Accounts all over the place…

[Mrs. Dinero]

We have too many accounts. I’ve had 5 401ks from different companies throughout my career. I’ve only transferred one to a traditional IRA. Who should we meet with to discuss tax implications? We’ll be retiring in 8 years. We have accounts with Thrift, Fidelity, TIAA-CREF, Capital Group, and another smaller one (current employer).

[minnesotapaintlady]

Tax implications for what?  You can roll them all over into one account if you want with no tax due or keep them where they all are if you want, you only will pay taxes on distributions.

My retirement accounts are in 3 places.  Vanguard, Fidelity and Prudential (current 401K).  Once I quit here, I'll roll that account into Fidelity and continue on with two. I had considered going all with one, but my anxiety about having all my eggs in one basket won't let me.

[Mrs. Dinero]

We have 401ks, Roth IRAs, 403Bs, 401As, and a Traditional IRA. I would like to see if we need to move any now to balance tax implications later.

[minnesotapaintlady]

Sept 5, 2023 9:11:35 GMT -5 Mrs. Dinero said:

We have 401ks, Roth IRAs, 403Bs, 401As, and a Traditional IRA. I would like to see if we need to move any now to balance tax implications later.

I still am not really understanding.  With the exception of the Roth, all of those accounts are taxed the same as ordinary income when withdrawn.  So, unless you're thinking of converting some to Roth (which would be a taxable event), moving money between the accounts doesn't change anything tax-wise.

[Mrs. Dinero]

Thank you. I’m pretty sure we could live off our Roths and not touch 401k/401a/403bs for several decades.

[minnesotapaintlady]

You might want to rethink that and tap the 401k/401a/403bs first as they will be subject to RMDs eventually while the Roth money will not.  Hard to say without knowing the full picture, but generally a better idea to let the tax-free continue to grow.

[Mrs. Dinero]

We’ll be retired for 16 years before RMDs are required though. Why pay the taxes on 401ks if we don’t have to?

[resolution]

Depending on how much taxable income you have, you may want to at least pull out enough from the pre tax accounts to reach the standard deduction. That way you get to use some of your 401k money tax free before you hit the RMDs.

[tallguy]

Sept 5, 2023 10:51:54 GMT -5 Mrs. Dinero said:

We’ll be retired for 16 years before RMDs are required though. Why pay the taxes on 401ks if we don’t have to?

Because if you are retired with low other income it is generally better to take at least some from traditional IRAs (and presumably you would roll over the 401k accounts to an IRA) at a low tax rate rather than leave them until RMDs do come into play.  Also, if you are going to leave money to heirs the Roths are FAR better for them to inherit.

My Roth money is there if I need or want to spend a lot in any given year, but I generally will NOT be spending it on a regular basis.  More advantageous to me to spend down the T-IRA money now, given that a certain amount is in my 0% bracket anyway.  At least take that much first, and if tax brackets do not increase much beyond where they are now I would consider taking more depending on what the amounts are in each type of account.  It's not ALL about avoiding tax now.  It's about how the pieces work best together over time that is most important.        

[minnesotapaintlady]

You can't avoid paying the taxes on the tax-deferred (unless you die first and your heirs pay it instead), but you can control how much you pay by doling it out in small amounts over many years rather than letting it build up into a big tax time bomb that goes off in the form of RMDs that you have no control over.  The opposite is true with the Roth, the more it builds up the better.

[The Walk of the Penguin Mich]

Sept 5, 2023 10:51:54 GMT -5 Mrs. Dinero said:

We’ll be retired for 16 years before RMDs are required though. Why pay the taxes on 401ks if we don’t have to?

Because RMDs will jack up your income, and if it’s over a certain limit, you get a surcharge on Medicare.  Right now, my Medicare surcharge is about $400/mo.  Multiply that by 2 (IRMAA affects both part B and prescription plans) for a couple and DH and I are currently paying $800/mo extra ON TOP of Medigap and prescription plans.  

[Mrs. Dinero]

Thank you all. From Fidelity’s website “There are several approaches you can take. Traditionally, tax professionals suggest withdrawing first from taxable accounts, then tax-deferred accounts, and finally Roth accounts where withdrawals are tax free. The goal is to allow tax-deferred assets the opportunity to grow over more time.“

[tallguy]

Sept 5, 2023 11:12:08 GMT -5 Mrs. Dinero said:

Thank you all. From Fidelity’s website “There are several approaches you can take. Traditionally, tax professionals suggest withdrawing first from taxable accounts, then tax-deferred accounts, and finally Roth accounts where withdrawals are tax free. The goal is to allow tax-deferred assets the opportunity to grow over more time.“

And I disagree with that as well, although admittedly my situation is different and so my plan will be different.  I consider my Roth money to be the most important money I have, but I may never withdraw from my taxable account.  There is no reason to sell just to sell, since I have enough elsewhere, but my heir will inherit my taxable account with a stepped-up basis so no tax will be due at all if sold.  There will also be no restriction on having to empty the account within a certain number of years so it is more flexible that way.  Everybody's situation is different, so there really are no hard-and-fast rules about how to proceed.  Just be aware that general or "traditional" advice often isn't optimal for everybody, and you are perfectly free to diverge from it where you wish. 

