One of the biggest challenges of retirement planning is the number of different accounts that you might have. Many people have multiple employer-sponsored retirement plans and individual retirement accounts (IRAs).
Consolidating all of your retirement accounts into a single IRA may simplify investment management, reduce fees, and help you implement tax-efficient strategies. But it’s important to consider all of the pros and cons before making a decision.
Less Confusion and Clutter
Consolidating your retirement accounts can help you maintain a clear financial picture and reduce the risk of loss. It can also make it easier for your beneficiaries to manage your assets after you pass away, according to the GAO report.
It can be difficult to monitor and effectively manage retirement accounts if they are spread across multiple 401(k) plans. Each of those plans may have different investment options and expense levels.
If you have one 401(k) plan, it can be easier to implement a unified asset allocation strategy and have access to a broad spectrum of investments including U.S. and international stocks, bonds and mutual funds.
Moreover, it can be cheaper to invest in the markets when you consolidate your accounts. Generally, 401(k) plans carry higher fees than IRAs, which can lead to significant expenses over time.
However, a 401(k) plan can also provide pre-retirement access to low-priced investment funds that are not available through IRAs. The combination of low fees and pre-retirement access can be a powerful tool in helping you save for retirement.
Less Time to Manage
One of the main reasons people consolidate their retirement accounts is that it can lead to less time to manage them. If you’ve ever changed jobs and opened up a 401(k) at the new job, you’ll know that it can be hard to keep track of your investments.
Many baby boomers have accumulated several investment accounts, including bank and brokerage accounts plus 401(k) money from past employers that they left behind. Then there are the IRAs they’ve opened in different places for new investment strategies.
Consolidating your accounts can also help you save on administrative fees. Instead of receiving monthly or quarterly statements from each account, you’ll receive just one statement from the custodian.
Consolidating can also help you avoid having to make required minimum distributions (RMDs) from multiple accounts at a later age. Having your IRA, 401(k) and other retirement accounts all in one place will allow you to take just one RMD rather than several.
If you’re like many Americans, you may have several 401(k)s or other retirement accounts spread out across multiple providers. Whether it’s old 401(k)s from jobs you’ve held, or new IRAs opened for different investment strategies, it can be a hassle to manage all of these accounts.
One way to simplify things and avoid hefty fees is to consolidate these accounts. Rolling over your existing 401(k)s and other retirement accounts into one IRA can save you money in the long run. It can also improve your overall retirement strategy by allowing you to have one place to invest.
Often, 401(k)s have limited options and investment selection, but when rolled over into an IRA with more than just a few choices, you’ll have more options for your investments and better access to institutional funds and index fund solutions that can keep your costs low. Plus, by reducing fees, you’ll have more of your hard-earned money available to invest in the market and grow over time, which is a good thing for your retirement savings.
Easier Transfer to Beneficiaries
Having multiple accounts can make it difficult for your heirs to track and manage your retirement assets. They can also be more likely to miss a account and let the money go unclaimed, which may lead to taxes on the assets.
Consolidating your retirement accounts can help simplify this process. It can also improve your overall retirement strategy by allowing you to have one place to invest.It can also simplify required minimum distribution calculations and tracking.
Consolidating your accounts can also lead to an easier transfer to beneficiaries, who will have a simpler time transferring the funds. It can also make it less likely that your heirs will be subject to withdrawal penalties.