IRA Question

[vallieone]

Hello:

I am taking early retirement next year and trying to figure where to place the proceeds of my cash balance retirement plan which will be approx $50,000.

I currently have 5 individual IRA accounts with Vanguard:

Star Fund-$31,000 Deductible IRA

Wellington-$16,000 Inherited Spousal Deductible IRA

Life Strategy Growth-$11,000-Non-Deductible

Vanguard 500- $24,000 Rollover IRA from Previous Emp

Vanguard Total Stock-$14,000-ROTH IRA

I have purposely kept these all separate as I was advised to do this years ago.

I would like to eventually do a rollover of my cash balance plan into the Star Fund but not sure if I can mingle funds from an employers plan into my deductible
plan. Is this doable?

Other than the ROTH IRA, can I also consolidate my other individual IRA's to simplyfy my bookeeping going forward even though I am mingling other funds?

If I can do this, any suggestions which IRA's I should keep?

Thank you in advance

 

[vallieone]

Hope I didn't break an ettiquete rule here since no one has responded. If I did I applgize.

George

 

[wzd]

I'm not sure there is an authorative source for this type of advice here. I have heard some of the same comments about not commingling funds. The reason I am given is that it affects future options. For example, previous employer funds can be rolled over to a new employer account in a large number of cases. Why one would want to do that, and limit the investment options, I don't understand, but I do understand the point of keeping alternatives open.

One point I would make though - you can have multiple accounts in the same fund, so don't let the goal of keeping accounts seperate drive your investment choices. You can put the rollover funds in the account you desire, just as a seperate account.

BTW, I have consolidated some of my accounts, intentionally eliminating the option of rolling over to a future employer, partially since I don't plan to have a long term future employer. Also I have converted all my deductible IRA accounts to Roth, and have only to types of accounts - non-deductible IRA (withdrawals fully taxible) and Roth. The deductible IRA is just not worth the future accounting headaches to me. Take a look at the withdrawal rules and bookkeeping needed and you will understand.

My employer distribution (401k) consisted of pretax and after tax funds, and I segregated them at rollover into IRA and taxable accounts. For me, this made sense since the pre tax portion was 95% of the account and the after tax portion was only 5%. I did give up the right to have that 5% in an IRA account, but since I was planning on taking SEPP distributions, I just reduced those.

I suggest you try to understand the reasons for keeping accounts seperate, and the recordkeeping requirements, and then do your own cost/benefit analysis. But keeping them seperate until you understand the tradeoff is the right thing to do.

Wayne

 

[Bob_Smith]

George, when I have a retirement plan question such as this, and the IRS publications aren't clear (and they often aren't), I seek three separate opinions. If they don't agree, I keep at it until I get the correct answer. I've had 403(b), SIMPLE, Roth, SARSEP, SEP, and Traditional IRA plans. The rules vary and can be quite complex. What you do in one plan can affect what you do in others. Much of the information one sees in magazine articles or web articles is just plain wrong or incomplete. So I have found three sources that I use:

http://fairmark.com/messages.htm  There is a forum there and some of the people who respond are excellent. The quality of the information there I'd say is a 9 (out of 10). So I'd try there.

The second (and best) source I use is Wendy Deutsch at Vanguard. I haven't communicated with her in awhile but I just wrote to her yesterday - I hope she is still there. Wendy has never steered me wrong (others at Vanguard have provided bad information). When I want to be absolutely sure, I write to Wendy and sometimes I write back a few times to verify I have it right. She is patient and has the most expertise of anyone I have ever encountered, and I've tried lawyers and accountants who usually don't have a clue. To get to her I simply ask a Voyager rep to send my question to Wendy. I think she works in the retirement plan department. She's definitely a "10". She has been right every time, and she's not afraid to be very specific.

My third source is the IRS. They do respond to questions via email. The quality of the response I get are about a 3 on a scale of 1 to 10. Frequently they are wrong or provide canned responses that don't address the question I submitted. But I keep writing back for clarification until someone finally writes back and apologizes for the previous responses and confirms what I learned at Fairmark and from Wendy at Vanguard. Then I file all three responses and figure that should be pretty good armor in case of problems down the road.

I only follow this process on major issues that could really mess me up later if I get it wrong now (like 403b maximums which used to be VERY complex). I've found it works pretty well for me. Plus it's all free - except for my time - and I think the quality of the information has been far better than any accountant has ever provided to me.

 

[vallieone]

Thanks Wayne and Bob for taking time to respond to my inquiry, I really apppreciate it.

George

 

[John Galt]

My only comment re, Bob_Smith's is that I am wondering why he would bother contacting the IRS.
My experience is similar to his, i.e about a "3" score on a scale of 10. If I have a question, they would be
absolutely my last resort for info.

John Galt

 

[Bob_Smith]

My only comment re, Bob_Smith's is that I am wondering why he would bother contacting the IRS. My experience is similar to his, i.e about a "3" score on a scale of 10.  If I have a question, they would be absolutely my last resort for info.

True John. They are almost useless for getting information. I usually need to explain it to them after getting the answer elsewhere. But eventually they always confirm I'm right after I complain about their lack of knowledge and ask them to forward my question to a manager. The only reason I use them is for additional documentation. I think it's a good idea to have the IRS tell me - in writing - that I'm doing it right. And by the time I'm done, I usually have it in writing from a manager. But I only bother with this if it's a significant issue that could really hurt me later.

 

[wzd]

The IRS publications and web site are also a good source of information. In particular publications 525 and 575.

I would also echo Bob's general approach - distrust the answers until you can get the same answer from different sources, and in writing is best. Printed off of the IRS web site is also good.

Wayne

 

[bongo2]

"I have converted all my deductible IRA accounts to Roth"

Can you do this? I was under the impression that if you have, say $10k in a deductible IRA, and $10k in a non-deductible IRA, then all conversions and withdrawls are treated as 50% taxable no matter which account they come from.

 

[wzd]

Oh...yeah, that is true Bongo. My non-deductible funds were part of a 401(a) plan that my employer had, and I over-simplified my statement. I did convert all of my IRA's to avoid the bookkeeping in future years. Then I rolled my employer funds into seperate taxable (non-deductible funds) and IRA (deductible funds) accounts. So now I have after tax monies, Roth IRA's, and fully taxable (i.e. deductible) IRA's. Getting out of the form 8606 mess was a consideration in doing this.

Wayne