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Spring cleaning in your financial closet

Posted February 04, 2015 in Advice Column, Ames

Spring cleaning season is upon us. Garage? Check. Basement? Check. Finances?

Do you have multiple retirement accounts?  Often times when people switch jobs, open separate accounts or have accounts left to them, they stay separate and dispersed among companies, institutions or owners. You can clean up these disparate accounts by rolling over your older or multiple retirement accounts into a single Individual Retirement Account (IRA) saving you time and possibly expense.

Current rules permit nearly every qualified retirement plan to be either transferred, or rolled over, to another qualified retirement plan. Common qualified retirement accounts that might be eligible for a rollover include: 401(k), 403(b) or 457(b) plans.  Should you meet a distribution event under these retirement plans, such as leaving that employer or retiring, you can transfer or rollover your balance under that plan to either another employer sponsored qualified plan or an IRA.

An IRA is an individual account that provides you with income tax deferral to help you save for retirement.  There is a traditional IRA which accepts before tax contributions and grows income tax deferred until distributions are taken and then taxed.  There is a Roth IRA which accepts after income tax contributions which can grow income tax free if certain requirements are met. The growth of these two types of accounts isn’t guaranteed and there are inherent risks with any investment.

An IRA rollover is the act of funding an IRA account with all assets being rolled over or transferred directly from an existing tax-qualified retirement account, a pension plan, a profit sharing plan, 401(k) plan, or another IRA, typically, without either tax penalty or income tax withholding, for continued tax-deferred growth.  Special rules apply to distributions to and from designated Roth accounts.

An additional advantage of consolidating your retirement accounts into one IRA is that when it comes time for you to take a mandatory distribution from your IRA (which happens at age 70 ½ for most taxpayers) you need only make one annual calculation and one annual distribution

Yet, another consideration to getting your retirement plans consolidated into one account is that it will make it easier for your loved ones to locate and handle your retirement account upon death.

While cleaning out the back corners of your basement, you should consider cleaning out your financial back corners too.

Information provided by Duane Faas, Kirt Till and David Sparrey, Heartland Associates – Ames, Thrivent Financial, 315 Sixth St., Suite 100, Ames, (515) 292-7077.

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