Streamline Assets before Retirement: Pros and Cons with Examples

13 Feb Should I Streamline My Assets Before Retirement?

Posted at 10:45h
Retirement Planning
by Phelps LaClair Law
You’re gathering data in order to better understand how to streamline your assets prior to retirement. You may want to simplify your income streams or you might be starting to think of your end-of life affairs. You may want to simplify your finances so that you can spend more time on hobbies, travel or your loved ones. You also know the risks involved in upsetting a financially balanced that is working well. What are the advantages and disadvantages of consolidating financial assets and investments? Let’s look at the pros of streamlining assets using a fictional character called Dan.

Meet a Business Owner from Phoenix

Dan, who is just a few years from retirement, wants to make managing finances as simple as possible so that he can focus his attention on other things. His top priorities are to protect as much wealth as possible for his beneficiaries, while still generating an income that will last him through retirement. He wants to avoid losing out on big financial gains or limiting his investment opportunities. Dan is currently trying to decide what assets to consolidate. He has real estate, stock holdings and retirement plans. He also owns cryptocurrency, an

LLC

, and a

LLC. He has a lot of cash in multiple bank account. Let’s see how Dan moves through his financial situation and makes decisions about each asset.Streamlining Your Retirement Assets: An Example Scenario

First, Dan needs to assess the benefits and risks of each move. Avoiding unnecessary taxes, fees, and penalties is best achieved by researching his options. Some accounts can be combined to simplify management. Dan considers his options for each group of assets very carefully.

Cryptocurrency Investments

Dan decides to sell his cryptocurrency, because its value can be volatile and his risk tolerance in retirement will be much lower. This will require him to pay capital gains tax

since cryptocurrency holdings, when sold, are taxed like property. Dan invests the proceeds of the sale in dividend-paying stock options because he believes this is a better move for retirement. LLC holdingsDan is considering selling his business, or a part of it, as he consolidates his assets before retiring. He wants to keep control of the big financial decisions but not be involved in the company. He wants his business income to continue after he dies. Dan decides to speak to an estate planning lawyer about

putting the LLC interests into a Trust

. He thinks this will allow him to protect his personal assets while retaining control and having his wishes respected, even after his death. Brokerage/Stock AccountsDan checks the expiration dates and exercise prices. He determines which options will be essential to accumulating wealth, and which can be sold. To make things easier to handle, he can combine most of his holdings into one brokerage account. Dan will have more time to himself because he has fewer financial institutions and accounts to manage.

Dan asks his current brokers about the benefits of merging his accounts. He notes things like transfer fees and closure fees, as well as waiting periods, restrictions and tax implications. He requests a direct transfer “in kind” of assets to avoid taxes

. This is best done with assets such as publicly traded stocks, EFTs and mutual funds. Real Estate

Dan owns several rental properties in Phoenix, as well as his own home. He has two options. He considers two options. They would take care of tasks such as tenant screening, maintenance and rent collection. Another alternative Dan considered was setting-up an LLC

or a real estate investing trust (REIT) to manage his properties. He could retain ownership while reducing personal involvement. Dan consults an estate planning lawyer to discuss the details and determine which solution is best.

Bank Accounts

Dan uses the liquid assets from his savings and checking account to fund an living trust. He does this to avoid probate. By funding a Trust, he can avoid court fees while preserving more of his wealth. It also allows him to have more control over his assets in terms of timing and amounts. Retirement Plans

Because Dan owned an LLC and employed both himself and others, he had a Simple Employee Pension (SEP) IRA. The account is large because he was able to contribute up to 25 percent of his annual income. It will simplify your finances (less paperwork).

The Pros and Cons of Asset ConsolidationPros: It will give you a simpler way to manage your finances (less paperwork).

Some banks offer lower fees when you consolidate your investment accounts.

It makes it easier to track your savings and investments.Taxes are easier to file.It’s easier to calculate your required minimum distributions for retirement accounts. It will be easier to implement your estate plan. It limits your ability to grow your money.

Not every asset can be consolidated–for example, a

ROTH IRA

• can’t be combined with a traditional IRA.
• The fees and investments offered in your 401K could be better than what’s currently begging offered in an IRA
• May have to pay capital gains tax when selling assets like stocks, bonds, or crypto
• Avoiding Lack of Diversification
• Many people think that streamlining their assets means hiring one company to manage all of their investments. Some people may be nervous about this because they do not want to “put all their eggs in one hat.” The real risk of investment concentration comes when your holdings in the market are not sufficiently diversified.
• A person’s money is not diversified if they have a large amount invested in a few bonds or stocks. If you invest $1 million in stocks and 90% of them are in technology (Meta Platforms Microsoft, Netflix), then you have a concentration. If the stock prices of these platforms drop significantly, your entire

portfolio

• will take a hit.
• But, as we saw in Dan’s example above, you can streamline assets while still preserving a great diversity in your investments. Should I Roll Over My 401K?
• Rolling a 401K from a company into an IRA can be a common part of retirement asset consolidation. It usually involves moving your 401K retirement funds into a separate account (like an independent IRA). You can invest your money in a way that allows you to continue to defer taxes. Rollovers are a great way to keep your investments together and maintain tax benefits. You can, but it’s not recommended. Here are some reasons: First, all individual retirement accounts have to be owned and titled by the owner. You would have to pay income taxes on the entire amount if you put qualified tax-deferred account like a 401K or ROTH IRA into a trust. Estate planning can help you streamline assets before retirementIf your are getting ready to retire, it is a good idea to meet with an estate attorney. Talking to someone who understands Arizona’s tax laws and knows the rules for trust
• administration, can help you find financial peace of mind in retirement. Phelps LaClair has been helping families in Arizona create solid estate planning and preserve their wealth during retirement. Our years of experience have allowed us to become experts in all legal, financial and relational aspects of estate planning. You can schedule a meeting with our legal team if you are wondering if it is time to streamline your assets before retiring. You’ll be glad to know that your first consultation is absolutely free!

Images used under creative commons

license

–commercial use (1/13/2025). Photo by

Bettina Norgaard

from

Pixabay

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