How to Work With Multiple Retirement Plan Balances

Are you getting close to retirement or have you already retired? If so, it’s likely you have more than one retirement plan.

You’re not alone. Many investors have multiple retirement plans; unfortunately they believe that having several plans makes it difficult to calculate required minimum distributions (RMDs). That needn’t be the case.

Say that in addition to several Individual Retirement Accounts (IRAs) you have a 401(k) plan and a 403(b) plan, all of which are still with the firms that initially handled the investments for your employers.

In this situation, you would be required to take three RMDs at age 70½: one RMD from each of your three separate pools of money. The first pool would be your 401(k) money; the second, your 403(b) money and the third your IRA money.

If you have multiple IRAs, once you have determined your total IRA RMD you can choose to withdraw the total IRA RMD from one or any combination of your IRAs.  Similarly, if you have multiple 403(b) accounts, once you have determined your total 403(b) RMD you can choose to withdraw the total 403(b) RMD from one or any combination of your 403(b) accounts.

These points may need clarification, and tax laws are always changing; consult your advisor before taking RMDs from your retirement account.

This article is not intended to provide tax or legal advice and should not be relied upon as such. Any specific tax or legal questions concerning the matters described in this article should be discussed with your tax or legal advisor.

Are GNMAs Solid Investments at Today’s Rates?

With employment slow to rebound, the U.S. Federal Reserve Board (the Fed) probably won’t rush to raise interest rates anytime soon, and that could bode well for Government National Mortgage Association securities (GNMAs).

GNMAs are mortgage-backed securities, meaning securities that hold portfolios of mortgages. They are issued by the U.S. Department of Housing and Urban Development (HUD) and are backed by the full faith and credit of the U.S. government. This guarantee is limited to covering the timely principal and interest payments of the loans underlying the security.

The prices of GNMAs, and therefore the value of a fund that holds them, rise and fall as interest rates move. When interest rates fall, people with mortgages usually refinance at lower rates. As they do, more money is returned to the GNMA pool, and GNMA fund managers are forced to reinvest at prevailing lower rates.

On the other hand, when interest rates rise, GNMAs may also decline in value because they hold pools of mortgages purchased at lower interest rates, and people who took out those mortgages have no incentive to prepay them because interest rates are higher.

Therefore GNMAs typically do best when interest rates are stable. And that’s the environment we’re likely in today. Pundits believe that before considering an increase in rates, the Fed will need to see much stronger labor markets and at least some indication of higher inflation. This seems unlikely at the moment.

So our current rate environment may well encourage investors to look more closely at GNMAs.

It can be hard to maintain a bond component to your portfolio when the stock market is performing relatively well, if erratically. But remember, diversification into bonds, including GNMAs, represents one of the best remedies for managing assets during a time of stock market volatility.