Rollover IRA

<p>Recently my dad and I were discussing retirement accounts, and I commented that I have lot of them. At last count I had:</p>

<li>403(b) - former employer</li>
<li>401(k) - former employer</li>
<li>Traditional IRA</li>
<li>Roth IRA</li>
<li>SEP IRA - from current S-corp, but haven't invested money in years</li>
<li>Profit Sharing Keogh - same S-corp, I regularly invest in it</li>
<li>Rollover IRA (moved a 401k from a former employer into it when I left)</li>

<p>Dad was saying that calculating and taking the distributions from all of these will make me crazy when I reach retirement age, and it would be good to consolidate some of them. Even now, the amount of paperwork makes me a little crazy. All except the Roth were pre-tax contributions.</p>

<p>I'd like to roll some of these together, and was thinking about transferring them into the rollover IRA. But I was poking around online, and saw some (admittedly vague) comments that I would have trouble with the distribution calculations if I DID merge some of these. But can't figure out what that means... I do know that once I put 401(k) funds with non-401(k) funds in an IRA, I can't move them back to a 401(k) -- no intention of that anyway. It looks to me like once these funds go to a rollover IRA, I am just bound by the IRA rules -- start distributions at 70.5, penalty on early withdrawals, etc.</p>

<p>I called the investment company with the current Rollover IRA (where I would like to consolidate as much as possible). The person there said I could consolidate the following into the rollover IRA:</p>

<li>Traditional IRA, SEP IRA, 403(b), 401K</li>

<p>Leaving me then with just the rollover IRA, Roth IRA, and Profit Sharing Keogh</p>

<p>Does anyone have any advice on other implications of this, especially if I am creating any kind of headaches regarding distribution calculations? Any other reasons why I wouldn't do this?</p>

<p>Distribution rules are the same for IRA (non-Roth) and 401k. Only real advantages to 401k are hardship distributions and loans (which are strongly discouraged anyway) and perhaps investment options (some 401k plans may have great options not available elsewhere). </p>

<p>As long as you keep pretax and after tax money (Roth) separate, calculating and taking distributions should not be too cumbersome either way. Required minimum distributions start at age 70.5. They are based on your total account values as of the end of the previous year. If you have 5 accounts, just add them up and use the total to determine your required distribution. You can take that distribution from any or all of your accounts as long as it exceeds the required minimum. You don't need to withdraw proportionately from each.</p>

<p>Unless your leftover 401k or 403b has some great investment options you can't get elsewhere, I would not hesitate to consolidate into one IRA.</p>

<p>I agree with Chardo, there is no reason from a tax perspective not to consolidate all pre-tax retirement money, as long as you do not plan to move them over later (401(k) to new 401(k)). Since you haven't reached age 70 1/2 you have not locked in the rules for distribution, and consolidating them may actually be better. For instance, your RMD is based on FMV of account divided by life expectancy tables. It is possible for each of the 5 accounts to have different beneficiary information, and that would affect which table that you would use. By combining them all, you will have a much easier time. Also, once you set up RMD, one company can automatically take out the money without the individual remembering. With 5 accounts, people generally think that they will take from the account that has the lowest rate of return. That is fine when you are 71, but not everyone is on the ball at 85 and that is when serious penalties come in to play for failure to pull enough funds.</p>

<p>Sorry for the long post. Can you tell I worked in the retirment industry for too long?</p>

<p>Thanks, this is very helpful info! One thing that occurred to me is whether the fees for the various funds would be the same if I transferred from the 401(k) to the rollover IRA. This is with a very large corporation (200,000+ employees), so I am wondering if they might have cut a better deal on the fees for the funds I am invested in. It is a pretty good chunk of money in the 401(k), so it could make a difference. How would I know... should I call the info number on the 401(k) and ask them this?</p>

<p>Also... do 401(k)s have the same distribution rules as IRAs, or do they vary by company? Could I retain some flexibility in that if I kept the 401(k) where it is?</p>

<p>In theory, distribution rules are the same for IRA and 401k. However there is often a major difference in practice. After your death, IRA's let your beneficiary stretch distributions over their own life expectancy. For example, if your 50 year old son is beneficiary at your death, he can stretch out required distributions based on his own life expectancy, about 34 years. This can provide decades of additional tax deferral. By law, 401k plans are allowed but not required to do the same. Most plans do not allow stretch distributions, because they would be required to administer them for decades. The beneficiary would need to do their own IRA rollover of the money in order to stretch their distributions. So, to answer your last question, you would actually have more flexibility with an IRA. </p>

<p>You can find out the fees in the 401k by checking the plan document and prospectus. These should be available from the administrator. With a plan that size, I would expect everything would be available on a website. As for fees, you shouldn't necessarily focus exclusively on them. Your 401k may have institutional investment options not available elsewhere. Some may have higher fees than you would like, but their performance may be more than enough to justify. Or not. You need to look at the track record and see if it consistently performs well. Historical performance figures are net of fees, so if an investment is consistently beating its benchmark, it's a good choice even if fees are higher than you might like. The exception would be index funds, which are invested identically (assuming the same index) wherever they are. For index funds, by definition, lower fees will always outperform higher fees. Your 401k may also have a guaranteed interest option, like a CD, with higher rates than you can get elsewhere. If a guaranteed interest option is important to you, then you need to consider that when deciding to rollover or stay. (good boy.)</p>