Reader Question: I have a traditional IRA account with a private investment group. This account was created after my former employer went out of business and I had to put the money somewhere. I consider the current administration fees to be too high. I calculate this to be 1.5% yearly.
I am now in a 401k program with my current employer with a very low admin fee.
To save money, I was considering combining the IRA with the 401k. What is your opinion? What points of issue would I have to consider when doing this kind of action? PDR
Answer: The best reason to consider rolling your IRA into your current employer’s 401-k plan has to do with ease of management. With all of your retirement money in one place you only have to keep up and manage one account. Another advantage is that most employers allow you to take a loan from your 401-k plan for fifty percent of your vested balance up to $50,000. The interest you pay is to yourself and the loan must be repaid within five years. While I don’t favor taking loans against retirement accounts, it does provide you with greater flexibility. The disadvantage is that you’ll have more limited investment options and, while your administrative fees are low, they’ll be higher than my favorite option.
My favorite option is to move your existing IRA to a discount broker such as Charles Schwab & Co. (www.Schwab.com) or TD Ameritrade (www.TDAmeritrade.com) or low cost mutual fund company Vanguard (www.Vanguard.com). There are no administrative fees to hold your IRA with these companies and your investment options are just about unlimited. You can invest in no-load mutual funds, exchange traded funds (ETFs) or individual stocks and bonds. You’ll also have easy on-line access to your account from your computer or smart phone. No administrative fees, tons of investment choices…this is my recommendation.
Reader Question: My mom is in her nineties and we are trying to get her affairs in order so that I won’t have to probate her Will. She put me on her checking accounts with right of survivorship; she put my name on her home by signing a warranty deed; and she named me as the beneficiary of her bond. Do you think I can handle all this without probating her Will? I am the only living child.
Answer: Yes, it is possible but you’ll need to be certain that you don’t overlook any assets. I recommend that you make a list of all of your mom’s assets and then ‘map out’ how those assets will be transferred to you automatically at her death. In addition, your mother should have a will leaving everything to you just in case you missed anything including her personal property. You should also make sure she has the new power of attorney (POA) naming you as agent for all financial matters should she become incompetent. Our legislature passed a ‘model’ power of attorney document in January 2012 that requires financial institutions to accept it or potentially face a financial penalty. Even if you have an old POA, I strongly recommend you replace it with this new model. Finally, your mother should have an advanced directive for healthcare which includes a living will and names you as agent for healthcare decisions.
Reader Question: Just read your article stating that a father can leave up to $5,250,000 to children without estate taxes. Can this same amount or any amount be left to grandchildren without estate taxes? C.B.
Answer: Yes. For calendar year 2013, you can leave up to $5,250,000 free of estate taxes to whomever you choose (including grandchildren). Each year this ‘estate tax exemption amount’ is adjusted for inflation so the amount you can give away free of estate taxes will rise over time. You will need to file a gift tax return (for information purposes) with the IRS. Remember, this is a lifetime exemption so once you use it, it’s gone. In addition, you are allowed, annually, to give up to $14,000 (adjusted annually for inflation) to as many people as you like. There is no limit on the amount of money you can transfer estate tax free to a spouse either during life or at death.