Take Control of Your Retirement Funds

By: Bernadette Smith, Fifth Third Private Bank

Consolidating Your Assets via IRA Rollover

For those who have changed jobs in the past few years – either once or several times – you probably have several different company sponsored retirement plans (401(k), 403(b)) or Individual Retirement Accounts (IRAs) from your career changes. If you have several of these types of accounts, there could be one thing you can do to help centralize account numbers and make it easier to keep track of your money and manage investments – consolidate to one IRA. Depending on circumstances, combining multiple accounts could provide easier supervision for you in the short- and the long-run.

Not only will rolling your funds into a single IRA continue the benefit of tax deferral, you may have more investment options to choose from than your current plans offer. If you already have an IRA or additional retirement accounts, a rollover IRA allows you to consolidate and streamline your retirement assets in a single, easy-to-manage account. You’ll be better able to see the big picture and guard against investment overlap.
Reviewing the asset allocation of your investments and periodically rebalancing your portfolio will also be a lot easier. You’ll receive one account statement instead of several, saving you time and effort in gauging where you stand financially with regard to your retirement readiness. Also, with a single account, it only takes one call when you have questions or concerns about retirement savings.

You will also continue to benefit from potential tax-deferred growth on your rollover IRA investments. You’ll pay income taxes when you withdraw funds from your IRA. The benefits of continuing tax deferral can make a big difference.

You can accomplish a tax-deferred rollover in two ways, a trustee-to-trustee transfer (also called a direct rollover) or by receiving the plan distribution and rolling it over to an IRA within 60 days (also called a delayed rollover). Both have their advantages.

A direct rollover is the least complicated choice of the two. Your retirement plan administrator transfers your funds directly into an IRA account. There is no middle-man (you) involved, eliminating any concerns or mix-ups regarding the 60-day rollover period. Better yet, no tax withholding applies to distributions that are rolled over in a direct trustee-to-trustee transfer. Thus, the full dollar amount is transferred.
If you have a short-term need for cash, maybe a delayed rollover would suit you better. With a delayed rollover, you can use the money for up to 60 days before having to transfer into an IRA account. However, there are consequences to this type of rollover.

Your plan administrator will withhold 20 percent of the distribution for federal income taxes. Therefore, with this delayed rollover, you will need to replace the 20 percent with funds from another source and deposit the full amount of the taxable distribution in a rollover IRA within 60 days. If you do not put the full amount back into the plan, the withheld 20 percent will be considered a taxable distribution, subject to income taxes and a possible 10 percent penalty.

While you may incur fees and charges when rolling over multiple accounts into a single IRA, some firms will waive, or reimburse you of these fees and charges. Check with the retirement plan administrator before you roll over any assets.

While IRA consolidation is beneficial for many, depending on your circumstances and beneficiary choices, it might not be the best move. For example, if you are under age 59-and-a-half and in need of ongoing distributions from an IRA, the best option might be to separate your IRA into one that can distribute Substantially Equal Periodic Payments in order to avoid early distribution penalties and leave the balance in an IRA that that will grow for retirement.

Also, when one of the intended beneficiaries is a charity, sometimes for ease of administration, separating the portion to go to charity could avoid administrative complications in the future.
The decision to consolidate is dependent on your needs.  It’s your money – do not hesitate to ask a qualified financial planner/professional for advice. A qualified planner/professional should give you unbiased assistance to help you with your consolidation efforts and can thoroughly review what options may be best for you.

Bernadette Smith, CFP, is Senior Portfolio Manager at Fifth Third Private Bank. She serves on multiple boards, including the Women & Girls Foundation.  Recently, she was appointed by Gov. Rendell as a member of the Inter-branch Commission for Gender, Racial and Ethnic Fairness,  received the YWCA “A Tribute to Women Leadership Award and the Athena Award.