Simple steps to de-clutter your finances

Effective in 2007, several tax treatment choices for IRA contingent beneficiaries were extended to contingent beneficiaries of 401(k) plans and other retirement vehicles. This means non-spouse beneficiaries can enjoy the benefits that surviving spouses have enjoyed for years: They can elect to receive distributions over their lifetimes based on their life expectancies. This allows the inherited funds to continue to grow in tax-advantaged accounts and substantially reduces the tax bite to your beneficiaries.

Unless you have a reason for naming different beneficiaries for various retirement plan accounts, it is generally better to have the smallest number of accounts practical, not only for simplicity's sake but because it helps facilitate consistency in naming beneficiaries.

De-cluttering your portfolio

Beyond making a master list of your holdings, you need to analyze them to determine if they're serving you well. This type of de-cluttering involves analysis of your portfolio. You can either handle this yourself or hire someone to do it for you.

If you decide to do it yourself:

• Make a list of everything you own. Organize the list into asset categories to determine the percentage you have invested in each category.
• Determine the proper asset allocation for your time horizon and risk tolerance. Choose an investment discipline and stick with it.
• Re-balance the portfolio on a regular basis. Those who stay reasonably aware of their portfolios and make adjustments on a quarterly or annual basis are doing a good job, Lewis says.

Having a preponderance of your money in one type of investment can be especially detrimental to retirees or soon-to-be retirees, says Jeremy Portnoff, a certified financial planner at Portnoff Financial in Piscataway, N.J.

"As we have seen in the recent past, over the 2000-2002 period many retirees lost significant portions of their portfolios," Portnoff says. "In many cases this was due to over-allocation in risky asset classes such as technology."

Working with a professional

You may find it easier to work with a certified financial planner or wealth manager.

"I have a client who was extremely disciplined about contributing to his portfolio," Lewis says. "He bought conservative equity funds and taxable bond funds, but the job got overwhelming as the size of his portfolio got larger. After two or three years, he lost his nerve for sticking to the discipline he'd chosen. Eventually he turned his portfolio over to us."

If you hire help, bring in all your statements to serve as an agenda for your conversation.

Be prepared to:

• Provide personal information such as the value of your home, debts, accounts and income.
• Discuss estate planning and tax issues, especially if you are meeting with a comprehensive financial planner as opposed to a portfolio manager.
• Keep an open mind about changing your investment strategy.

Consolidating is key

Consolidation is a vital step in ending clutter.

Choose a single discount brokerage firm, also known as a custodian, to house all of your investments. Jane Young, a fee-only adviser at Pinnacle Financial Concepts in Colorado Springs, Colo., recommends a discount brokerage such as Charles Schwab, TD Ameritrade or Vanguard for this purpose. Financial planners also use these or other custodians to hold their clients' financial instruments.

De-clutter your tax-deferred funds, such as 401(k) accounts and IRAs, into one rollover IRA with one custodian, Young says. (But before you do this, make sure you don't make any tax-related missteps.) You can also move all of your other accounts, including taxable money market accounts and CDs, to the same custodian under separate accounts. A Roth IRA, taxed differently from a traditional IRA, would also need to have its own individual account.

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Young advises self-reliant investors to call several firms and do an apples-to-apples comparison on fees for trades, custodial charges and any other fees that may apply when opening an account. "When consolidating accounts you need to be sure to do direct (trustee-to-trustee) rollovers on retirement accounts and transfers-in-kind on taxable accounts. Consolidation isn't a good reason to pay unnecessary taxes."

Having two accounts with a single custodian -- one IRA and one for taxable investments -- can simplify your life. You'll receive statements each month from one source for each account.

"Eliminating financial clutter is good because it gives you a sense of control," Morrison says. "We can't control the market, but we can control the choices we make about our investment portfolios. Take an empowered view and eliminate clutter, which tends to exacerbate fear."

This article was reported and written by Janice Rosenberg for Bankrate.com.

Published June 14, 2007

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