1. Consolidating Your Retirement Money – Itemize Your Assets
  2. Consolidating Your Retirement Money – Determine Your Objectives
  3. Consolidating Your Retirement Money – Evaluate Performance
  4. Consolidating Your Retirement Money – Organize Your Assets
  5. Consolidating Your Retirement Money – Plan For The Future

Now that you have inventoried and evaluated your portfolio, you may wonder whether you really need to keep all your accounts separate. In many cases, the answer is no, but there are a few things to consider such as the tax status of the investments you may own.

What You Can Consolidate

If you have both Roth and traditional IRAs scattered in various bank or brokerage accounts, you can simplify your life by combining all of each kind into two accounts. If you invested your IRAs in CDs (probably not a good idea unless you’re at least 60 years old), wait for each CD to mature before doing this. The following example shows when this can and can’t be done.

Eric is 48 years old and works for a software publishing company as a computer programming manager. He makes $200,000 a year and is maxing out his company’s Roth 401(k) plan, which is invested in a diversified aggressive portfolio of small-cap, biotech, technology and health-care funds. His employer also contributes to a nonqualified deferred compensation plan that is funded with an indexed universal life plan and will pay him $1,000 a month for life during retirement. His assets are listed as follows:

– $75,000 Roth 410(k) at his current employer;

– $3,500 traditional IRA at discount broker;

– $4,500 Roth IRA CD at his bank;

– $2,500 Roth IRA CD at his bank;

– $12,400 IRA indexed annuity rollover at discount broker;

– $0 balance traditional IRA;

– $30,000 Roth IRA at full-service broker;

– $50,000 nonqualified variable annuity;

– $15,000 money market with full-service broker; and

– $40,000 in stocks and bonds with full-service broker.

Eric could simplify his record keeping by combining some of his accounts. He could move the $4,500 and $2,500 Roth IRA CDs at his bank into the Roth IRA with his broker. He could also move the $3,500 traditional IRA he has at his broker into his indexed-annuity IRA.

What Should Stay Separate

It's crucial to keep tax-deferred investment vehicles separate from those that are funded with after-tax dollars. One reason: You will have to take minimum distributions on tax-deferred accounts when your reach age 70½. See Don't Forget To Take Minimum Distributions.

In Eric's case, although he has two IRA annuities, he cannot combine his IRA annuity with his nonqualified annuity, because the nonqualified annuity was funded with after-tax dollars and cannot be commingled with IRA money that was funded with deductible contributions. He will also leave his traditional IRA with the zero balance open because he uses that to fund a backdoor Roth IRA conversion strategy that allows him to make a nondeductible contribution to that account and then convert it to the Roth IRA he holds with his broker. (For more information on this topic, see How Can I Fund A Roth IRA If My Income Is Too High To Make Direct Contributions?)

What Should Be Replaced

The spreadsheet you did in the previous section will highlight any investments that don't match your goals and time horizon, as well as any that aren't doing well for their category. This is the time to consider replacing them.

It is also useful to look at how diversified your holdings are; you may find that you are too heavy in certain sectors and could use more investments in others. This is the time to think about rebalancing your portfolio.

In addition, if you find you're working with multiple brokers, you may want to consolidate your accounts in one or two places to simplify managing them. Or, like Eric, you might want one discount broker and one full-service broker. Consolidating your brokerage accounts will mean you'll have fewer accounts and people to track and more money in each place, which could gain you additional services or better rates. Again, a financial adviser could be useful here.

In Eric's case, he might consider moving his retirement money into more moderate holdings. He is able to max out his contributions each year and probably doesn’t need extreme growth to retire comfortably, especially since he’ll be getting another $1,000 a month from his deferred compensation plan.


Consolidating Your Retirement Money – Plan For The Future
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