Htown Harry
Thinks s/he gets paid by the post
- Joined
- May 13, 2007
- Messages
- 1,525
My annual account re-balancing for asset allocation is coming up in January. But before it comes, I also have a goal of consolidating too many tax-deferred accounts scattered across too many brokers and MF companies. Please comment on my plan.
The Environment
Not long ago, I started a thread on a federal study commission looking at methods to simplify retirement savings options, particularly tax-deferred accounts:
http://www.early-retirement.org/for...lify-retirement-savings-incentives-52049.html
For now, we're stuck with alphabet soup: 401(a), 401(k), 403(b), 457(b), IRA, Roth, HSA etc., etc.
Add in a spouse with her own accounts and 529 college savings accounts for the kids, and it's very easy to have investments scattered all over the place.
My Situation
The government may eventually produce a simplification plan, but in the meantime I want to simplify my finances under the current rules....without incurring a current tax bill or reducing flexibility in investment options or withdrawal methods.
My overall strategy is to consolidate accounts with Vanguard to the greatest degree possible. But before I call them to begin the paperwork for account set up and trustee-to-trustee transfers, I thought I would post the outline of my plan here for comments. I’m not looking for investment advice, just some feedback on the rules and whether I am considering all of the right issues.
DW and I are both 50. The aggregate value of all tax-deferred accounts is around $500,000. Individual account valuess range in value from less than $1000 to about one-half of the total pot.
The Accounts (summary below if you want to skip the details):
We currently have 14 tax-deferred accounts scattered across 6 mutual fund companies.
If I take the steps described above, we will have 6 accounts with Vanguard and 3 accounts with 3 other companies. Me - 529, Inherited IRA, Traditional IRA, and Rollover IRA with Vanguard; my old 457 and current 457 with other companies. DW - Traditional IRA and Rollover IRA with Vanguard, her current 403b with another company.
Some of the Fidelity accounts to be transferred have holdings in stocks and ETFs. I will therefore incur some modest commission expenses in carrying out the plan, maybe $100 total for liquidation and re-establishing the positions in a new Vanguard account. I figure I will make that up in lower expense ratios within a year or so.
The Environment
Not long ago, I started a thread on a federal study commission looking at methods to simplify retirement savings options, particularly tax-deferred accounts:
http://www.early-retirement.org/for...lify-retirement-savings-incentives-52049.html
For now, we're stuck with alphabet soup: 401(a), 401(k), 403(b), 457(b), IRA, Roth, HSA etc., etc.
Add in a spouse with her own accounts and 529 college savings accounts for the kids, and it's very easy to have investments scattered all over the place.
My Situation
The government may eventually produce a simplification plan, but in the meantime I want to simplify my finances under the current rules....without incurring a current tax bill or reducing flexibility in investment options or withdrawal methods.
My overall strategy is to consolidate accounts with Vanguard to the greatest degree possible. But before I call them to begin the paperwork for account set up and trustee-to-trustee transfers, I thought I would post the outline of my plan here for comments. I’m not looking for investment advice, just some feedback on the rules and whether I am considering all of the right issues.
DW and I are both 50. The aggregate value of all tax-deferred accounts is around $500,000. Individual account valuess range in value from less than $1000 to about one-half of the total pot.
The Accounts (summary below if you want to skip the details):
529 accounts for DD
Current (three accounts): 1) DW is trustee for a Vanguard account funded by a grandparent. 2) I am trustee for an account in the Ohio plan (College Advantage) invested in a Vanguard fund and 3) I am the trustee for an account in the Fidelity New Hampshire (“Unique”) Plan. The latter two were funded by me.
Issues: 1) Can I combine the funds regardless of original funding sources? 2) Regardless of the current trustee designation? 3) A detail – the current Vanguard account is invested in a mutual fund not on the current list of Vanguard’s 529 plan-approved investments
Plan: After answering the questions, close the College Advantage and Unique accounts using a transfer to the existing Vanguard 529 account. Once the outside funds are transferred, sell the current mutual fund position and consolidate the entire account balance in a single fund on Vanguard’s current list.
My Inherited IRA
Current: When DF, an educator, died he left one TIAA and one CREF account to his three sons through account beneficiary designations. My share, on which I have paid no taxes, was reclassified as two inherited IRA accounts in my name. At the time, I had to choose a method of receiving the account balance through a either a lump sum, a 5-year payout or required annual minimum distributions (RMDs) using my life expectancy table. I chose the latter. Taxable payments come once per year in December, which are used to offset my annual property tax payment. Investment choices are a small number of managed mutual funds with moderate expense ratios.
Issues: 1) I believe I can transfer this type of account to any other IRA trustee without penalties or tax consequences. However, it needs to be set up to preserve its designation as an inherited IRA with RMD payments, 2) to avoid an accounting or tax problem with the RMD’s, I want to transfer this account in December after my 2010 RMD payment is subtracted from the account. Best would be before January 1, when a new RMD basis is calculated. 3) For convenience, I will want Vanguard to set up their RMD as an annual payment in December. 4) Even if it is possible, I wouldn’t want to reclassify this to another account type. I can make taxable withdrawals in excess of the annual RMD without paying a penalty. Thus this account can be a source of life expense funds if I ER before age 60.
