AboutJohn D Smith, CFP Expertise I can answer detailed questions regarding mutual fund investing, retirement planning, education planning and related financial planning/investment issues. I have a B.S. degree in Financial Planning & Counseling. I am also a Certified Financial Planner practitioner and have performed fee only investment management and financial planning services for the past 11 years.
Expert: John D Smith, CFP Date: 1/29/2008 Subject: Mixing Rollover and Non Rollover IRA
Question Sir:
25 Years ago, when my employer laid me off, I converted a Vanguard 401K plan to a "rollover IRA". They told me not to mix any non-rollover money with these funds (tax reasons, I guess). So I had them set up a "contributory IRA" with several similar funds. I put my yearly IRA contribution into these.
It bugs me that I have all this paperwork for both sets of funds. And double the fees. And I'm bothered that I was never able to buy shares in the rollover funds when the market was low.
Is there still a tax reason to keep these IRA's separate? I can't seem to get a definitive answer from Vanguard.
Answer The IRS does not require you to keep the accounts separate. The purpose of keeping them separate is for ease of tracking and tax reporting when you start to pull $$ from the accounts. If you make non-deductible contributions to an IRA you are not taxed on the contributions when withdrawn, only the earnings on the contributions. If you keep good records over the years of the amount contributed after tax then there is no harm in combining the accounts. Keep in mind that the amount subject to taxation when withdrawn is prorated. For example; if you have an IRA with $100,000 in it and $50,000 was from non deductible contributions, then 1/2 of each withdrawal will be taxed and 1/2 will not. If you decide to keep them separate for ease of tracking, keep in mind you are not paying twice the fees since each account is only paying fees on the balance in the acct (ex. fees paid on 2 $50,000 accounts should be the same as 1 $100,000 account). In regards to the investment process, you should be viewing these 2 accounts as 1 instead of investing each on their own merit. I hope this helps.
