By Greg Hart, CFP®
How many retirement accounts do you have to your name? Three? Five? It’s not uncommon for people to have multiple accounts both from previous employers and plans you’ve set up for yourself. And even though you probably don’t give much thought to them, they could cause headaches down the road as you find yourself juggling various investment decisions, fee breakdowns, and rules for each account.
The good news is that there’s a way to streamline the management of your retirement savings and possibly maximize your returns: account consolidation. Let’s take a look at how it works and why it may be a good option for you.
Understanding Your Options When Consolidating
Different retirement plans have their own benefits, but also their own sets of rules. It’s important to first get an understanding of the rollover options available to you. You may or may not be able to roll some types of accounts into others; some accounts only allow rollovers once every 12 months; and some only let you roll over after two years. (1)
How to Decide if Consolidating Is for You
How do you know if it’s time to consolidate? There are a few things you’ll want to consider before consolidating multiple retirement accounts.
- What kind of benefits and features do your retirement accounts offer?
- Are there similar investment options in all of your accounts?
- What are the fees like on each of your accounts?
- Can you roll over previous plans to a new employer? Or do you need to move to a self-directed retirement account?
You’ll want to do your research to answer these questions before you make any moves. And remember, you don’t necessarily need to consolidate everything into one. You can merge some while keeping others open. What’s best for you will depend on your specific situation and goals for retirement.
Benefits of Consolidating Multiple Retirement Plans
When it comes time for retirement, there are several benefits of consolidating multiple plans into one account.
Here are just a few benefits to consider:
- Reduced investment fees: Fewer retirement accounts can also mean fewer fees. Instead of paying fees for each of your account management services, you only need to pay one—meaning more of your money can grow.
- More opportunities to save: You can’t contribute to an old employer-sponsored 401(k). You need to roll over the account to a new 401(k) or a self-directed account so you can continue contributing to that retirement fund.
- Reduced administrative work for you: Fewer accounts mean simpler management. You don’t need to worry about managing investments and documentation across different platforms. For example, instead of three different monthly statements, you just have one. You can see all your investments in one location for more cohesive planning.
- Simpler portfolio rebalancing: When it comes time to rebalance your portfolio, having all your accounts consolidated makes it easier to calculate your asset allocations.
- Easier calculations and withdrawals of required minimum distributions: If you have multiple 401(k)s at retirement, you will eventually need to take required minimum distributions (RMDs) from each of those accounts. (2) When juggling multiple accounts, you risk missing a required minimum distribution or risk withdrawal the incorrect total amount, for which the IRS can make you pay a penalty. Having a single account makes RMDs much easier.
- A clear picture of your money: Consolidating your accounts allows you to clearly understand how well your investments are working for you while enabling you to easily tweak the account to meet your retirement goals.
Lastly, one of the biggest benefits of consolidation is saving time. Time is one of your most valuable assets. Having one consolidated account means you’ll spend less time managing all your accounts and free up more time and energy for doing what you love.
We Can Help You Consolidate and Maximize
Consolidating can mean greater returns and less headache in the future, but it can be challenging to navigate the process. If you have multiple retirement plans, we’d love to talk about how we can help you maximize your returns during a complimentary get-acquainted meeting. Call us at (856) 888-1744 or contact us online to get started.
About Greg
Gregory M. Hart, CFP® is the founder and managing director of Haddon Wealth Management, LLC, a registered investment advisory firm that provides comprehensive wealth management (in-depth financial planning and sophisticated investment management) for clients who value a relationship-driven approach that delivers customized solutions. Based in Haddonfield, New Jersey, Greg works with clients throughout the Delaware Valley, as well as nationwide. To learn more, connect with Greg on LinkedIn, visit our website at www.haddonwealthmgt.com, or call (856)-888-1744 to begin a discussion.
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(1) https://www.irs.gov/pub/irs-tege/rollover_chart.pdf
(2) https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions
