Reasons to consolidate your retirement accounts

Consolidating your retirement accounts can be a smart financial move

Reasons to consolidate your retirement accountsMany investors who have changed employers over the years may end up with multiple retirement accounts such as IRAs and 401(k)s. Or, thanks to special promotions that make opening IRAs attractive and easy, you may have IRA funds deposited at several different financial institutions.

Managing these multiple accounts can become frustrating and time consuming. Tracking and reporting these assets for tax purposes can get complicated, and you could be racking up fees for each account. You may even lose track of some of your older accounts.

The good news is that there is a way to make your reporting requirements easier: You can consolidate all of your accounts into one convenient account, while keeping your assets growing tax deferred.

Consolidating can simplify your life

You can move retirement funds from a 401(k) or similar qualified retirement plan into a single convenient account with an IRA rollover. Similarly, you can move funds from an IRA directly to another IRA custodian with an IRA transfer.

Consolidating your retirement assets from multiple accounts into a single account enables you to keep track of all your of retirement assets, simplify your recordkeeping, have greater control, and potentially save money.

Consider the benefits of consolidating your retirement accounts:

  • Focus your investment strategy. Having multiple retirement accounts at different financial institutions can make it hard to have a consistent investment plan for those assets. Consolidating your assets into one account enables you to develop and maintain a focused investment strategy based on your investment goals, risk tolerance, time horizon and liquidity needs.
  • Have greater control. An IRA may offer more investment options than some employer-sponsored retirement plans. A consolidated IRA enables you to develop a well-diversified asset allocation strategy for your entire retirement portfolio that best meets your individual needs and goals.
  • Easier performance tracking. The consolidated statement of one retirement account helps you track your portfolio’s performance by giving you a clear overview of your total assets. This can be useful in making decisions about asset allocation and enables you to easily monitor your progress and investment results.
  • Easier tax reporting. By consolidating accounts, you will receive a comprehensive statement that provides an overview of your total IRA portfolio. Annual tax returns must include information on whether a Required Minimum Distribution was required for each account. The more accounts you have, the more complicated this can be.
  • Simplified withdrawals. When you begin to take IRA distributions in retirement, you can quickly determine the minimum withdrawals required. When you have retirement accounts with several financial institutions, distributions can get complicated because the required minimum distribution amount must be calculated based on the total in all of your qualified retirement accounts. The calculations for one consolidated account will be easier and withdrawals simpler.
  • Save money. If you are paying maintenance or service fees on multiple accounts, consolidating into one IRA may help you eliminate or minimize these fees.

Consolidating your retirement accounts into one IRA is simple. And because you never actually take possession of the IRA monies during the transfer, there are no tax consequences for transferring the funds.

But you should be sure to consult a financial professional for guidance. For example, you’ll want to make sure you make a direct transfer of funds to avoid mandatory federal income tax withholding. And there are certain situations when consolidating may not be a good idea, such as when your current plan includes company stock and you could lose significant tax advantages.

Consolidating your retirement accounts into a single IRA can help you take control of your financial future. For help in consolidating your accounts, feel free to contact us!