Ah, spring. That time of year when a reader's fancy turns to thoughts of sunny skies, blooming flowers and . . . retirement.
Well, maybe that last part doesn't fit. But it is a fact that most of the letters and e-mails I've received lately have focused on saving for the future.
For example, Norma recently sent a bunch of questions about her 401(k) and 457 plans. (A 457 is a deferred compensation plan commonly offered through government organizations.)
"I have a 401(k) and 457 with the state," Norma wrote. "I will turn 70 this year. Do I add these 401(k), 457 and my (individual retirement accounts) together and take the amount from all of them, or do I have to do it individually?
"Is it best to consolidate the 401(k) and 457 together, or is it best to take those out and combine with an IRA? . . . Could I start putting my withdrawals from the IRAs into a Roth account?"
Well, Norma, you certainly have a lot to ponder there. To sort it out, I contacted Roger Smedley and Sharla Jessop of Salt Lake-based Smedley Financial Services.
Roger and Sharla say that, as with most investment choices, there are advantages and disadvantages to the moves you are considering.
Roger says one disadvantage is that consolidating means you would lose protection from creditors on your 401(k) and 457 plans. Also, if you keep those plans with your employer, you would not have to pay annual fees to manage them, like you might for an IRA.
Finally, keeping the accounts separate may make it easier when it comes to deciding who will inherit what, because you could make different children the beneficiaries for different accounts.
But despite those disadvantages, both Roger and Sharla recommend consolidation.
"The first thing is, if you consolidate, it really makes it easier to track all of your investments," Roger says. "They're all in one place."
Sharla agrees. "It just makes life a lot simpler," she says.
Roger also points out that, in the tax year that you turn 70 1/2, the law requires you to start taking distributions from one of your accounts. If you have several, some account custodians may not know you already are taking distributions from a different account. Sharla says those other custodians probably would begin advising you to start taking distributions from the accounts they manage, and that can be "extremely confusing."
A further advantage to consolidation, Roger says, is that you can reduce trading costs and fees.
"The main advantage, I think, is there's more flexibility and more investment choices (with an IRA)," Roger says. "Investments can be self-directed."
Sharla adds, "It's also easier to monitor risk if everything is in one spot. If they have it in one place, it's easier for them to manage and diversify their risks and make sure they balance."
Regarding the question about taking withdrawals from an IRA and putting them in a Roth account, Sharla says that will be difficult, because you cannot contribute to an IRA once you are 70 1/2 years old. However, you can take some of your IRA and convert it to a Roth.
"Even if you're going to put your money into a Roth, you still have to take the required minimum distribution from a traditional qualified account," Sharla says. "After you take the minimum distribution for the year, you can convert whatever portion you want to a Roth. But when you do that, it triggers tax due on the retirement account, and that tax due cannot come out of the conversion."
Because of that, she says, you need to have cash flow available outside of your retirement accounts to pay for the conversion. And that means, Norma, that you need "to examine it very carefully and make sure it makes sense," Sharla says.
So, Norma, it looks like consolidation may be the way to go in this case. Let me know what you decide and how it turns out.
If you have a financial question, please send it by e-mail to gkratz@desnews.com or by regular mail to the Deseret Morning News, P.O. Box 1257, Salt Lake City, UT 84110.
E-mail: gkratz@desnews.com