Combining various IRA Accounts


I

in Technicolor®

At my broker I have 3 different IRA Accounts setup. 2 accounts are
rollovers from 401k's I had at previous employeers. The 3rd account is a
simple IRA that I created earlier this year since I didn't have an employer
provided plan, but wanted to get my 2006 tax deduction. Anyway, since all 3
accounts are IRA's now at this one broker, can I combine them into just one
account? I want to do this since I have very little time or brain capacity
to manage multiple accounts. In fact, the reason I did the rollovers from
Fidelity and Vanguard to Schwab was because it was just getting to hard to
learn each broker's website and offerings.

Any input would be appreciated.

TIA
 
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J

joetaxpayer

in said:
At my broker I have 3 different IRA Accounts setup. 2 accounts are
rollovers from 401k's I had at previous employeers. The 3rd account is
a simple IRA that I created earlier this year since I didn't have an
employer provided plan, but wanted to get my 2006 tax deduction.
Anyway, since all 3 accounts are IRA's now at this one broker, can I
combine them into just one account? I want to do this since I have very
little time or brain capacity to manage multiple accounts. In fact, the
reason I did the rollovers from Fidelity and Vanguard to Schwab was
because it was just getting to hard to learn each broker's website and
offerings.

Any input would be appreciated.

TIA
There's no issue combining the IRAs. One broker stopped letting you
designate different beneficiaries on different IRA accounts, so even
that reason for multiple accounts is gone. Just make sure the
beneficiary designation is clear for the one IRA account you now have.
JOE
www.joetaxpayer.com
 
S

sailor1x

At my broker I have 3 different IRA Accounts setup. 2 accounts are
rollovers from 401k's I had at previous employeers. The 3rd account is a
simple IRA that I created earlier this year since I didn't have an employer
provided plan, but wanted to get my 2006 tax deduction. Anyway, since all 3
accounts are IRA's now at this one broker, can I combine them into just one
account? I want to do this since I have very little time or brain capacity
to manage multiple accounts. In fact, the reason I did the rollovers from
Fidelity and Vanguard to Schwab was because it was just getting to hard to
learn each broker's website and offerings.

Any input would be appreciated.

TIA

I'd wait until year end distributions are made.
 
D

Dave Dodson

I'd wait until year end distributions are made.

Why? Distributions within IRAs are not taxable events. Besides,
combining IRAs at the same brokerage wouldn't have to involve selling
and buying. It probably would be done by book entries.

Dave
 
M

Mark Freeland

There's no issue combining the IRAs. One broker stopped letting you
designate different beneficiaries on different IRA accounts, so even that
reason for multiple accounts is gone. Just make sure the beneficiary
designation is clear for the one IRA account you now have.
There are lots of reasons for keeping separate IRAs. They tend not to apply
to many/most people, but they do exist. Some include:

1) Different beneficiaries - even if Vanguard restricts beneficiary
designations, nearly all other custodians do not. This can allow you to
invest differently for different beneficiaries (you couldn't easily get the
same effect by partitioning a single IRA by beneficiary percentages, because
the percentages would shift as the different investments performed
differently).

It allows you to designate your spouse as sole beneficiary (allowing the
spouse to treat the inherited IRA as the spouse's own IRA) for only some of
the money. It allows (in fact, requires) you to compute RMDs separately on
each IRA, which can reduce the total RMD amount.

2) Even with the same beneficiaries, having separate IRAs allows you to do
multiple 60-day rollovers per year (since the once-per-year limit on these
rollovers applies separately to each IRA).

3) Conduit IRAs still receive greater bankruptcy protection (they inherit
the unlimited protection from the employer-sponsored plan, as opposed to
ordinary IRAs, which are limited to $1M in combined bankruptcy protection by
the federal government; state law may vary).

4) You might not be able to roll over a combined IRA into another employer's
plan (e.g. the plan documents might not have been modified since 2001 and
still contain the pre-EGTRRA rule that only conduit IRA rollovers are
allowed).

Then there are all sorts of more obscure (IMHO) tax reasons for not
combining conduit IRAs with ordinary IRAs if they represent old assets:
http://www.investopedia.com/articles/retirement/03/051403.asp

While one may not care about any of these reasons for keeping IRAs separate,
there are still many to consider. Note that combined IRAs can be easily
split again (e.g. for the purpose of designating different beneficiaries),
but once a conduit IRA is tainted, it cannot be separated out. So pay
particular attention to the reasons for not combining conduit IRAs (still,
even after EGTRRA).

