Account Consolidation

[Erbragg1]

So, here is the deal... I am almost 49 (and planning on staying at 49 forever). I have a little over $2.25M not including the house. I am looking to RE in 2020-21 timeframe if possible. I will need a bit of help with a strong stock market for a few years to do it.

The issue I would like some help/advice on is how (or even if) to consolidate my accounts to make it easier to see my full financial picture better and what are the pitfalls of doing so.

I currently have $2.25M scattered as follows:

$950K in Fidelity Traditional IRA
$50k in Fidelity current company 401(k)
$225K in former company's 401(k)
$215K in Vanguard IRA (75% of which is Roth)
$175K in DW's Thrift Savings
$110K in DW's Roth with Federated Funds
$65K in 529 for kids college
$55K in TD Ameritrade Brokerage account
$355K in 8 different Dividend Reinvestment Accounts
$95K in cash, CDs, savings in 5 accounts

All totaled, this money is in 21 accounts. It takes me a few hours each month just to look up all of my balances and add up how I am doing. Any thought or advice on how to simplify? Should I? Are there any hidden tax gotcha's if I do?

 

[Sunset]

You will be able for each person (you , DW, children) be able to consolidate.

It's important to move things between similar accounts "IN KIND" no need to sell stocks , so no tax issue.
The tax sheltered accounts can be transferred directly from one to another (you don't get the check), so there will be no tax issue.

For example: $225K in former company's 401(k) can be rolled into a rollover IRA, and when you quit work the $50k in Fidelity current company 401(k) can be rolled into the same rollover IRA.

But you might get the most consolidation from $355K in 8 different Dividend Reinvestment Accounts , whatever those are is not clear, but if they were stock accounts, then you could transfer them to your $55K in TD Ameritrade Brokerage account.

As I wrote this, I realized you have missing information, like who is named on $55K in TD Ameritrade Brokerage account, so I'm guessing if you didn't specify, it is you.

Even after consolidation, you are still going to have many accounts, so I'd focus on the $355K in 8 different Dividend Reinvestment Accounts as that is probably maximum effect for now.

 

[Another Reader]

You can use an account aggregator such as Personal Capital to track most of the accounts. I would probably get rid of TD Ameritrade and the DRIPS by transferring in kind to a brokerage account at Fidelity. Unless the Federated Funds are great performers, I would sell them and move the proceeds to a Roth at Fidelity or Vanguard. If it makes sense in terms of offerings and fees, I would roll over the old 401k as well, either to the current 401k or an IRA at Fidelity or Vanguard. Hard to give up the quality funds and rock bottom expenses in the TSP, so I would probably leave that money there.

I use multiple accounts for cash. Yield chasing wins over simplicity for me there.

 

[OldShooter]

I would consolidate as much as possible just on principle.

As far as aggregating, Schwab just introduced a feature that let me add my non-Schawab accounts (one, actually) to my account summary screen and have their balances are included in the summation. Possibly Fido or Vanguard have something similar.

 

[LOL!]

It looks like the only accounts that you cannot move are the current Fidelity 401(k) and the current TSP (that is if wife is still employed and Thrift Savings means TSP).

You CAN consolidate without any tax consequences, but YOU just have to pull the trigger.

1. Figure out WHICH financial institution you want to end up at. I have accounts at many places and can recommend Fidelity, TDAmeritrade, and Vanguard. They are all good and offer similar products and services.

2. Once you decide, then I would start by transferring IN-KIND the DRIPs. I would STOP reinvesting dividends in those stocks and instead use their dividends to invest in index mutual funds or index ETFs.

3. I don't think there is any point in giving any more advice until you come back and tell us that you have done steps 1 and 2 above.

 

[pb4uski]

Unless your former employer's 401k has a solid stable value fund or other funds that you want that are not available in your IRA, I would consider rolling that 401k over into your IRA.

Also, why have two IRAs... one with Fidelity and one with Vanguard? So absent some compelling reason to keep the former employer 401k, I think the former employer 401k, Fidelity tIRA and Vanguard tIRA can be combined in one tIRA account... eliminating 2 accounts.

Similarly, don't see much point to having your Roths with two different providers... I would consolidate them at Vanguard.

If you want liquidity, you might consider consolidating the CDs and savings into one online savings account.

Similarly, can the dividend reinvestment accounts be consilidated into your brokerage accounts?

 

[Erbragg1]

It looks like the only accounts that you cannot move are the current Fidelity 401(k) and the current TSP (that is if wife is still employed and Thrift Savings means TSP).



