Consolidating Your IRAs: Why It Makes So Much Sense

Do you own multiple IRAs? Many people do

Do you own multiple IRAs? Many people do. You may have started your first IRA all the way back in the 1970s. Maybe you started a Roth IRA in the late 1990s when that option became available. Perhaps you have an IRA CD or an IRA money market account at a bank. Or perhaps you've rolled over 401(k) assets from former employers into a few IRAs.

There is wisdom in consolidating your IRAs. Why? Well, let's look at the reasons.

Save on yearly account fees. Fewer IRA accounts mean fewer administrative costs. If you have seven IRAs, you could consolidate them into one or two accounts and rid yourself of the fees you would be paying annually to maintain the other five or six.

Less paperwork. Tired of getting multiple account statements? Tired of filing and keeping track of those multiple statements? Why not simplify things? With fewer accounts, it becomes easier to track the performance of your investments.

A chance to refresh the way you invest. An IRA consolidation can also be a time to invest your IRA assets more conservatively than you did at midlife. Sometimes people don't adjust the asset allocation of their IRA or 401(k) for years. They approach retirement with investments that make more sense for younger investors, and with their IRA assets exposed to more risk than they want.

A way to simplify the administration & distribution of IRA assets. Are you older than 70? When it comes to calculating your Required Minimum Distribution (RMD), having just one traditional IRA instead of, say, five makes figuring out that RMD amount considerably easier.

A while back, you may have set up multiple IRAs for estate planning purposes, each with its own beneficiary. Years ago, only one beneficiary could inherit an IRA. In 2002, that changed. Now, under most circumstances, you can name multiple beneficiaries for one IRA. (Your original IRA can be divided into separate accounts by December 31 of the year after your death, and each beneficiary may calculate RMDs based upon their own life expectancies.)1

Furthermore, the executor of your estate will appreciate having one or two IRAs to deal with, as opposed to six or eight or nine (and there will be less paperwork to hunt for, if a hunt must take place).

It's easy. Moving IRA assets from one traditional IRA to another requires an IRA asset transfer (also called a trustee-to-trustee transfer). It's actually less involved than the classic 401(k)-to-IRA rollover. You don't have to deal with the 60-day deadline that comes with that move.

Can you convert your traditional IRA to a Roth IRA? You sure can during 2010 in that year, anyone will be able do it. But before then, you may or may not be eligible to do so. In 2008 and 2009, your modified adjusted gross income (MAGI), not including the converted IRA income, needs to be under $100,000 for the tax year involved.2 Also, inherited IRAs may not be converted into Roth IRAs. (But thanks to IRS Notice 2008-30, non-spouse beneficiaries of company retirement plan assets may now convert those inherited assets into Roth IRAs.)3

Should you convert to a Roth before 2010? For many IRA owners, it makes sense to wait until then. If you convert in 2008 or 2009, your tax bill may be sizable, because you'll have to pay income tax on any gains in the IRA and any pretax contributions you've made to it over the years.4 On the other hand, if you do it in 2010, you can defer the taxes on the conversion over 2011 and 2012.2 Of course, through any Roth IRA conversion, you'll gain the future benefits of tax-free compounding, the possibility of tax-free withdrawals and the potential to make contributions after age 70 without having to take RMDs.5

Consider simplifying your IRAs. This small step may reduce fees, statements and even confusion. In fact, if you have a bunch of "strays" in your portfolio investments you've almost forgotten about, or wonder if you could be getting more out of consider a chat with your financial advisor that could help you sharpen your investment focus.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

This does not constitute an endorsement by John Jastremski, The Retirement Group or the author of the book. The opinions expressed are solely those of the author and may or may not be a representative opinion of The Retirement Group or John Jastremski.

Citations.

1 raymondjames.com/ira_minimum_dist.htm [11/19/08]

2 filife.com/stories/preparing-for-a-roth-ira-conversion-in-2010 [1/30/08]

3 irahelp.com/newsletter/files/0088-2008-APR (1).pdf [4/08]

4 smartmoney.com/personal-finance/retirement/roth-iras-to-convert-or-not-7965/ [1/10/08]

3 investopedia.com/articles/retirement/03/012203.asp [11/18/08]

Consolidating Your IRAs: Why It Makes So Much Sense

By: The Retirement Group

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