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7 Reasons To Consolidate Retirement Accounts

Simplify and Save by Consolidating IRAs, 401ks and Other Accounts


You can consolidate retirement accounts by transferring money from multiple accounts into one established IRA account. This is called an IRA rollover or IRA transfer. Here are seven reasons to consolidate your IRAs and other retirement accounts.

1. Easier to Manage Investments

Once you retire you'll need to figure out how to structure your investments so you get one or two monthly "paychecks" from your account. This is difficult to do when you have multiple accounts. When retirement accounts are combined you can carefully select your investments and put them into time segments; safe choices for the money you will need to withdraw in the next few years, and more aggressive choices for money you won't need to touch for quite awhile. I have an article that explains how a model called Income for Life can help you manage this process.

2. Reduced Fees

Retirement accounts like an IRA require a custodian. The custodian must report contributions and withdrawals to the IRS for tax reporting purposes. Most custodians charge an annual fee. The more accounts you have, the more fees you'll likely pay.

In addition, when you buy or sell an investment, a fee may be charged. If you consolidate sales and purchases this can help reduce transaction fees, and some companies reduce or waive fees when your account reaches a minimum size. Bottom line: consolidating accounts can save you money. Make sure you carefully examine the investment fees you pay as you consolidate. Fees reduce your returns. One of the best ways to increase your investment returns is to focus on finding ways to reduce the investment fees you pay.

3. No Missed Required Minimum Distributions

Once you reach age 70 1/2 there is an IRS formula you must follow that determines a minimum amount you must take out of your retirement account each year. This is called a required minimum distribution. If you have multiple accounts, each one will send you paperwork each year and notify you of your required minimum distribution. It can be a pain. If you miss a required distribution there is a penalty. It is much easier to consolidate your accounts and take one distribution from one account each year. You can also work with your financial institution to set this distribution up monthly so it becomes more like a paycheck.

4. Frees Up Your Time

Ultimately combining accounts will free up some of your time. There will be less filing, less time spent dealing with paperwork, and less time looking stuff up. When you need to make changes you'll only need to make one phone call. If you have accounts in multiple places it will take time and likely a lot of paperwork to get them combined, but once you do, you'll be better off.

5. Less Filing

If you get paper statements from lots of accounts, think about how many trees you can save by consolidating! Even if you receive your documents by email, it can still be a hassle to try to keep track of everything. Your investments can be just as safe and diversified if you combine accounts with one well established custodian as they can be by having them spread out. Simplify your life and consolidate.

6. Makes Updating Your Address Easy

Moving is a hassle. Moving when you have retirement money in ten different accounts is even more of a hassle. Amazingly enough, many people lose track of money in old retirement plans because they move and forget to update their address. If you consolidate your old 401k accounts you won't have to worry about this.

7. Best for Beneficiaries

If you want to change your beneficiaries and you have accounts all over the place, it's a hassle. When you combine your retirement money into one account, it is easy to update and change beneficiaries. In addition, if something happens to you, it is much easier on your beneficiaries to deal with one consolidated account rather than having to track down accounts in numerous places. If your beneficiary is your spouse, make it easy on them. Combine your retirement accounts so they aren't faced with a hassle one day.

When you combine accounts, this can also be a good time to review your beneficiary designations and make sure you have them structured in a way that is best for your family and loved ones. If accounts are in multiple places it can be difficult to remember who you named as the beneficiary on which accounts.

Next: Are you ready to start simplifying your life? Learn how to combine retirement accounts in How to Do an IRA Rollover.

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