2. Once you decide, then I would start by transferring IN-KIND the DRIPs. I would STOP reinvesting dividends in those stocks and instead use their dividends to invest in index mutual funds or index ETFs.

Thanks for the reply!

DW is not currently employed. Does anyone know if TSP can be rolled into an IRA and/or are there any benefits with TSP that would compel us to keep that money there?

Pardon my ignorance, but can you explain what is meant by an In-Kind transfer? How does that work? The DRIPs are invested either directly with the company (JNJ, PG, etc) or held in Computershare which I believe is sort of a clearing house/brokerage. Also, why would you recommend stopping the reinvestment and switch to Index funds?

 

[Erbragg1]

Also, why have two IRAs... one with Fidelity and one with Vanguard? So absent some compelling reason to keep the former employer 401k, I think the former employer 401k, Fidelity tIRA and Vanguard tIRA can be combined in one tIRA account... eliminating 2 accounts.

Similarly, don't see much point to having your Roths with two different providers... I would consolidate them

I guess there is no compelling reason to keep former 401(k) other than it has done well over the past ten years. The only reason for keeping the Vanguard account was that the Roth portion has been invested in the Healthcare Fund for 15 years or so and has done extremely well and I expect it will continue to.

The two Roths are because one is mine and one is DW's. Those cannot be combined, can they?

 

[pb4uski]

No, the Roths are individual to each of you. However, your Vanguard accounts as you described them are really two accounts... a Vanguard tIRA and a Vanguard Roth IRA... so the Vanguard tIRA could be combined with the Fidelity tIRA and formenr employer 401k... or vice versa.

As an example... if DW and I were to consolidate as much as possible then we would have only 5 accounts... joint taxable account, my tIRA, my Roth, her tIRA, her Roth. In addition we would also each have HSA accounts... so that would be 7 account.

 

[Erbragg1]

No, the Roths are individual to each of you. However, your Vanguard accounts as you described them are really two accounts... a Vanguard tIRA and a Vanguard Roth IRA... so the Vanguard tIRA could be combined with the Fidelity tIRA and formenr employer 401k... or vice versa.

As an example... if DW and I were to consolidate as much as possible then we would have only 5 accounts... joint taxable account, my tIRA, my Roth, her tIRA, her Roth. In addition we would also each have HSA accounts... so that would be 7 account.

Thanks, that's what I thought but wanted to be sure.

 

[Erbragg1]

You can use an account aggregator such as Personal Capital to track most of the accounts. I would probably get rid of TD Ameritrade and the DRIPS by transferring in kind to a brokerage account at Fidelity. Unless the Federated Funds are great performers, I would sell them and move the proceeds to a Roth at Fidelity or Vanguard. If it makes sense in terms of offerings and fees, I would roll over the old 401k as well, either to the current 401k or an IRA at Fidelity or Vanguard. Hard to give up the quality funds and rock bottom expenses in the TSP, so I would probably leave that money there.

I use multiple accounts for cash. Yield chasing wins over simplicity for me there.

Again, pardon my ignorance.... if you move from one brokerage to another, is that easy to do or a real pain in the rear? I assume that you do not have to sell anything to do so?

 

[sengsational]

There are good reasons to keep accounts separate. As as Mr ph4uski mentioned, if your 401k has a stable value fund that's otherwise unavailable to you. Also, if your asset allocation target demands it, 401k and HSA accounts often have the ability to create a brokerage under them. And maybe one account has a better/cheaper trading platform. All of those "good reasons" have my number of accounts above the 7 level. I'm at 13, and that's counting as 1, the accounts where I can move money back and forth within the one institution without tax consequences (for instance, the cash account associated with a Roth account).

I have an idea that will cut the time you spend to "see how you're doing" by 2/3: only do it every quarter! Are you really going to take action on the reports you generate every month?

I use a programming tool called SikuliX which is a tool I used to drive data collection across all institutions. It takes just a few minutes to run and all share counts, balances, etc are in a uniform csv file. The problem is that it's sensitive to even slight changes in web site design, so I end up spending time fiddling with the program rather than spending time manually gathering data.

 

[KM]

One other thing to consider is that IRAs are not protected from lawsuits in all states - but I believe your 401K is. You might want to check your state before you move anything out of your 401K.

I would love to rollover our 401Ks to IRAs and get everything in one place. But sadly we live in one of those states that don't protect IRAs. Now, I don't PLAN on getting sued (and we do carry Liability Insurance) - but it's a lot of money to risk. Hence, it's the main reason I haven't move our 401Ks to IRAs......

