Now that you have evaluated your portfolio, you may wonder whether you really need to keep all of your accounts separate. In many cases, the answer is no, but there are a few things to take into consideration, such as taxation. If you have both Roth and traditional IRAs 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 of them to mature before consolidating them. The following scenario shows when this can – and can’t – be done.
A Consolidation Scenario
Eric G. is 48 years old and works for a software publishing company as a computer programmer. 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 healthcare 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. Here are his other assets:
• $3,500 IRA at discount broker
• $4,500 IRA CD at his bank
• $2,500 Roth IRA CD at his bank
• $12,400 IRA variable 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
• $40,000 of stocks and bonds with full-service broker
Obviously, Eric isn’t exactly hiding from the paperboy. But he probably could simplify his life somewhat by combining a few of his accounts. He could move the $2,500 Roth IRA CD at his bank into the Roth IRA with his broker. He could also move the small traditional IRAs he has at his bank and discount broker into his variable annuity IRA, or combine those three accounts into one in another way. But it will probably be easiest to move his other assets into the annuity contract, especially if he would have to pay back-end sales charges if he were to liquidate it.
However, he cannot combine his IRA annuity with his nonqualified annuity because it 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 . Eric might also consider moving his retirement money into more moderate holdings, since he is able to max out his contributions each year and probably doesn’t need extreme growth in order to retire comfortably, especially since he’ll be getting another thousand dollars a month from his deferred compensation plan.
Use these same strategies to look at your resources and discuss whether any could be consolidated. Remember that IRAs and 401(k)s are individual, so if you are a couple you cannot consolidate them. You should, however, discuss how well they mesh with your retirement goals.
Neil Buono
SafeGuard Investments
11204 Clayridge Dr
Tampa, FL 33635
813-495-8550 office
813-441-6850 fax
941-544-8546 cell
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