I won’t name names, but I was just discussing this question with a colleague here at USAA. It was an enlightening experience for both of us. I was getting ready to launch into my standard “leave it, roll it or cash it” overview, but after I asked her a few questions I realized we would both be better served if we gathered a bit more information.
If you’re wondering what you should be doing (or not doing) with your old IRA, here are six questions that might help you answer the question, or, at the very least, better prepare you for a discussion about your options:
How is your IRA invested? I know not everyone gets as excited about their investment portfolio as I do, but you should know what you own. During this conversation, my friend’s knowledge was limited to the name of the IRA custodian. Did I say homework…
How does it fit in with the rest of your retirement portfolio? Clearly, if you don’t know how your money is invested, you don’t know how it fits in your overall retirement portfolio. Your IRA might hold investments that aren’t available in your plan at work and nicely complement what’s available through your employer. If that’s the case, you may want to stick with what you have. On the other hand, if tracking your portfolio becomes too much of a hassle, you may want to look at consolidation into an existing IRA or your employer plan.
How much is it costing you? If you’re paying too much, that can be a compelling reason to make a move with your IRA. Online databases like Morningstar.com or prospectuses can provide you the information you seek with regards to mutual funds or exchange traded funds. Don’t forget to examine transaction costs if your IRA investment is in some type of a brokerage account.
Do you have a retirement income plan? If you’re closer to retirement you might be thinking about how you’re going to produce what you need to fill the gap between what you anticipate spending and what you will have coming in from Social Security, military retirement and other sources. How and where you’re investing should be a part of the plan and a factor in what makes the most sense for your IRA. For example, money in an employer plan from which you separate in the year you turn 55 or later is accessible penalty free…not so with IRA withdrawals at the same age.
What’s your plan with income taxes? One of the first questions I asked my friend during our conversation was whether the IRA was Roth or Traditional. She knocked it out of the park knowing that the IRA in question was a traditional IRA. If that’ s the case, you might consider a conversion to a Roth IRA to take advantage of lower-than-usual income or create a more tax-diversified portfolio. This can get a bit complex and require consultation with your tax advisor, but income taxes can play a big role in your plan – and what you do with that IRA.
Is location hampering management? Consolidation can provide transparency and ease the burden of managing your retirement investments. If an old IRA is an afterthought that hasn’t been included in the periodic rebalancing of your portfolio or performance review, a move may make sense.
You may decide to leave your IRA in place, roll it to another IRA or employer plan or convert it, but with these questions answered, you’ll be able to make a decision that works best for you.
What are you doing with your IRA?
About the Blogger: JJ Montanaro is a Certified Financial Planner® professional and part of the Military Affairs team at USAA. He’s a graduate of the U.S. Military Academy and has over 20 years of financial planning experience.
Disclosures: "Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED
FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements."
The information contained is provided for informational purposes only and is not intended to substitute for obtaining professional financial advice. Please thoroughly research and seek professional advice before acting on any information you may have found in this article. This article in no way attempts to provide financial advice that relates to all personal circumstances.
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