FWIW, I have applied more than one (though hardly all) reason for keeping
separate IRAs, so this list is more than mere speculation. YMMV.

Mark Freeland
(e-mail address removed)
 
J

joetaxpayer

Mark said:
It allows you to designate your spouse as sole beneficiary (allowing the
spouse to treat the inherited IRA as the spouse's own IRA) for only some of
the money. It allows (in fact, requires) you to compute RMDs separately on
each IRA, which can reduce the total RMD amount.
Mark, wouldn't a single IRA allow the same thing? If the spouse is the
primary beneficiary, 100%, no issue at all, and if spouse is 50%, it
requires a post death split into two accounts. I agree with you that
there's a post-death simplicity for the beneficiaries by using multiple
accounts, but thought that was it.

I respectfully believe you are mistaken on the RMD matter. It's common
for some people to buy a CD each year at a different bank and allow it
to continue year after year. Someone with 10 different accounts has no
need to take ten separate withdrawals, just calculate their year end
total balance and determine a single RMD number. As another poster one
stated "you only have one IRA (this was pre-Roth days) it may be in
multiple accounts and may have some post-tax component, but one IRA none
the less."

Your other reasons are noted, the multiple loan strategy in particular,
for those desperate enough to need that.
JOE
 
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M

Mark Freeland

joetaxpayer said:
Mark, wouldn't a single IRA allow the same thing? If the spouse is the
primary beneficiary, 100%, no issue at all, and if spouse is 50%, it
requires a post death split into two accounts.
(And conversely, if there was no issue at all, then the spouse was likely
designated the 100% beneficiary :)
http://dictionary.law.com/default2.asp?selected=1032&bold=||||

There multiple questions here, and we may be mixing things up. With RMDs, I
was speaking of pre-death, not post death. See below.
I respectfully believe you are mistaken on the RMD matter. [...]
Someone with 10 different accounts has no need to take ten separate
withdrawals, just calculate their year end total balance and determine a
single RMD number.
Only half of this is correct. From Pub 590:

"_More than one IRA_. If you have more than one traditional IRA, you must
determine a separate RMD for each IRA. However, you can total these minimum
amounts and take the total from any one or more of the IRAs."
http://www.irs.gov/publications/p590/ch01.html#d0e6240

In most cases, totaling the IRAs and then dividing by a distribution period
is the same as dividing each IRA by a distribution period and adding. But
it isn't the same if the two IRAs have different divisors, as will happen if
one uses Table II (spouse is sole beneficiary, more than 10 years younger
than IRA owner), and the other uses Table III.

For example, John is 71, and has two IRAs, each with $100K. One with his
wife, age 55. One with his brother (age irrelevant). Table II (ages
71/55) gives a divisor of 30.9. Table III (age 71) gives a divisor of 26.5.

So, the RMD amount is: $100K/30.9 + $100K/26.5 = $7009.83

Clearly this is less than ($100K + $100K)/26.5 = $7547.17

Post mortem, you are right that beneficiaries can split into separate IRAs,
so that they need not use the divisor of the oldest beneficiary.
http://www.nysscpa.org/cpajournal/2003/0203/dept/d025203.htm

It is true that a spouse can roll over an inherited IRA into one's own.
Aside from administrative nonsense and timing, this is substantially
indistinguishable from the spouse simply maintaining the original IRA and
treating it as the spouse's own; but it does require an extra step by the
recently widowed spouse.
http://www.irs.gov/publications/p590/ch01.html#d0e3304 (See also the NYS CPA
Journal article cited above.)

Interestingly, the NYS CPA article suggests a reason for combining
beneficiaries into a single IRA - if the older beneficiaries disclaim
interest, then the IRA flows through to the younger beneficiary, who can
withdraw at a slower RMD rate. This allows for some postmortem estate
planning.

Mark Freeland
(e-mail address removed)
 
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J

joetaxpayer

Mark said:
There multiple questions here, and we may be mixing things up. With RMDs, I
was speaking of pre-death, not post death. See below.
My bad. Of course you are correct. Thanks for your detailed response and
kindness, Mark. IRA rules are complex enough to fill a book. A good
target for simplification.
JOE
 

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