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The Journey: What to consider before consolidating retirement accounts

McClatchy-Tribune Information Services

February 2, 2015


Q. Should I put all my retirement accounts with one brokerage/financial firm? I have two accounts at one firm out of town, and a recently inherited account with another firm here in my hometown. The same applies to my husband’s accounts. My daughter will inherit it all, but she lives 10 hours away in another state with a family and responsibilities of her own. It seems that it would be easier for her if something would happen to us.

A. Consolidating far-flung accounts can be a great relief, and not just for your daughter. The move can reduce your own headaches at tax time, possibly allow you to qualify for lower investment costs and simplify the process of rebalancing your asset allocation.

There are a few things to be aware of, however.

First, not all retirement accounts can be merged. You can’t combine your IRA or 401k with ones in the name of your living spouse, for example. Rolling a 401k into an IRA can be done, and you can consolidate traditional IRAs held at different financial institutions. If you have Roth IRAs at different companies, those can be merged.

And some employers allow workers to roll old 401k plans into their plans.

Converting a traditional IRA to a Roth IRA — and then undoing that move later — can also be done, but converting triggers taxes owed on the traditional IRA.

Non-spousal inherited IRAs generally can’t be combined with other types of IRAs.

If you have assets in a trust, be sure to consult an experienced estate attorney to make sure the beneficiary designation on the retirement accounts is in the correct name.

After sorting all that out, you’ll need to decide if you also want to consolidate the number of entities holding your retirement accounts.

IRAs invested in bank certificates of deposit are insured by the Federal Deposit Insurance Corp. up to $250,000, though revocable trusts can effectively boost that limit if you have multiple beneficiaries.

Investment firms cannot make these insurance guarantees on the performance of stocks and bonds, but they do offer some protection in case of firm failure.

The Securities Investor Protection Corp. oversees the liquidation of failed brokerage companies and tries to return missing customer deposits up to a $500,000 limit, but it doesn’t back up fictitious profits that result from fraud, notes Stephen Harbeck, SIPC’s president.

And despite Bernard Madoff’s historic 2009 fraud conviction, investors are still eager to consolidate their nest eggs, said Beth Gamel, a financial adviser with Argent Wealth Management.

"Most people want to bring order to their lives and put their money in one place," Gamel said. Even investors with more than $500,000 often opt for a single institution to hold the money, she said.

"Hopefully, (the Madoff case) made them recognize the importance of a (well-known) third party to custody the assets," Gamel said. In other words, if you engage an adviser to oversee your consolidated accounts, make sure you understand the paper trail between the adviser and the firm that actually holds the securities.

Q. When I file for health insurance online to get a quote, because of my gross income and living situation, I receive a government subsidy of $400 because my adjusted gross income is $20,000. But I have assets from a pension plan and 457(b) that approaches $900,000. The reality is that I have kept my previous employer’s health insurance because I am afraid to switch to another plan. What is the income limit for a 64-year-old single male or is it based on net worth?

A. Subsidies are based on modified adjusted gross income, which includes Social Security benefits, wage income and income that is generated from financial assets, but not the principal. For 2015, the income range for individuals to qualify for subsidies is $11,670 to $46,680, according to the Henry J. Kaiser Family Foundation.

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