By Larissa Mehlfelder, CFP®, CAIA
If you’ve worked at multiple companies throughout your career, you probably have accumulated several different retirement accounts. You may even have so many accounts that it’s hard to keep them all straight.
If that sounds like you, you might benefit from retirement account consolidation, or moving money from multiple accounts into a single IRA (AKA IRA Rollover).
Today I want to go over the benefits of consolidating your accounts, how to decide if it’s a smart financial move for you, and tips you can use to maximize your returns.
Let’s get started.
Benefits Of Consolidating
Consolidating your accounts comes with both financial and practical benefits.
As you can imagine, having everything in one central account makes life less complicated. You’ll have less paperwork, less time wasted in communication, fewer deadlines to miss, fewer problems to solve, and fewer things to remember.
It also makes it simpler to structure your investments to fit your needs. When you retire, you’ll want part of your portfolio optimized for short-term needs and another for long-term goals. Having everything together in one account streamlines the process.
In addition to convenience, consolidation also means reduced fees. Instead of paying annual custodian fees for multiple accounts, you’ll pay one. And depending on the investment management company you use, you might even be able to get fees waived altogether if your account reaches a certain threshold. Lastly, having fewer accounts will ultimately allow for a smoother transfer to your beneficiaries.
Should You Consolidate?
So far, you might be thinking consolidation seems like a no-brainer. Not so fast. There are some things you should take into account before making any decisions.
First, what benefits do your current retirement plans offer? What do you stand to lose by closing these accounts (e.g., 401(k) net unrealized appreciation)? How does all this compare to what you’ll get with a consolidated account?
Make sure to compare the investment options, fees, tax rules, and withdrawal procedures between the accounts. In some cases, the reduced fees and stress that a unified account brings may outweigh the small advantages offered in multiple accounts. Other times, the benefits of separate accounts will be worth the extra management required.
Also, keep in mind that this isn’t an all-or-nothing situation. You don’t need to whittle it down to just one account. If it makes sense, consolidate some accounts, and keep others open.
Three Tips for Maximizing Returns
The first tip I have is simple: Choose an institution that takes security seriously. With cybercrime on the rise, it’s more important than ever to make sure your investments are safe.
Next, pay close attention to the tax implications involved with rolling over your accounts. Each type of account has different rules, so make sure to do your homework beforehand so you don’t run into any unpleasant tax surprises.
My last piece of advice is to carefully structure and diversify your portfolio after everything is consolidated. The best way to do this is by working directly with a financial advisor who can design a plan based on your specific goals and circumstances. If you’re thinking about consolidating your retirement accounts and want an expert in your corner to guide you, we’re happy to help. To get started, give us a call at 973-525-1000 or email firstname.lastname@example.org.
Larissa Mehlfelder is a client advisor at Simon Quick, specializing in working with clients to develop and implement their financial planning objectives. Larissa earned her bachelor’s degree in business administration and finance with a minor in mathematics from The College of New Jersey, where she maintained Dean’s List status. She completed Fairleigh Dickinson University's Program for Financial Planners in 2011 and became a CERTIFIED FINANCIAL PLANNER™ practitioner in 2012. She earned her CAIA Charter in March of 2014 and is a member of the Chartered Alternative Investment Analyst Association. Larissa is also the head of Simon Quick’s Next Gen Committee and is spearheading a next generation effort for the New Jersey Chapter of the Financial Planning Association. Larissa is part of our Simon Quick Women’s Network and has played a key role in recruitment and managing the intern program in past years. Learn more about Larissa by connecting with her on LinkedIn.
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