By Andy Ives, CFP®, AIF®
IRA Analyst
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Hypersensitivity to caffeine – this is my affliction. So much so that I limit myself to one energy drink per week. It must be opened before noon and should be nursed for a minimum of 90 minutes. Any violation could result in me trying to paint my house with one hand while simultaneously trimming the hedges with the other. In fact, it was on a business trip several years ago when I first identified my biological caffeine reaction. Energy drinks were relatively new to the market and I consumed “a few.” Without ever going to sleep, I distinctly remember aggressively ironing a shirt in my hotel room at 4:30 AM, wild-eyed, wondering, “What is the big deal with these energy drinks? I don’t feel any effects. Now, what else needs ironing?”

Everything in moderation. ‘Tis the key to a happy and balanced life, they say. This also holds true in the retirement world. Here are a handful of items one must monitor closely and consume with great care:

60-Day Rollovers. We are permitted one 60-day rollover per 365 days. The one-per-year rollover rule applies to IRA-to-IRA and Roth IRA-to-Roth IRA rollovers. Rollovers not subject to the restriction include plan-to-IRA, IRA-to-plan, and Roth conversions. If a person violates the one-per-year rule, they will be stuck with a distribution and will have to deal with any taxes and/or penalties due. Direct transfers are better. Offload the caffeine side effects to the custodian.

Roth Conversions. Some people can drink coffee all day and sleep like a baby. Some people can convert $1,000,000 from a traditional IRA to a Roth in a single year and pay the taxes without blinking. For the rest of us, Roth conversions should be consumed in moderation. Be sure to understand the ramifications of a conversion prior to the transaction, because there is no way to reverse it later. What “stealth” taxes might a conversion create? Would a partial conversion be the way to go? It is not illegal to chug a gallon of Roth conversions in one sitting. However, sipping on conversions over a few years may well be a better choice.

Self-Directed Investments. Can I buy a beachfront condominium in Ft. Lauderdale with my IRA assets? Of course. Can I rent it out over the years and try to turn a profit when I sell it? Absolutely. Can my parents stay at the Ft. Lauderdale condo, even if they pay me rent? Nope. Prohibited transaction. Self-dealing. My entire IRA is now disqualified and deemed distributed. Now imagine if I had a dozen rental properties in my IRA along with an LLC that owned a local business. Without extreme oversight, the chance of me running afoul of the prohibited transaction rules has jumped exponentially. Nibble on IRA self-directed investments.

Peanut M&Ms. What if I bought a 2-pound bag of…oops, wrong article. Moderation here may well be impossible.

401(k) Plan Loans. Some 401(k) plans do not allow loans. Other allow multiple. The maximum amount you can borrow is $50,000 or 50% of your vested account balance, whichever is less. The loan typically must be repaid within five years. If you have two or three outstanding 401(k) loans, and your paycheck keeps getting dinged with automatic deductions to cover the repayments, it becomes a vicious circle fraught with potential defaults. Tread lightly. 401(k) plan loans should not be devoured like Peanut M&Ms.

Avoid being the over-caffeinated person in a hotel room aggressively ironing a shirt in the wee hours. Monitor your intake. Show restraint. Moderation is imperative.


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