Your IRA is like your car — it needs periodic maintenance to keep it in good running order. Therefore, review your IRA annually to ensure you have the proper beneficiary designations and an investment strategy that's appropriate for your long-term goals.
When you conduct your annual IRA review, here are the major issues to focus on:
This step is especially important if you divorced, remarried or had children after you originally set up your IRA. Otherwise, after your death, your IRA assets may be distributed to people other than those whom you intended.
Also, name one or more contingent beneficiary(ies) — the persons, trusts, charities or estates that will inherit the money if the primary beneficiary(ies) die before you do. If you want to name someone other than your spouse as your IRA beneficiary, some states require you to obtain written spousal consent before you can do so. Speak with your IRA provider to learn more.
Your IRA holdings are probably diversified among asset classes such as equities, fixed income, real estate, money market and guaranteed. Investing in different asset classes can be an effective way to lower your portfolio's overall volatility; in a well-diversified portfolio, as economic and market conditions change, the upward movement of one asset class may help offset the downward movement of another, thereby smoothing out overall portfolio returns. (Note, however, that diversification does not guarantee against loss.)
In your yearly IRA review, make sure your portfolio is well diversified and appropriate for your investment objectives. Also, consider reviewing your allocation when the financial markets experience large fluctuations, because these sharp market movements can knock your allocation strategy off track. You may also need to alter your allocation if your tolerance for risk has changed, or if you're getting close to retirement and want to decrease the amount you have allocated to more risky assets such as equities. If you need assistance with your portfolio review, speak with a consultant.
Are you contributing the maximum allowable amount to your IRA? For the 2015 tax year, you can contribute up to $5,500 to an IRA, or up to $6,500 if you're age 50 or older.
If you're contributing less than these maximums and want to increase the amount of money you're contributing for retirement, review your finances to see if you can invest more.
If you have a significant accumulation in Traditional IRAs, consider converting your Traditional IRAs to Roth IRAs in order to reap the tax advantages that Roth IRAs offer. However, because Roth IRA conversions have tax consequences, carefully assess whether doing a conversion makes financial sense for you. Please speak with your tax advisor before making any decisions.
If you have retirement plan and IRA assets with several different financial companies, consolidating this money in an IRA with a single investment firm may make it easier to monitor your holdings. Consolidating your assets in an IRA can also help you reduce investment-related costs if the company you're moving your money to charges lower expenses and fees.
If you are interested in consolidating your retirement assets in an IRA, consider the benefits of both the existing and the new product. There will likely be differences in product features, costs, surrender charges, service capabilities, company strength and other important factors. There may also be tax consequences associated with the transfer of assets. Additionally, indirect transfers may be subject to taxes and penalties. Therefore, consult with your tax advisor before deciding to consolidate.
The tax information in this article is not intended to be used, and cannot be used, to avoid possible tax penalties. It was written to promote the products and services the article describes. Neither TIAA-CREF nor its affiliates offer tax advice. Taxpayers should consult an independent tax advisor for advice based on their own particular circumstances.
Investing in securities involves inherent risks. Past performance is no guarantee of future results. Investment return and principal value will fluctuate, so your accumulation, when redeemed, may be worth more or less than the original cost.
TIAA-CREF Individual & Institutional Services, LLC, Teachers Personal Investors Services, Inc., and Nuveen Securities, LLC, Members FINRA and SIPC, distribute securities products.
Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value.
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