During your working life you may have participated in several employer plans and opened a number of IRAs. Knowing where those accounts are and what they’re worth takes on even greater urgency as you turn 701⁄2 and must begin required minimum distributions (RMDs) from tax-deferred accounts. (Distribution is the official term for what are more commonly known as withdrawals that you take from these plans.)
Consolidating your IRA accounts with a single custodian may be a smart move. It may save you money if you’re paying annual account maintenance fees to different custodians. More important, it means that all the information you need on your account values and the way those accounts are invested is contained in one consolidated statement. What consolidation doesn’t mean is that all the IRAs are collapsed into a single account. In fact, you can’t combine a tax-free Roth IRA and a tax-deferred IRA into a single account unless you convert everything to Roth status. Rollover IRAs are generally held separately from IRAs to whom you’ve made annual contributions. And, if you’ve made both deductible and nondeductible IRA contributions, you’ll want to be sure to keep records of the amounts in each category since you’ll need them to figure the income tax you owe.
People over 80 are the fastest growing age group in the United States, a trend that the Bureau of the Census expects to continue for the next 40 years. One consequence of this demographic shift is increased interest in the ways retirement savers may be able to avoid running short of cash as they live into their eighties and nineties. One relatively new long-term planning tool is an insurance company product known as a longevity annuity. These annuities resemble pension annuities from an employer’s defined benefit plan or the fixed immediate annuities that you might purchase when you retire. The insurance company, in return for a lump-sum payment, promises to pay income for your lifetime.
The difference is that the income doesn’t start right away, or within a year of purchase, as it does with a pension or an immediate annuity. Rather, the starting date is a number of years in the future, based on the age you select. It just can’t be older than 85.
Contributions from the books Managing Retirement Income and Guide to Understanding Annuities in this press release are used with permission from Light Bulb Press.