Anonymous,

Is it possible when you take the RMD to take in the form of stock vice having to sell the stock? Or does the fund you inherited only allow you to take the RMD in cash?

If it is possible to take the RMD as stock, the value of the transfer would be based on the price the day the stock was transferred to your own brokerage account. As I understand the current tax laws, you would need to the pay the tax liability on the gain (as ordinary income - not capital gains) but that tax liability doesn't have to come from the account you inherited. The basis of the stock that you transferred into your account, would be the value of the transfer the day you transferred the stock into your brokerage account.

This would allow you to buy VTI today, and transfer the appropriate portion into your own brokerage account as the RMD. You wouldn't need to "sell" the VTI stock, you'd just need to account for the tax liability of moving the stock from the inherited IRA, to your own brokerage account.

If you have the ability to pay the tax liability from the RMD transfer out of your own funds, you wouldn't need to worry about the timing of when you sell the VTI stock.

Warren Buffet's rule for his own wife is to have 90% in an S&P 500 fund (or total stock market index fund like VTI) and 10% in short term treasury bonds. My adaption to that rule is a 80% stock -20% short term treasury bond mix.

I'm not providing investment advice, but sharing a way to think through this problem set. Hope this helps.

~ Coach Holdren

Is there a bit safer alternative to VTI but better than Fideltiy money market for that $38k?

The fact that you are asking this question makes it seem like you are mentally creating some sort of artificial barrier at the end of 8 years. Forget about the 8 years.

Everything in the IRA is tax-free until you take the withdrawal. Do you want the "lots of different funds"? (I'm getting the vibe that you aren't excited about the specific funds in the IRA.) How soon do you need to use the money? If the answer to the second question is "not for a long time (i.e., more than 10 years into the future)", then sell everything that's in the IRA now and put it all in VTI. Then, as you make withdrawals (whether RMDs for the next few years or larger withdrawals to deplete the account after), take the money you withdraw and add it to your VTI position in your taxable brokerage account.

To summarize, the fact that you must deplete the account in 8 years does not matter because you can simply dump the cash into your taxable brokerage and buy whatever you want/need at that moment.

Sorry for your loss. I'm also dealing with an Inherited Traditional IRA with RMDs (10 years).

You're confusing yourself by doing some Mental Accounting, or thinking certain kinds of money are special because they came from different places or some other rules apply to it. It's just "money" (generic). Sure, side-note, it's a pre-tax account, and sure, it will be drawn down in the next 8 remaining years. But it's still just "money" (generic). More money is better than less money. Paying a wee bit more in marginal taxes on much more money is better than paying a wee less tax on less money.

So look at your big picture of your finances.

Are you in early-mid Accumulation Phase? Then ALL of your investments, EVERYWHERE, for long-term financial goals, like retirement/FI should be 100% Equity... something like 80% VTI and 20% VXUS... .low fee, highly diversified, passively managed, index funds, ideally in ETF format, held for the long-term. Your drawdown strategy of the account will then look to evenly distribute across the 8 years, so the tax burden is equal.... once out of the I T-IRA, you redirect these funds to the best use for each next available dollar:

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If you're within 7 years of hitting FI, maybe you're starting to prepare for Wealth Preservation and Drawdown Phase, transitioning into something more like a Golden Ratio Portfolio. Then, yes, after designing for Portfolio Allocation, you can getting a little optimization via Portfolio LOCATION.... putting your low-growth/high-dividend holdings into this Inherited T-IRA (just as you'd do with your own pre-tax account... just even lower growth asset classes here). Again, even distribution, unless you were going to hit FI and FIRE before RMD 8-years was complete, then you might do minimum distributions each early year, then higher average-out the rest post-retirement.... as the Inherited T-IRA distributions count as Ordinary Income.

I retired 5 years ago, at 45. I have really low Ordinary Income. I'm also doing Roth Conversions and such. But my priority will be to evenly draw out the RMDs as quickly as possible to stay within my target tax bracket before completing other tax optimizations... my own T IRA will launch RMDs later than the I T-IRA's RMDs need to be gone. Again, I'm already in a Golden Ratio-like portfolio, and have the low-growth assets in the I T-IRA and my own T IRA.... high growth in the Roth IRA.

Let me know if this makes any sense or not.

If you DO already have 1-3 years of expenses in cash equivalents, I would invest this inherited IRA according to your decumulation asset allocation (AA).

If you DON'T have sufficient cash, it may be OK to leave it invested in cash or even increase your cash or bond holding in the IRA.

PRO: Protection against stock market downturns soon before or after retirement (aka Sequence of Returns Risk).

CON: Loss of 10 years of tax-free growth from potentially higher returning stocks.

In either case, during retirement your inherited IRA distributions will be mandatory and reduce your withdrawal amounts from your taxable brokerage, or any other income sources you have access to.