How Consolidating Your Retirement Accounts Can Keep You Out of Trouble
By now you most likely have at least some sort of retirement account set up. Actually, if you have been around the working world for over a decade or more, chances are good you have more than one retirement account. The question will eventually arise as to whether or not you would be better off consolidating your retirement accounts.
Should You Or Shouldn’t You?
That is exactly the question being examined in this space today. First up, a quick note on how this sort of thing tends to show up. As you have noticed, the modern day workplace is nothing at all like the jobs and careers of your parents or their parents. Instead of landing the one big job that took care of you till you retired, nowadays the reality is that most people will end up working with multiple employers over their working careers.
The end result will be a hodge podge pix of retirement plans from previous jobs, the odd IRA thrown in with whatever your spouse has accumulated along the way. In other words, what on the surface appears to a bunch of different types of accounts just begging to be organized. With that in mind, take a look at just a few of the advantages of doing a little bit of work upfront and consolidating your retirement accounts.
In the world of retirement investing, you may see this referred to as an IRA rollover. Note that occasionally you might still run across the term IRA transfer. Suffice it to say its all the same thing. At the end of the day, you are transferring money from multiple accounts into one established IRA account. With that in mind, take a look at some obvious and some not so obvious advantages of consolidation.
The Easy Button
Yes, truth be told, we all just want to be able to press the famed “Easy” button and simplify our personal finances. Perhaps the greatest advantage of account consolidation is that it really does make managing your retirement funds that much easier. Obviously, it is much easier to understand how your nest egg is performing if you only have one place to look. On the other hand, suppose you are trying to make investment decisions for five of your retirement accounts along with three more retirement accounts from your spouse. Sometimes the extra complexity just isn’t worth the headache.
Saves You Money
There is one fact about your retirement accounts that you may not have considered to be a factor is the associated fees. Yes, the fees or expenses that come right out of your account balance. The reality is that retirement account consolidation can often dramatically lower the fees that are pulled out of your account funds each year.
More Time For You
Another benefit to consolidating your retirement accounts shows up in the extra time you will have available. Even something so simple as opening one envelope, sorting and then filing the contents each month versus opening seven envelopes (as in the example shown above) can add up over time. Now factor in the time you spend figuring out your returns and investment allocations. When you look at it that way, its almost a no brainer is it not?
EZ Penalty Avoidance
Whether you are close to retirement age or not, there is something on your retirement horizon that you may not have even considered. In the world of our friends at the Internal Revenue Service (IRS) there is such a thing as the Required Minimum Distribution. Now it is true this only ever shows up when you reach age 70 1/2. But still you need to know about this sort of thing. Suffice it to say that when you get to that age, the IRS mandates you pull a certain amount of your funds out. Failing to do so will cost you a penalty fee. Ouch! The point is that this is much easier to keep on top of if there is but one account to keep your eye on.
As you can see, consolidating your retirement accounts can and does make financial sense for most people. Of course, there are exceptions and for complicated situations you should most definitely consult with your personal financial adviser.
What About You?
What do you think? Is consolidation a no brainer for you?