Does it Make Sense to Have Multiple Retirement Accounts?

jar with coins sitting behind clock and blocks spelling “retirement”

Bringing your retirement accounts together can have many benefits.

How many retirement accounts do you have? The average person changes jobs between six and twelve times during the span of their career. As a result, you could have multiple retirement accounts, and therefore multiple investment decisions, fees, statements, and emails. Managing all these accounts can be difficult – especially as you get closer to retiring.

Sometimes, people lose track of old retirement accounts entirely. According to the Government Accountability Office, roughly 25 million Americans left behind money in a retirement account when leaving a job. It’s important to be aware of all your retirement accounts.

Keep these points in mind when consolidating your retirement accounts, and the benefits of having all your accounts in one place.

Know your Options

Combining employer retirement plans in one account allows you to retain the tax-advantage status of the account, and gives you more choices when investing. Make sure you’re aware of the basics of rollover rules and what your options are prior to making any moves. At IRS.gov, you can view details about rollovers and review the rollover chart.

Different account types have different features. In some cases, consolidations are not possible. For example, if you and your spouse are living, you cannot consolidate both IRAs into one account. Also, you cannot combine IRAs you inherit from two different people. If your account type is able to be consolidated, you may want to weigh the pros and cons. When accounts are combined, it’s easier to manage money and get a better understanding of the health of your portfolio. A smaller number of accounts means fewer monthly statements, fewer companies to notify if you move or decide to change beneficiaries, as well as possibly lower costs.

Aside from consolidating your retirement accounts, your other options include:

  • Leaving the money in your employer’s plan if permitted.
  • Roll over the assets to your new employer’s plan if available and if rollovers are permitted.
  • Roll over to an IRA.
  • Cash out the account value.

Benefits of Consolidating

Consolidating your retirement accounts can help manage asset allocation, diversification and rebalancing, and can even help reduce taxes and fees. In addition, consolidating makes it easier to calculate and take the required minimum distribution. For example, you must take a single distribution for each 401(k) you own. Here are a few benefits of consolidating your retirement accounts.

  • Manage your investments

    It’s necessary to know how much money you have invested in each type of investment, like stocks, bonds, or mutual funds. When you diversify your investment portfolio, you can both manage risk and achieve your goals. If you consolidate, you’ll be able to get a better sense of this mix.

  • Rebalance your investments

    Investments fluctuate at varying rates over time. Eventually, your investment mix won’t be the same as when you started. The risk you take could be greater (or lesser) than you originally planned. By rebalancing, you return your investments to their original mix. A rebalance of your accounts every year is a good idea, and is easier with fewer accounts.

  • Minimize Fees

    The majority of retirement accounts charge annual maintenance fees. These can add up if you have multiple retirement accounts. However, your maintenance fees may cost less if you have fewer accounts.

Ways to Consolidate

  1. On your own

    In most cases, you can roll over your IRA account yourself. You can do this online or by phone by working with your IRA provider. You may need to collect paperwork for your retirement accounts from former employers.

  2. With a financial professional

    Your financial advisor should help you consolidate accounts. They can help you complete any paperwork that goes along with consolidating, and help track down your other retirement accounts. They can also help with your investments and the health of your portfolio. Also, consider talking to your tax advisor about the tax impact of consolidation as well.

Consolidating your retirement accounts can take some work, however, it is well worth it. Having all of your accounts in one place makes it easier to access your hard-earned money. Connecting with a financial advisor is an easy way to get started. If you have any further questions concerning consolidation, contact us! We would be happy to assist you.

There are several choice plan participants have in regard to their company retirement plan and/or pension. Since each choice has its own implications, it is recommended that you discuss and compare all potential fees, expenses, commissions, taxes, and legal ramifications with your qualified advisor before making a rollover decision.