 

[OldShooter]

... if you move from one brokerage to another, is that easy to do or a real pain in the rear? I assume that you do not have to sell anything to do so?

In most cases it is really easy. You fill out a form from the new brokerage house that directs the old house to deliver your assets to the new firm. Sometimes the old firm will charge an account closing fee but it is common for the receiving firm to cover that.

You can sell everything or (the more common case) transfer "in kind" your investments. The only place there is a rub is if you have some kind of unusual asset that is tied to the old firm.

For tax sheltered accounts these are custodian-to-custodian transfers that are not taxable events. You can also get the money and give it to the new custodian but there is a time limit (60 days IIRC) on how long you can hold it and it is painful if you screw it up. Custodian-to-custodian transfers are the way to go.

 

[pb4uski]

For some of my retirement plans (401k and a DC plan) the administrator would not do a custodian-to-custodian transfer so they mailed me a check made out to my tIRA provider .... Payee: Vanguard Fiduciary Trust Company FBO pb4uski... and then I made a copy of it and mailed the original to Vanguard.

 

[pb4uski]

One other thing to consider is that IRAs are not protected from lawsuits in all states - but I believe your 401K is. You might want to check your state before you move anything out of your 401K.

I would love to rollover our 401Ks to IRAs and get everything in one place. But sadly we live in one of those states that don't protect IRAs. Now, I don't PLAN on getting sued (and we do carry Liability Insurance) - but it's a lot of money to risk. Hence, it's the main reason I haven't move our 401Ks to IRAs......

I've always felt this to be risk to be negligible if one has good umbrella coverage... if the OP lives in one of those states then he already has over $1 million at risk... another $225k isn't going to make much of a difference.

If you have a 401k with good investment options that have low ERs then perhaps leave it there, but if invetment options are poor and ERs are high then what you save by moving it to a lower cost provider could far exceed the cost of strong umbrella coverage.

 

[LOL!]

"In-kind" means your shares are transferred without being sold first or later. There are no tax consequences and you still own the same shares, but at a different custodian (financial institution)

"cash transfer" is your old custodian or you sell all your shares (and suffer the tax consequences), then you transfer cash and either spend it or buy investments with it.

The transfer forms have checkboxes to distinguish between the above kinds of transfers.

TSP has advantages, so don't mess with it until after all your other consolidation is done.

I'm trying to get you motivated, so that you bite off only what you can chew in the next month or so.
One step at a time.

 

[Sunset]

Again, pardon my ignorance.... if you move from one brokerage to another, is that easy to do or a real pain in the rear? I assume that you do not have to sell anything to do so?

Moving from one brokerage to another is easy, just be sure to do it "IN KIND" so you don't trigger taxes or selling fees. Once everything is at the new brokerage then you can decide what to sell or keep.

Rarely something cannot be transferred "in kind" and it won't be moved over, until you phone and tell the original brokerage to sell and then move the cash. This is truly a rare situation, and easy to solve.

 

[Another Reader]

Again, pardon my ignorance.... if you move from one brokerage to another, is that easy to do or a real pain in the rear? I assume that you do not have to sell anything to do so?

Any investments you are planning on keeping should be transferred in kind. A thousand shares of JNJ at Computershare or whoever is the DRIP administrator become a thousand shares at Fidelity with no tax consequences. If you sold and rebought, that would be a taxable event in a taxable DRIP account. Fidelity will usually reinvest the dividends for you at no cost.

I had a really bad experience moving cash in another institution to Vanguard's IRA. Vanguard "lost" the money for over a month. They did not really lose it, but their antiquated systems did not render the account visible. As a result, the money was not invested for that time. I have no love for Vanguard except for Wellesley/Wellington and company after that experience, but most people here have had better luck.

If the new broker does not sell the funds you own now or charges a high fee to do so, and the funds are in an IRA, unless they outperform their competitors, it usually makes sense to sell and buy the no transaction fee funds at the new broker. I know nothing about Federated Funds so I have no opinion on the best course of action.

Ditto on researching your legal protections on retirement accounts.

Drop by your Fidelity office if there is one nearby. Someone will be more than happy to walk you through the transfer process.

 

[Erbragg1]

"In-kind" means your shares are transferred without being sold first or later. There are no tax consequences and you still own the same shares, but at a different custodian (financial institution)

"cash transfer" is your old custodian or you sell all your shares (and suffer the tax consequences), then you transfer cash and either spend it or buy investments with it.

The transfer forms have checkboxes to distinguish between the above kinds of transfers.

TSP has advantages, so don't mess with it until after all your other consolidation is done.

I'm trying to get you motivated, so that you bite off only what you can chew in the next month or so.
One step at a time.

Thanks for the help and advice! Much appreciated!

 

[gauss]

You had mentioned about looking to ER in the next few years.

One of the disadvantages of moving a 401k to an IRA is that you loose access to the ability to take distributions prior to age 59 1/2, in some case, without incurring a 10% penalty.

I am specifically referring to the so-called "Rule of 55" as it is commonly referred.

The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:

Distributions made to you after you separated from service with your employer if the separation occurred in or after the year you reached age 55, or distributions made from a qualified governmental defined benefit plan if you were a qualified public safety employee (state or local government) who separated from service in or after the year you reached age 50.

There may be good reasons, despite this, to roll the funds over. These good reasons IMHO would include high-fees in the 401k or very limited choices of investments.

If this is not the case, then the "Rule of 55", the possible additional susceptibility of funds in an IRA to creditors/law suites (state specific), and the possible availability of "stable value" funds in the 401k are all unique advantages to the 401k over and IRA.

You must remember that that financial industry has spent huge amounts of money to encourage former employees to rollover 401ks to IRAs. This was also in an era when large fees and lousy choices in 401ks may have been more common.

-gauss

 

[LOL!]

The "rule of 55" will not apply to the old 401(k) and may not apply to the current 401(k). While the IRS allows it, the employer plan does not have to allow it.

 

[gauss]

The "rule of 55" will not apply to the old 401(k) and may not apply to the current 401(k). While the IRS allows it, the employer plan does not have to allow it.

edit: Agreed, Rule of 55 will not apply to former 401(k) unless the funds are rolled over to the new employers 401(k) AND the new 401(k) allows distributions/withdrawals prior to age 59 1/2. Rule of 55 only applies to 401k(s) of current employer.

--
[-]Do you have any source for these claims?[/-]

[-]Are you suggesting the 401k will not allow any distributions prior to age 59 1/2 even for former employees?[/-]

The employer does not have to affirmly say "yes you can apply the rule of 55 to this distribution", but merely has to offer the distribution.

It is up to the taxpayer to determine if the rule applies and this occurs on IRS Form 5329 Line 2 (at least when the employer issues a code 1 in box 7 on 1099-R as opposed to explicitly recognizing the exception and offering code 2.
edit: And of course, the taxpayer needs to interpret the law correctly when doing so.

[-]I am truly interested where these claims (not just yours) that the rule of 55 does not apply to employer 401k plans arise from. Perhaps the laws/regulations were different at some point in the past.[/-]

-gauss

 

[Erbragg1]

edit: Agreed, Rule of 55 will not apply to former 401(k) unless the funds are rolled over to the new employers 401(k) AND the new 401(k) allows distributions/withdrawals prior to age 59 1/2. Rule of 55 only applies to 401k(s) of current employer.



--

[-]Do you have any source for these claims?[/-]



[-]Are you suggesting the 401k will not allow any distributions prior to age 59 1/2 even for former employees?[/-]



The employer does not have to affirmly say "yes you can apply the rule of 55 to this distribution", but merely has to offer the distribution.



It is up to the taxpayer to determine if the rule applies and this occurs on IRS Form 5329 Line 2 (at least when the employer issues a code 1 in box 7 on 1099-R as opposed to explicitly recognizing the exception and offering code 2.

edit: And of course, the taxpayer needs to interpret the law correctly when doing so.



[-]I am truly interested where these claims (not just yours) that the rule of 55 does not apply to employer 401k plans arise from. Perhaps the laws/regulations were different at some point in the past.[/-]



-gauss

In my case, my current employer 401(k) does have the rule of 55, however I do not have much in that account yet and I plan on retiring before 55. If I understand this rule, you have to still be employed during the year you turn 55 to be eligible... please correct me if I am wrong.

I believe I read in a different post that you could withdraw the principle in a Roth prior to 59.5. Is that true?

 

[gauss]

In my case, my current employer 401(k) does have the rule of 55, however I do not have much in that account yet and I plan on retiring before 55. If I understand this rule, you have to still be employed during the year you turn 55 to be eligible... please correct me if I am wrong.

I believe I read in a different post that you could withdraw the principle in a Roth prior to 59.5. Is that true?

Correct on both points. That is my understanding also.

Note that on the Roth, the principal is handled differently for Roth contributions vs any Roth Conversions (or rollovers from employer plans).
Contributions come out first. Page 2 of IRS From 8606 gives all the gory details on Roth Distributions in Part 3.

-gauss