"Stop looking at your accounts." You've probably heard or read that as a defense against making a rash emotional move with your investments during turbulent times.
That's probably good advice, but it doesn't mean you should take it to the extreme. A recent conversation I had kicked off when I was asked, "Hey, what should I do with my old IRA?"
After a few minutes of discussion, it was clear to me that this person needed to spend a bit more time looking at their accounts to get a handle on the way forward. Sound familiar?
Here are a few questions you should be able to answer regarding your IRA(s) before you determine your course of action:
How is it invested? I know not everyone gets as excited about their investment portfolio as I do, but you should know what you own. During this conversation, the person I spoke with knew only the name of the IRA custodian. Did I say homework ...
How does it fit in with the rest of your retirement portfolio? Clearly, if you don't know how your money is invested, you don't know how it fits in your overall retirement portfolio. Your IRA might hold investments that aren't available in your plan at work and nicely complement what's available through your employer. If that's the case, you may want to stick with what you have. On the other hand, if tracking your portfolio becomes too much of a hassle, you may want to look at consolidation into an existing IRA or your employer plan.
How much is it costing you? If you're paying too much, that can be a compelling reason to make a move with your IRA. Online databases such as Morningstar.com or prospectuses can provide you the information you seek with regard to mutual funds or exchange-traded funds. Don't forget to examine transaction costs if your IRA investment is in some type of a brokerage account or fees if it's in an asset-based account.
Do you have a retirement income plan? If you're closer to retirement, you might be thinking about how you're going to produce what you need to fill the gap between what you anticipate spending and what you will have coming in from Social Security, military retirement and other sources. How and where you're investing should be part of the plan and a factor in what makes the most sense for your IRA. For example, money in an employer plan from which you separate in the year you turn 55 or later is accessible penalty free -- not so with IRA withdrawals at the same age.
What's your plan with income taxes? One of the first questions I usually ask during these sorts of conversations is whether the IRA is Roth or Traditional. The answer can shape your set of options. For example, with a traditional IRA, you might consider a conversion to a Roth IRA to take advantage of lower-than-usual income or to create a more tax-diversified portfolio. This can get a bit complex and may require consultation with your tax adviser, but income taxes can play a big role in your plan -- and what you do with that IRA.
Is location hampering management? Consolidation can provide transparency and ease the burden of managing your retirement investments. If an old IRA is an afterthought that hasn't been included in the periodic rebalancing of your portfolio or performance review, a move may make sense.
You may decide to leave your IRA in place, roll it to another IRA or employer plan, or convert it, but with these questions answered, you'll be able to make a decision that works best for you.
