Issues to Consider When Reviewing Estate Planning Documents
Reviewing estate planning documents is an important exercise, but it can be a daunting task that is tedious and even confusing at times.
Most people hold several different jobs over the course of their careers. In fact, the Bureau of Labor Statistics reports that by the time the youngest baby boomers reached age 58, they had worked an average of 12.9 jobs in their adult life.
It makes sense, then, that after decades of working and saving for retirement, your nest-egg-in-progress may be scattered across multiple accounts. Add together workplace retirement plans from former employers, a couple of IRAs you opened on your own and perhaps one you inherited, and you may find yourself juggling more accounts than you intended.
Whether or not to consolidate those accounts is a question we hear often. And as with most investment decisions, there are potential benefits and drawbacks.
The primary advantage of consolidation is simplicity. It is easier to manage one or two retirement accounts than five or six. You receive fewer statements and log into fewer websites. With a simpler picture of your overall portfolio, we can more easily monitor your progress and ensure you are on track to reach your investment goals. What is more, if you are rolling over funds from a workplace plan into an IRA, you might have access to a wider range of investment options.
Consolidation can also reduce costs. If you have multiple accounts, each with their own fees, you could be paying more than you need to. Moving separate balances into a single account may eliminate redundant administrative or custodial fees.
When you reach retirement age, you may appreciate having fewer required minimum distributions (RMDs) every year. And it is much easier to update beneficiary designations and manage estate planning with fewer accounts across fewer financial institutions.
There are certain situations in which you might prefer to leave your old workplace plans alone to preserve their unique advantages. For example, some 401(k) plans provide access to low-cost institutional share classes without a minimum balance requirement.
If you are planning early retirement, timing is important. The “Rule of 55” allows penalty-free withdrawals from a 401(k) if you leave your job at age 55 or later. This benefit disappears if you roll those funds into an IRA. Similarly, if you take advantage of an “in-service” rollover, moving funds from a current 401(k) plan with loan provisions to an IRA, you would no longer be able to borrow against those funds in an emergency. (Of course, borrowing from a 401(k) is usually a last resort.)
There is also the question of investment quality. Before consolidating, we can help you compare the expense ratios and investment options across your accounts. We will see how your old employer’s plan stacks up against your IRA or current workplace plan and tailor your consolidation strategy accordingly.
If consolidation makes sense for you, there are several options. You can roll old 401(k)s into a traditional IRA, which typically offers the broadest investment flexibility. Or, if your current employer’s 401(k) accepts rollovers, you can consolidate there while maintaining 401(k)-specific benefits.
Some people choose to consolidate by account type, combining all traditional accounts into one traditional IRA and all Roth balances into a Roth IRA. This simplifies management of your accounts while maintaining the tax advantages of each type. Another approach is to move all your IRAs to the same institution without merging the funds themselves. This gives you some of the simplification benefits of consolidation, while maintaining separate accounts. This route might make sense if you are using a different investment strategy for each or if you are tracking inherited IRAs or rollover IRAs separately from contributory accounts.
The bottom line is this. When it comes to consolidating retirement accounts, there is not one optimal strategy that is going to suit everyone. If you are intrigued by the idea of consolidation, let us know. We can talk you through the different factors worth considering and help you zero in on the best approach for you.
This post was written and first distributed by The Writing Company.
DISCLAIMERS
This material is intended for general public use. By providing this material, we are not undertaking to provide investment advice for any specific individual or situation, or to otherwise act in a fiduciary capacity. Please contact one of our financial professionals for guidance and information specific to your individual situation. This is not an offer to buy or sell a security.
Shore Point Advisors is an investment adviser located in Brielle, New Jersey. Shore Point Advisors is registered with the Securities and Exchange Commission (SEC). Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. Shore Point Advisors only transacts business in states in which it is properly registered or is excluded or exempted from registration. Insurance products and services are offered through JCL Financial, LLC (“JCL”). Shore Point Advisors and JCL are affiliated entities.
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