We inherited a portfolio of taxable Vanguard funds. Is there a tax-efficient way to convert them to retirement accounts?

Age 60. Still working USAF civilian. Military retirement, TSP, FERS. Wife age 45, working.

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Answered by Pamela J. Horack, , CFP®PRO+ in Lake Wylie, SC
Since you and your wife are still working, you may be able to open a Roth IRA, which could be advantageous, but you would still be limited as to the total amount you could put in each year. If you are looking for a steady stream of income in retirement, an annuity may be an opportunity for you.

My question for you is this: why would you want to make this change? On a taxable account, long term capital gains are taxed at 20% and you are free to take out as much or as little as you need for retirement. This may be important given your spouse's age difference.

I recommend you check with your tax advisor to see what options may be available for you. You may find that there is little difference in the taxes you will pay and much more flexibility for your future budget by leaving the account as is. | 06.08.15 @ 18:15
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$commenter.renderDisplayableName() — {comment} | 12.08.16 @ 20:10
Answered by Todd VanDenburg, Financial Adviser in Santa Rosa, CA
The key word in your question, to me, is "convert"... You don't really "convert" the inherited, taxable (aka, non-qualified) funds into a retirement (aka, qualified) account.

That said, now that you have what appears to be some "extra" money, you could increase your contributions to every other type of retirement account that might be available to you (IRA, Roth, 401K, etc) so that you put more away for when you retire. This would, in effect, "convert" some of the inherited money into retirement money (while not, technically, do what the IRS views as a "conversion").

In any case, Pamela's question is also very valid... Why would you want to do this in the first place?? The investments that you inherited likely received a "step up in basis" when they were inherited, so, at this time, there is likely very little tax to be owed should you sell some. If the funds were in a retirement account (other than a Roth), if you need them, you will be taxed at Regular Income tax rates (which are often much higher than capital gains tax rates.)

Feel free to email me directly should you want to discuss this in further detail! | 06.18.15 @ 21:20
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$commenter.renderDisplayableName() — {comment} | 12.08.16 @ 20:10
Answered by Dave Bradley, Investment Manager (Financial Advisor) in North Charleston, SC
Hey USAF civilian,

I am USNR.

Define tax-efficient? In other words, do you know your future tax rate?
A Traditional IRA is more tax efficient if your eligible future tax rate is less that what is is now.
A ROTH IRA is better if your eligible future tax rate is more than what it is now.
If your eligible future tax rate stays the same= No advantage.
Keep in mind many firms charge fees for conversion.

My main concerns are getting you a great ROI. So, if you do choose the Roth keep in mind your break-even (due to paying taxes, holing period, other fees, etc)

Some questions for you:
Where are you financially?
Where do you need to be financially?

We can help you with this. We love our military folks. Send me a message to discuss

It's not what you make, It's what you keep that determines your lifestyle.
| 03.17.16 @ 21:45
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$commenter.renderDisplayableName() — {comment} | 12.08.16 @ 20:10
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