Plan: Set up a new inherited IRA account at Vanguard in December, then have the trustee transfer the TIAA-CREF balances and buy MF’s with the transferred funds.
DW’s Traditional IRA account
Current: Set up as a mutual fund account at Fidelity, funded with before-tax contributions directly into the account.
Issues: None.
Plan: Close the Fidelity account, transferring the balance to a new Vanguard Traditional IRA account in DW’s name.
DW’s Rollover IRA account
Current: Set up as a mutual fund account at Fidelity, originally funded with her before-tax contributions to a 401(k) account with a 1980’s employer. The funds were transferred to a rollover IRA when she left employment.
Issues: None
Plan: Close the Fidelity account, transferring the balance to a new Vanguard Rollover IRA account in DW’s name.
My Traditional IRA account
Current: Set up as a mutual fund account at Fidelity, funded with my before-tax contributions directly into the account.
Issues: None.
Plan: Close the Fidelity account, transferring the balance to a new Vanguard Traditional IRA account in my name.
My Rollover IRA accounts
Current (two accounts): 1) the first account is set up as a mutual fund account at Fidelity, originally funded with my before-tax contributions to a 401(k) account with a 1980’s employer. The funds were rolled over to the IRA when I left employment. 2) a second account exists at Vanguard, funded with the proceeds of an employer-funded pension lump sum distribution I rolled over when I left a 1990’s employer.
Issues: None that I know of. As best I can tell, there are no accounting or tax problems with mixing various rollover funds that come from different original contribution sources.
Plan: Close the Fidelity account, transferring the balance to the existing Vanguard Rollover IRA account.
My 401(a) account
Current: In the previous job from the 90’s, my employer contributed pay-in-lieu-of-vacation dollars to a 401(a) account. I have paid no taxes on the money. The money is in a Great West account invested in a bond fund. There are other MF choices, but all have not-so-hot expense ratios.
Issues: It appears I can transfer these funds to an IRA rollover account without consequences, but I haven’t been able to confirm this because I haven’t found much specific information on 401(a) rules. I need to confirm I can combine the 401(a) funds in an IRA rollover account without creating accounting or tax problems as a result of mixing these funds with funds from different original contribution sources.
Plan: Close the Great West account, transferring the balance into my existing Vanguard Rollover IRA account.
My 457(b) accounts
Current: 1) an account with XYZ Corp., a firm chosen by my current government employer. I actively make pre-tax contributions into this account through payroll deduction. 2) a second account with Great West, which was funded by pre-tax contributions through payroll deduction at my 1990’s employer.
Issues: 1) I believe I can make a no-taxes-due transfer of the old Great West 457 account to either my current 457 account or my Vanguard rollover IRA account. 2) But there’s a twist…457 accounts have the unique property of allowing post-departure withdrawals without paying a ten percent penalty, regardless of age. (Withdrawals are taxable, however.) 3) If I were to roll the old account over into my current 457 account, this money would no longer be available as a de-facto emergency fund, nor would it be available for no-penalty withdrawals to fund life expenses if I make it to ER before age 60. 4) Vanguard doesn’t appear to offer an “individual” 457 account.
Plan: Leave old account alone, leaving a balance equivalent to 9 months take-home pay in a very low risk, low return fund at Great West.
DW’s 403(b) account
Current: DW is employed by a non-profit and has an account with a nationwide church-based investment trust. She continues to fund pre-tax contributions through payroll deduction and receives an employer match.
Issues: None.
Plan: Leave it alone.
Summary:Current (three accounts): 1) DW is trustee for a Vanguard account funded by a grandparent. 2) I am trustee for an account in the Ohio plan (College Advantage) invested in a Vanguard fund and 3) I am the trustee for an account in the Fidelity New Hampshire (“Unique”) Plan. The latter two were funded by me.
Issues: 1) Can I combine the funds regardless of original funding sources? 2) Regardless of the current trustee designation? 3) A detail – the current Vanguard account is invested in a mutual fund not on the current list of Vanguard’s 529 plan-approved investments
Plan: After answering the questions, close the College Advantage and Unique accounts using a transfer to the existing Vanguard 529 account. Once the outside funds are transferred, sell the current mutual fund position and consolidate the entire account balance in a single fund on Vanguard’s current list.
My Inherited IRA
Current: When DF, an educator, died he left one TIAA and one CREF account to his three sons through account beneficiary designations. My share, on which I have paid no taxes, was reclassified as two inherited IRA accounts in my name. At the time, I had to choose a method of receiving the account balance through a either a lump sum, a 5-year payout or required annual minimum distributions (RMDs) using my life expectancy table. I chose the latter. Taxable payments come once per year in December, which are used to offset my annual property tax payment. Investment choices are a small number of managed mutual funds with moderate expense ratios.