[The Walk of the Penguin Mich]

Sept 5, 2023 12:11:14 GMT -5 tallguy said:

Sept 5, 2023 11:12:08 GMT -5 Mrs. Dinero said:

Thank you all. From Fidelity’s website “There are several approaches you can take. Traditionally, tax professionals suggest withdrawing first from taxable accounts, then tax-deferred accounts, and finally Roth accounts where withdrawals are tax free. The goal is to allow tax-deferred assets the opportunity to grow over more time.“

And I disagree with that as well, although admittedly my situation is different and so my plan will be different.  I consider my Roth money to be the most important money I have, but I may never withdraw from my taxable account.  There is no reason to sell just to sell, since I have enough elsewhere, but my heir will inherit my taxable account with a stepped-up basis so no tax will be due at all if sold.  There will also be no restriction on having to empty the account within a certain number of years so it is more flexible that way.  Everybody's situation is different, so there really are no hard-and-fast rules about how to proceed.  Just be aware that general or "traditional" advice often isn't optimal for everybody, and you are perfectly free to diverge from it where you wish. 

We are doing the opposite.  We are spending a lot of money traveling, and it is being drawn from taxed accounts.  We figure that we will only be doing this maybe another 10-12 years (of course, dependent on health).  So rather than do conversions, we pull the money from taxed accounts……especially since between us they would drown us in RMD when we won’t be spending as much.  We are getting hit with IRMAA now, but shouldn’t about the time we stop traveling and TD starts collecting SS.

[Tiny]

Sept 5, 2023 11:12:08 GMT -5 Mrs. Dinero said:

Thank you all. From Fidelity’s website “There are several approaches you can take. Traditionally, tax professionals suggest withdrawing first from taxable accounts, then tax-deferred accounts, and finally Roth accounts where withdrawals are tax free. The goal is to allow tax-deferred assets the opportunity to grow over more time.“

I'm just throwing this out there about general financial advice:  Think about who the target audience is for that advice and then determine if you are the target audience.   

That can be more difficult than you think (to determine if you are the target audience for the rule of thumb/general advice/advice in general)  You need to know and understand your situation (what "target audience" you are) and you need to be able to determine the target of the advice.  

I will also say this - when getting general advice about tax differed accounts - the target audience is usually someone who  DOES NOT have a meaningful pension, is married, works until nearly their full retirement age  and whose SS will supply the bulk of their retirement income with their tax differed accounts supplying a smaller amount than their SS every year until both spouses have died.  

All of that probably isn't very helpful.

I'm gonna say you are NOT the target audience for the general advice you quoted.   

  

[Tiny]

Everyone's retirement financial planning looks different.

I cut this quote from a thread here:

The best plan seems to be to try to aim for level taxes throughout retirement, through judicious mixing of sources: some IRA withdrawals or conversions, some taxable, some Roth to cover lumpy expenses as needed without driving taxes up. Proportions vary as you add SS, pensions, RMDs, etc.
from YMAM Secure Act 2.0 thread said by Teen Persuasion

I think this is something to consider.

[haapai]

The hair on the back of my neck rises when I read that Fidelity quote.  Please tell me that you have snipped all sorts of caveats.  That advice is way too general. 

I agree with the spirit of what Tiny has said about the utility of figuring out who this advice was targeted at and why.  Knowing what assumptions were behind this general advice and why it would work for them can really help you figure out when to zig when others are loudly and authoritatively telling you to zag.  Knowing when the general advice is dead wrong for you is a big part of being in charge of your own life.

OTOH, I'm not entirely convinced that Tiny is spot-on regarding who this advice was intended for.

[minnesotapaintlady]

Right now taxable accounts are basically the same as Roth for me because mine doesn't throw off much for distributions and LTCG are taxed at 0% for my tax bracket, but that could easily change with the swipe of a pen at any time. 

I don't really have anything worth mentioning in my taxable account anyhow, so it's basically just tax-deferred vs. Roth.  Until age 65 I'm going to draw from tax-deferred up to the amount to stay under the limit for ACA subsidies and then tap taxable and Roth if extra is needed. 65-75 will be mostly tax-deferred.  I'm guessing RMDs end up being about what I would have drawn anyhow, and it stays pretty level.

