Financial spring cleaning1/12/2024 ![]() accounts can be consolidated, and which must be kept separate. Consolidating these accounts can greatly simplify one’s finances, but it is important to know which accounts can be combined and which cannot. It is also common for individuals to end up with multiple types of accounts at different financial institutions. However, it may make sense to keep retirement funds under the 401(k) umbrella if you want to keep open the option to borrow funds (you cannot borrow from an IRA), or you want to make backdoor Roth IRA contributions. An IRA will generally offer a wider range of investment options no fees for account maintenance or withdrawals. Whether you should rollover an old 401(k) to a new employer plan or IRA may depend upon what investment options you have available in the new plan and their costs, any additional fees that may apply in each plan, and how each of those compare to a rollover IRA. Both these options will avoid triggering tax, but the rollover needs to be completed as a so-called “trustee-to-trustee” transfer to avoid mandatory 20% federal tax withholding that makes the rollover likely to trigger taxable income equal to the amount of withholding tax sent to the IRS. Old 401(k)s can usually be moved into a current employer’s 401(k) plan, or they can be moved to a traditional IRA. These are typically 401(k) accounts that have a couple of options for consolidation, so they do not get lost in the personal financial shuffle. ![]() Orphaned employer retirement accounts are common. Leaving this complexity in place can lead to added stress and the possibility that accounts are forgotten and end up on your Secretary of State’s list of unclaimed property. Over time, it is easy for wise financial decisions to result in accounts scattered at various banks, insurance companies, broker-dealers, and old employer retirement plans. While in organization mode, it makes sense to include one’s financial life in the spring cleaning tasks with an eye toward simplification where possible and prudent. In effect, we regain control after the chaos of a long winter. Spring is a fitting time for taking on these tasks because it can give our personal lives a re-set at the same time nature is re-setting for new growth over the summer. Again, review all your options and consider which choice will best prepare you and your loved ones for the future, as well as fit into your financial plan.With spring on our doorstep, many of us will get the urge for a refresh and take to cleaning, organizing, and clearing unneeded stuff out of our homes. Life insurance is also an important consideration. What would happen to your family if you had a catastrophic injury or illness? Consider long-term care insurance and whether it’s affordable for you and your family. Spring cleaning is an opportunity to look at the future and whether you are as prepared as you can be. Check out all the options available to be sure you are finding the best plan for your situation. It’s important to review your health insurance options annually, especially lately when there are so many changes. Review your health and life insurance options. Although this is an extreme situation, reviewing your portfolio and risk level annually will help you weather any storms that may come. The economy will recover with time, and those with more time until retirement will have longer to let their portfolios recover, whereas others will need to make changes. ![]() Be sure to touch base with your financial advisor before you make any major changes. Currently, there is a great amount of confusion and concern regarding the stock market and the economy in general. ![]() Those closer to retirement need to be more cautious with their investments and prepare for the tax implications of withdrawing from funds. With recent issues in the market, you might choose to change your risk comfort levels. A year can bring major changes that also need to be reflected in the portfolio, especially when it comes to risk level and contribution amount. A portfolio should reflect an investor’s age, health, lifestyle and goals for the future. Spring cleaning is a good time to check in with your financial advisor and review your portfolio. ![]()
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