If you established your retirement accounts when you were in your 20s, then you may need to adjust your retirement choices as you draw closer to retirement.

This category of retirement plan documents began with an overview, the types of accounts, allocating your money, and designating your beneficiaries.

In continuing this retirement category, remember these tips and tricks when transferring retirement accounts.

Transferring Retirement Accounts

Employer-sponsored plans to a Traditional IRA

If you get laid-off or leave an employer where you have a retirement account, you can choose to leave your retirement account with that employer or transfer it.

When Paul and I left Pennsylvania, we both had employer-sponsored plans. Paul had a 403(b), and I had a 401(k). We both chose to transfer our funds to a Traditional IRA.

NOTE: When transferring from an employer-sponsored plan to an individual plan, you must choose a traditional IRA. You can later convert your Traditional IRA to a Roth IRA, but you cannot transfer from an employer-sponsored plan directly to a Roth IRA. The main reasons are tax changes and moving types of plans.

Since Paul and I had to open up a Traditional IRA each for these funds, we contacted our provider – Vanguard – for the process they suggested we follow. To avoid tax penalties, we completed a custodian to custodian transfer on each account.

The employer-sponsored plans wrote checks directly to our Vanguard fund, but sent us the check. We then filled out the appropriate paperwork and sent the checks with the paperwork to Vanguard.

Our accounts were setup, and we did not incur any tax penalties since we did not take possession of the money. If we had had a Traditional IRA already setup, we still would have opened another account to keep the monies separate.

Traditional IRA to Roth IRA

Since Paul and I know not what our tax bracket will be when we retire, we wanted to convert to a Roth IRA, but the taxes on the conversion are due for that tax year. Without the money set aside for that tax bill, we waited.

Fortunately, there was a loophole in the tax system for 2010. Due to a bill passed in 2005 called the Tax Increase Prevention and Reconciliation Act (TIPRA), a Roth conversion in 2010 did not incur the taxes until 2011 and 2012. With the tax spread over 3 tax years, we jumped at the opportunity and converted both of our Traditional IRAs to Roth IRAs.

To make the conversion, we contacted Vanguard, and they handled the transfer over the phone. It was very easy as we were keeping the same allocation of our contributions. We paid half of the tax from these conversions in 2011 and will pay the remainder when we file our 2012 taxes. Then when we need the money in retirement, the taxes will have been paid.

If you transfer your individual accounts between companies, then contact the company you are transferring to for their recommendation. Sometimes, they can handle most of the conversion for you.

In using time wisely to transfer your retirement accounts contact the company who will hold your money. They can save you money, energy, and time by giving you instructions.

When you transfer, do not take possession of the money. Do a custodian to custodian transfer to prevent tax penalties. Then keep copies of all correspondence regarding the transfer.

Weekly Project: Gather all documentation resulting from transfers of your retirement accounts.

Keep working on getting your documents organized. Next week, I will share the documents I keep within this retirement category of my file box 3. Until then . . . keep organizing!

Question: If you have transferred accounts, what tips can you share to save money, energy, and time?