With the rate that many Americans change jobs, (1) having multiple employer-sponsored retirement accounts to your name is the norm. 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 Consolidation Options
Different retirement plans have their own benefits, but also their own set 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. (2)
Is Consolidating Right 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 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. (3) When juggling multiple accounts, you risk missing a required minimum distribution or risk withdrawing 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. Contact us at 626-529-0445 or email Ricky directly at info@favorwealth.com to get started.
About Ricky
Ricky Biel is founder, wealth manager and Chartered Retirement Planning Counselor℠ professional at Favor Wealth, an independent financial advisory firm serving individuals and families near Pasadena, California. Ricky Biel founded Favor Wealth with a desire to provide unbiased, client-centered, community-based financial advice. Ricky and his team of caring, smart professionals want their clients to feel like they’ve done them a favor, making it easier than ever to accomplish their financial goals by blending proven investment methodologies with creative financial technologies. He is on a mission to help his family of clients feel both a sense of relief and excitement about their future. Favor Wealth takes care of their clients’ needs first and foremost and goes the extra mile to make their clients’ finances grow. To meet and see how the Favor Wealth team may be able to help, contact them today at 626-529-0445 or email Ricky directly at ricky@favorwealth.com.
The commentary on this blog/website reflects the personal opinions, viewpoints and analyses of the Favor Wealth Advisors’ employees providing such comments, and should not be regarded as a description of advisory services provided by Favor Wealth Advisors or performance returns of any Favor Wealth Advisors’ Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Favor Wealth Advisors manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
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(1) https://www.bls.gov/nls/questions-and-answers.htm#anch41
(2) https://www.irs.gov/pub/irs-tege/rollover_chart.pdf
(3) https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions