Chances are, you have had more than one employer during your career. If you have retirement plans from several jobs floating around, it’s important to keep track of them. Here are five reasons you should consider consolidating your retirement accounts.
1. Easier to Manage
The biggest advantage of consolidating accounts is that you won’t lose track of them. By rolling them all into one individual retirement account, you will know where all those accounts live. Also, if you have old 401(k) accounts that are no longer getting contributions (from either your old employer or you), once you move them into an IRA, you can add more money to it. This can help reach your retirement goals. (There are complex rules about which tax-deferred or tax-free accounts can be combined; it’s smart to seek professional advice.)
2. Fewer Fees & Less Filing
Retirement accounts require paper statements, and custodians must report contributions and withdrawals for tax purposes. These custodians charge an annual fee. Some accounts also charge a transaction fee when you buy or sell an investment if your account doesn’t reach a certain size. Consolidating accounts can save you money because you will incur fewer of these fees and simplify the hassle of keeping track and filing everything for several accounts.
3. Improved Tax Efficiency
When all of your gains and losses are in the same account, you can use a tax-efficient strategy and take advantage of tax-loss harvesting. With all your assets in one place, you can be sure the least tax-efficient assets are in accounts that offer tax deferral or exemption.
4. No Missed Distributions
Once you reach age 70½, you must take out a minimum amount from most retirement accounts each year (Roths are an exception). This is called the Required Minimum Distribution. If you have multiple accounts, it can be easy to miss one, and you will have to pay a penalty. If you consolidate your accounts, you will need to take just one distribution from one account each year. You can even work with your financial institution to have the distribution come to you monthly, like a paycheck.
5. More Time
Finally, combining accounts will free up some of your time. You will need to do less filing and spend less time dealing with paperwork and work less looking stuff up for various accounts. If you need to make a change, you can do it with one phone call (or at a single website).
Consolidating your retirement accounts can be a useful way to take control of your retirement finances. It can make it easier to maintain your asset allocation and diversify your portfolio more effectively, but it is a personal decision that requires time and consideration.
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