Issues: 1) I believe I can transfer this type of account to any other IRA trustee without penalties or tax consequences. However, it needs to be set up to preserve its designation as an inherited IRA with RMD payments, 2) to avoid an accounting or tax problem with the RMD’s, I want to transfer this account in December after my 2010 RMD payment is subtracted from the account. Best would be before January 1, when a new RMD basis is calculated. 3) For convenience, I will want Vanguard to set up their RMD as an annual payment in December. 4) Even if it is possible, I wouldn’t want to reclassify this to another account type. I can make taxable withdrawals in excess of the annual RMD without paying a penalty. Thus this account can be a source of life expense funds if I ER before age 60.
Plan: Set up a new inherited IRA account at Vanguard in December, then have the trustee transfer the TIAA-CREF balances and buy MF’s with the transferred funds.
DW’s Traditional IRA account
Current: Set up as a mutual fund account at Fidelity, funded with before-tax contributions directly into the account.
Issues: None.
Plan: Close the Fidelity account, transferring the balance to a new Vanguard Traditional IRA account in DW’s name.
DW’s Rollover IRA account
Current: Set up as a mutual fund account at Fidelity, originally funded with her before-tax contributions to a 401(k) account with a 1980’s employer. The funds were transferred to a rollover IRA when she left employment.
Issues: None
Plan: Close the Fidelity account, transferring the balance to a new Vanguard Rollover IRA account in DW’s name.
My Traditional IRA account
Current: Set up as a mutual fund account at Fidelity, funded with my before-tax contributions directly into the account.
Issues: None.
Plan: Close the Fidelity account, transferring the balance to a new Vanguard Traditional IRA account in my name.
My Rollover IRA accounts
Current (two accounts): 1) the first account is set up as a mutual fund account at Fidelity, originally funded with my before-tax contributions to a 401(k) account with a 1980’s employer. The funds were rolled over to the IRA when I left employment. 2) a second account exists at Vanguard, funded with the proceeds of an employer-funded pension lump sum distribution I rolled over when I left a 1990’s employer.
Issues: None that I know of. As best I can tell, there are no accounting or tax problems with mixing various rollover funds that come from different original contribution sources.
Plan: Close the Fidelity account, transferring the balance to the existing Vanguard Rollover IRA account.
My 401(a) account
Current: In the previous job from the 90’s, my employer contributed pay-in-lieu-of-vacation dollars to a 401(a) account. I have paid no taxes on the money. The money is in a Great West account invested in a bond fund. There are other MF choices, but all have not-so-hot expense ratios.
Issues: It appears I can transfer these funds to an IRA rollover account without consequences, but I haven’t been able to confirm this because I haven’t found much specific information on 401(a) rules. I need to confirm I can combine the 401(a) funds in an IRA rollover account without creating accounting or tax problems as a result of mixing these funds with funds from different original contribution sources.
Plan: Close the Great West account, transferring the balance into my existing Vanguard Rollover IRA account.
My 457(b) accounts
Current: 1) an account with XYZ Corp., a firm chosen by my current government employer. I actively make pre-tax contributions into this account through payroll deduction. 2) a second account with Great West, which was funded by pre-tax contributions through payroll deduction at my 1990’s employer.
Issues: 1) I believe I can make a no-taxes-due transfer of the old Great West 457 account to either my current 457 account or my Vanguard rollover IRA account. 2) But there’s a twist…457 accounts have the unique property of allowing post-departure withdrawals without paying a ten percent penalty, regardless of age. (Withdrawals are taxable, however.) 3) If I were to roll the old account over into my current 457 account, this money would no longer be available as a de-facto emergency fund, nor would it be available for no-penalty withdrawals to fund life expenses if I make it to ER before age 60. 4) Vanguard doesn’t appear to offer an “individual” 457 account.
Plan: Leave old account alone, leaving a balance equivalent to 9 months take-home pay in a very low risk, low return fund at Great West.
DW’s 403(b) account
Current: DW is employed by a non-profit and has an account with a nationwide church-based investment trust. She continues to fund pre-tax contributions through payroll deduction and receives an employer match.
Issues: None.
Plan: Leave it alone.
We currently have 14 tax-deferred accounts scattered across 6 mutual fund companies.
If I take the steps described above, we will have 6 accounts with Vanguard and 3 accounts with 3 other companies. Me - 529, Inherited IRA, Traditional IRA, and Rollover IRA with Vanguard; my old 457 and current 457 with other companies. DW - Traditional IRA and Rollover IRA with Vanguard, her current 403b with another company.
Some of the Fidelity accounts to be transferred have holdings in stocks and ETFs. I will therefore incur some modest commission expenses in carrying out the plan, maybe $100 total for liquidation and re-establishing the positions in a new Vanguard account. I figure I will make that up in lower expense ratios within a year or so.
Last edited:
