03 Feb I just inherited money. How should I arrange the accounts?

Q. I just inherited a large IRA and a large brokerage account from my father. How can I best merge all the investments so I have fewer accounts to keep track of but also so I know the inheritance and my current accounts aren’t too overlapped?
— Investor

A. We’re sorry to hear about your father’s passing.

The rules for inherited IRAs are very specific, so we’re glad you’re asking for clarity.

You have to keep the inherited IRA in its own inherited IRA account, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

“You can’t dump the contents of the inherited IRA into your own IRA because inherited IRAs have different withdrawal rules than a regular IRA,” he said.

You can, though, move the contents of the inherited brokerage account into your own brokerage account.

“Obviously having fewer accounts makes managing them easier,” Kiely said. “Excluding your 401(k) plan, you can reduce your investment into three accounts. Your IRA, the inherited IRA and your brokerage account.”

Investing money requires a plan, Kiely said.

The first step in your plan is to decide what percentage of your money do you want invested in equities (stocks) and what percentage in fixed income (bonds, CDs and savings accounts), he said.

“Stocks are risky but provide a good long-term return. Fixed income is relatively safe, but offers a lower return,” he said. “For retirees, I usually recommend 50%/50%. The younger you are, the more you can have in equities.”

The next step in the plan is breaking down the equity portion of your investments into large-cap, medium-cap, small-cap, international equities, and Real Estate Investment Trusts (REITS), Kiely said. Then, the fixed income is broken down into international bonds and domestic bonds.

This would give you seven asset classes, Kiely said, and each will have its own percentage of the entire investment portfolio. This is called an asset allocation.

“The final step in the plan is called rebalancing. If you have 15% allocated to large-cap and the large-cap portion of your portfolio has grown so it is 18%, then you sell 3% to bring it back to 15%,” he said. “You take the funds from the 3% you sold and invest it into a class that is below its allocation.”

“To most people this is counterintuitive,” Kiely noted. “Why sell a portion of what’s going up? The answer is you are selling what’s up and buying what’s down. Buy low – sell high.”

To answer your question about overlapping, Kiely said you should not analyze each account by itself.

“Create a spreadsheet that shows everything you own. Sort it by asset class. If you need to lower a class, then look in each account for that class. Each account doesn’t have to be invested the same way,” he said. “What’s important is when you add up all your accounts they meet the details of your investment plan.”

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This story was originally published in February 2025.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.