a brokerage account right now and at Vanguard, right?

Therese (23:50)

That's correct.

Jill (23:51)

Maybe what you should do almost immediately is to say, like, do you have, if You've got big gains in this account. Maybe we'll open up a donor advised fund and you'll start giving money away from the combination of your two accounts, your newly inherited money and your brokerage account. Maybe you'll put some money in there. Maybe over the next 10 years you'll say, you know, I know I have to, I'm going to have higher income over the next 10 years. Right, because you're going to have the inherited IRA distribution. Maybe every year you say, okay, every year I'm going to put 20, 25 grand into a donor advised fund and then I'll be able to give that away over my lifetime.

Therese (24:36)

Okay, so you, it's not requisite that you would give it away that full year?

Jill (24:40)

Nope, nope. You can start. In fact, you can put money into a donor advised fund for the next say five or 10 years and give it away over a longer period. And so that would be the kind of thing where I would say, like, okay, it would be cool if you had somebody who would help you with all of this and help you then come up with a game plan to manage the tax liability from the brokerage accounts, the beneficiary ira, and put into place this idea of a donor advised fund and hold your hand through that process. And maybe that's, look, maybe that is totally worth it to you to pay ten grand a year for some period of years. And you might say, I have plenty of money. Why don't I just pay for it forever? Because a lot of people will do that. They'll just say, of course I could do it, but why do I want to?

Therese (25:34)

Yeah, I know. I think it's just a little sticker shock. Once you've been managing your own funds a little bit that it's. Oh my goodness.

Jill (25:41)

Absolutely. Yeah, I get that. I totally get that. But you know, this is, you know, it's a chunk of money you can certainly, you can blow through a bunch of cash in terms of paying for help in the first bunch of years. Maybe you would take it over and maybe you're just like, hey, you know what, I don't care. I can't spend all this money and I don't want to think, I don't want to squander it. I don't want to make a mistake. I'd rather work with somebody who's going to stand beside me and help guide me through this process.

Therese (26:14)

Yeah, that makes sense too. Now, maybe one last question might be, would I also need a cpa, do you think? An accountant? I've Also done my own taxes online in the past.

Jill (26:26)

I mean, there's not. It's a weird thing. It's not actually very different from your tax situation. Here's what's going to happen. There's going to be more capital gains from the inherited brokerage accounts. But the way you treat your own brokerage account right now is you get a statement from Vanguard. They say, okay, here's your interest in dividends, and here is your realized gains. Okay? And you'll have to keep track of that, and you report that for taxes. That's easy. The difference in the new Therese is that the dollars are going to get bigger, and of course, you'll have an extra 80 or $85,000 a year in income. It's not actually that complicated, though, from. From a tax filing point of view. So I think it is more likely that you would want to, you know, if you're going to spend the money to work with an advisor, they'll help hold your hand through the tax part of it, and you could probably do it yourself or maybe for like a year. You hire a CPA for year one, when you're making all these transitions, you hire a CPA and then it's going to be on autopilot, basically.

Therese (27:35)

Okay, yeah, that makes sense to me.

Jill (27:37)

Are you feeling a little bit more secure?

Therese (27:40)

Yes. I really appreciate your help and advice. And if you can also help the Bills win a Super bowl, that would also be really.

Jill (27:49)

I am all in. Mark and I have now agreed there are no longer any New York teams worth rooting for except the Buffalo Bills. So we're. I think we're all in with you.

Therese (27:57)

We're.

Jill (27:58)

We're going to be complete hangers on in the process. So, Therese from Buffalo, thank you so much. Hang on, because I want to give you the name of somebody I think who could help you out. And if you are like Therese and you had a big life event and you need some help thinking about it, give us a Holler. Go to jillonmoney.com, click the contact us button, write us that note. And if you'd like to join us on the air, check the box. Sign up for that free weekly newsletter comes out every single Friday. And don't forget, you can subscribe to us on, on the Odyssey app or wherever you find your favorite podcast. Please leave us a rating and review. Wherever you listen, lift someone up. Change your work, Change your wealth. Change your life. Thank you for listening and we'll talk to you tomorrow.

Jenna Fisher (28:46)

I'm Jenna Fisher. And I'm Angela Kinsey. We are best friends and together we have the podcast Office Ladies where we rewatched every single episode of the Office with insane behind the scenes stories, hilarious guests, and lots of laughs. Guess who's sitting next to me? Steve Carell in the studio. Every Wednesday we'll be sharing even more exclusive stories from the Office and our friendship with brand new guests. And we'll be digging into our mail bag to answer your questions and comments. So join us for brand new Office Ladies 6.0 episodes every Wednesday. Plus on Mondays we are taking a second drink. You can revisit all the Office Ladies rewatch episodes every Monday with new bonus tidbits before every episode. Well, we can't wait to see you there. Follow and listen to Office Ladies on the free Odyssey app and wherever you get your podcasts.