Combining Retirement Accounts
Do you know where all of your retirement accounts are?
It may seem like a silly question, but many people have accumulated a variety of IRAs and 401(k)s throughout their time in the workforce, oftentimes leaving them spread out across various financial institutions. You may have started your first IRA all the way back in the 1970s or 80s, and when the Roth IRA option became available in the late 1990’s, you may have jumped on that bandwagon too.
Workplaces are changing. According to the Bureau of Labor Statistics, the average employee tenure at the same firm in 2016 was 4.2 years, and that number continues to decrease. Increased workplace mobility has caused many to either leave 401ks with previous employers or roll those assets into a few IRAs. Women who have moved in and out of the workforce usually have retirement accounts held with old employers.
There is wisdom in consolidating your IRAs. Why?
Save on yearly account fees. The fewer IRAs you have, the lower your administrative costs will be. Combining your various accounts into one or two could save hundreds in yearly fees.
Less paperwork. Keeping track of your multiple account statements is cumbersome. By consolidating accounts, you simplify the process of keeping track of your investments and their performances.
Review your overall investment strategy. An IRA consolidation can also be a time to review your combined investment approach, asset allocation and risk tolerance. You may find that you are currently over-weighted in one asset class and not as diversified as you thought.
A way to simplify the administration & distribution of IRA assets. If you are older than 70½, you are required to take a Required Minimum Distribution (RMD) from a traditional IRA. When it comes to calculating your RMD, having just one traditional IRA instead of, say, five, makes figuring out that RMD amount considerably easier.
It’s easy. Moving IRA assets from one traditional IRA to another requires an IRA asset transfer (also called a trustee-to-trustee transfer). Another concern of investors is whether they can convert an IRA to a Roth IRA. This is a nuanced process that must be reviewed with in each individual unique financial circumstances. It is not a one size fits all approach.
Taking the small step of consolidating your various retirement accounts may reduce fees, statements and even confusion. In fact, if you have a bunch of “strays” in your portfolio – various investment accounts you’ve almost forgotten about, or wonder if you could be getting more out of – consolidating them just makes good financial sense.