[souldoubt]

We're years off from retirement but I look at withdrawing from tax deferred accounts as akin to gifting money to reduce future tax liability.  I like the thought of having my Roth available in case we need more than normal distributions and don't want to deal with a bigger tax bill in a given year.  The taxable account is the one I want to start committing more to as that's our "f-it" money that will hopefully put us in a position should we want or need to bridge the gap between early retirement and SS/medicare.  That said I haven't put a ton of thought into it yet and others posting in this thread have a lot more experience or have given this topic a lot more thought that I have.  

As far as our accounts we have them in three places - Vanguard for Roth/taxable, Fidelity for 401K and Valic where my wife's old 403B is that she needs to roll over into Vanguard.  The options my employer has available through Fidelity are great and they're really good about reviewing and cycling out under performing funds.  The Company is far smaller than it used to be which is a factor but there's 3x the number of former vs. current employees in the plan because of how well it's run.  I'd likely stay in even after leaving unless I rolled it into a plan with a new employer. 

[MN-Investor]

Think, too, about which type of investments you want to have in each type of account. In other words, if you want to have a 50/50 split between stocks and bonds, where do you own your stocks, where do you own your bonds? Bonds generate ordinary income and typically grow more slowly than stocks, so consider putting them into a conventional IRA. If you hold stocks in a taxable account, their dividends may be excluded from income whereas if you hold them in a conventional IRA, those dividends will eventually be taxed as ordinary income. The same applies to long term capital gains. In a taxable account, LTCG receive special tax treatment. Within a conventional IRA, they are taxed as ordinary income when you take them out of your IRA.

Just a thought.

[haapai]

I think that if you think that you have too many accounts, you have too many accounts. 

It sounds like you and your spouse have ten or eleven different accounts.  You'll have to make a spreadsheet (and print it landscape) in order to meet with an advisor.  Worse, all of the detail in the comments/flags (regarding expenses and whatnot) won't print.  You're probably setting yourself up for a lecture on simplifying things and possibly being pressured into going with the advisor's firm.  Maybe you'll get some advice on how to allocate the rolled over money, but it will probably be quite general as the advisor really can't get much understanding of the big picture from that spreadsheet. 

Do you really want to start your relationship with a financial advisor like this? 

[haapai]

I googled "advice for consolidating retirement accounts" and found some useful information.  The first two results are from Schwab and U.S. Bank and aren't particularly helpful but the next two from Investopedia and Thriven contain useful information.  The Thriven entry contains a helpful link to an IRS page that details in graph form which accounts can be consolidated with others. 

You can probably save quite a bit in fees and gain tremendous clarity by herding these accounts into fewer places.  You'd really be doing yourself a favor.  I probably shouldn't even have to mention how much your accountant (who will charge you extra for extra work) and your beneficiaries will benefit from you doing this. 

Does anyone here know off the top of their heads whether RMDs from beneficiary IRAs have to be taken from each IRA or similar account or whether you are bound to withdrawing a certain percentage of the total of all the accounts left from you by a certain person? 

[minnesotapaintlady]

Sept 7, 2023 13:11:35 GMT -5 haapai said:

Does anyone here know off the top of their heads whether RMDs from beneficiary IRAs have to be taken from each IRA or similar account or whether you are bound to withdrawing a certain percentage of the total of all the accounts left from you by a certain person? 

IRAs it is one withdrawal that covers all accounts and can all be from one account.  401Ks need to be taken separately with each account having it's own RMD.  I'm assuming 401a and 403b accounts are the same that way since they're similar with tax treatment otherwise, but I haven't actually looked it up. 

I plan on rolling my 401K into an IRA to avoid having to take two separate RMDs.

[haapai]

While my question was specifically about beneficiary IRAs and whether you can draw the entire RMD from one account instead of a set amount from each, I do appreciate the heads-up on having to take separate RMDs from my own traditional IRAs and traditional 401(k)s.  It's additional fire under my bum to roll that fee-riddled 401(k) into my traditional IRA as soon as possible. 

[tallguy]

Sept 7, 2023 13:19:43 GMT -5 minnesotapaintlady said:

Sept 7, 2023 13:11:35 GMT -5 haapai said:

Does anyone here know off the top of their heads whether RMDs from beneficiary IRAs have to be taken from each IRA or similar account or whether you are bound to withdrawing a certain percentage of the total of all the accounts left from you by a certain person? 

IRAs it is one withdrawal that covers all accounts and can all be from one account.  401Ks need to be taken separately with each account having it's own RMD.  I'm assuming 401a and 403b accounts are the same that way since they're similar with tax treatment otherwise, but I haven't actually looked it up. 

I plan on rolling my 401K into an IRA to avoid having to take two separate RMDs.

Be careful with that.  The question was about beneficiary IRAs, and that answer can be different.  A surviving spouse has the option to treat the inherited IRA as their own.  Other beneficiaries do not.  In addition, it is allowable to aggregate RMDs from separate IRAs inherited from the same decedent.  It is not allowable to aggregate RMDs if the beneficiary IRAs are from different people.  Those need to be calculated and taken separately.  These rules can be complicated, so anyone in that circumstance needs specific advice based on their situation. 

[minnesotapaintlady]

Sept 7, 2023 14:25:40 GMT -5 tallguy said:

Sept 7, 2023 13:19:43 GMT -5 minnesotapaintlady said:

IRAs it is one withdrawal that covers all accounts and can all be from one account.  401Ks need to be taken separately with each account having it's own RMD.  I'm assuming 401a and 403b accounts are the same that way since they're similar with tax treatment otherwise, but I haven't actually looked it up. 

I plan on rolling my 401K into an IRA to avoid having to take two separate RMDs.

Be careful with that.  The question was about beneficiary IRAs, and that answer can be different.  A surviving spouse has the option to treat the inherited IRA as their own.  Other beneficiaries do not.  In addition, it is allowable to aggregate RMDs from separate IRAs inherited from the same decedent.  It is not allowable to aggregate RMDs if the beneficiary IRAs are from different people.  Those need to be calculated and taken separately.  These rules can be complicated, so anyone in that circumstance needs specific advice based on their situation. 

Yeah, I missed the beneficiary part of the question. 

[haapai]

Sept 7, 2023 14:25:40 GMT -5 tallguy said:

Be careful with that.  The question was about beneficiary IRAs, and that answer can be different.  A surviving spouse has the option to treat the inherited IRA as their own.  Other beneficiaries do not.  In addition, it is allowable to aggregate RMDs from separate IRAs inherited from the same decedent.  It is not allowable to aggregate RMDs if the beneficiary IRAs are from different people.  Those need to be calculated and taken separately.  These rules can be complicated, so anyone in that circumstance needs specific advice based on their situation. 

Please forgive me, Mrs. Dinero, for going off on this tangent but I just gotta ask tallguy some more questions.  While you may (rightfully) suspect that I am going on and on about this just to scare you into consolidating your mess of accounts, I'm also pretty curious about all this. 

tallguy, if someone is the named beneficiary of two separate traditional IRAs and a traditional 401(k) from one individual, is it even possible for them to consolidate those three separate accounts into one beneficiary T-IRA account?  While this is not my situation, I am curious about whether this situation can be simplified.  I think that I might learn more by asking you this question than reading IRS documents or googling and finding mostly sales pitches. 

[MN-Investor]

Before confusion sets in here... when you talk about an inherited IRA, there's a difference if it's from your spouse as opposed to if it's from a non-spouse. You can treat an inherited IRA from a spouse as if it's your own. You just roll it over into your IRA or designate it as your own IRA. There are special rules for inheriting from a non-spouse.

(Please correct me if I'm wrong.)

[tallguy]

Sept 7, 2023 15:41:43 GMT -5 MN-Investor said:

Before confusion sets in here... when you talk about an inherited IRA, there's a difference if it's from your spouse as opposed to if it's from a non-spouse. You can treat an inherited IRA from a spouse as if it's your own. You just roll it over into your IRA or designate it as your own IRA. There are special rules for inheriting from a non-spouse.

(Please correct me if I'm wrong.)

No, that's correct.  Which is kind of why I said it in #24.  

[tallguy]

Sept 7, 2023 15:26:17 GMT -5 haapai said:

Sept 7, 2023 14:25:40 GMT -5 tallguy said:

Be careful with that.  The question was about beneficiary IRAs, and that answer can be different.  A surviving spouse has the option to treat the inherited IRA as their own.  Other beneficiaries do not.  In addition, it is allowable to aggregate RMDs from separate IRAs inherited from the same decedent.  It is not allowable to aggregate RMDs if the beneficiary IRAs are from different people.  Those need to be calculated and taken separately.  These rules can be complicated, so anyone in that circumstance needs specific advice based on their situation. 

Please forgive me, Mrs. Dinero, for going off on this tangent but I just gotta ask tallguy some more questions.  While you may (rightfully) suspect that I am going on and on about this just to scare you into consolidating your mess of accounts, I'm also pretty curious about all this. 

tallguy, if someone is the named beneficiary of two separate traditional IRAs and a traditional 401(k) from one individual, is it even possible for them to consolidate those three separate accounts into one beneficiary T-IRA account?  While this is not my situation, I am curious about whether this situation can be simplified.  I think that I might learn more by asking you this question than reading IRS documents or googling and finding mostly sales pitches. 

It is allowable to consolidate beneficiary IRAs if they were originally inherited from the same owner.  I would assume that would include a 401k as well, although I do not know if it would be necessary to roll it over to an IRA first.  A 401k administrator may not be able to roll it directly to a combined account without going to a separate beneficiary IRA initially.  Either way, it should be fairly simple paperwork involved.  If the beneficiary IRAs were from different individuals they cannot be combined.  Hope that helps.