Spring Cleaning: 8 Reasons to Consolidate Your Retirement Accounts
Changing jobs, companies, and even careers, is more commonplace for American workers than ever. From my vantage point as a Financial Planner, working with professionals across many industries all over the country, I see firsthand how easy it is for people to lose track of their retirement savings as they progress through their working years. While the scope of the issue is difficult to quantify, the U.S. Government Accountability Office estimates that millions of professionals each year fail to claim cumulative billions of dollars in 401K and other retirement account savings from previous employers. How do they know? Because unclaimed assets are eventually turned over to the plan’s sponsoring State through a process called escheatment.
It may take quite a while for that to be a concern for most people, but I want to lay out a few of the critical, practical reasons you should be consolidating your retirement accounts in one place as you move through your career. Proactively consolidating your retirement accounts into a single Individual Retirement Account (IRA) can offer numerous benefits.
1. Simplified management: Consolidating your retirement accounts into a single IRA streamlines the management process. This makes it easier to monitor your investments, rebalance your portfolio, and adjust your asset allocation as needed. This can save you both time and mental energy in the long run.
2. Reduced fees: Multiple retirement accounts may be subject to separate administration, management, and investment fees. Consolidating your accounts can help you minimize these costs, creating less “drag” on your investment returns and portfolio growth in the long run.
3. Clearer investment strategy: By consolidating your accounts, you can more effectively develop and implement a cohesive investment strategy. This allows for better alignment with your risk tolerance, time horizon, and financial goals, which can enhance long-term performance, ultimately making your retirement dollars more useful when the time comes.
4. Lower risk of unintended cash-outs: When switching jobs, some people accidentally cash out their retirement accounts, which can trigger taxes and penalties. Consolidating your accounts into a single IRA can help you avoid such mishaps and keep your retirement savings intact.
5. Enhanced beneficiary planning: Managing beneficiary designations for multiple retirement accounts can be complex and time-consuming. Consolidating accounts simplifies this process, helping ensure that your intended beneficiaries receive the assets you designate for them. In planning, two words that we never want to see in succession are “accidental beneficiary”.
6. Easier Required Minimum Distributions (RMDs): As you reach retirement age, you may be required to take minimum distributions from your retirement accounts. Having a single IRA simplifies the calculation and management of RMDs, which can help you avoid potential penalties.
7. Improved tax management: With a consolidated IRA, you can better manage your tax liability by choosing between traditional and Roth IRAs based on your specific circumstances. This includes evaluating whether a Roth conversion strategy makes sense for your situation now, or in the future, helping you optimize your tax strategy and potentially save money in the long run.
8. Greater peace of mind: Knowing that your retirement savings are consolidated in one place can provide a sense of security and control, allowing you to focus on other aspects of your financial planning and overall well-being.
Remember, it’s crucial to carefully evaluate the pros and cons of consolidating retirement accounts. Consider factors such as fees, tax implications, investment options, and service. If you would like to speak with a member of our team about reviewing your retirement accounts and exploring the merit of consolidation, or general financial planning services, you can reach us at artisanfsonline.com
Adam Tolliver, CFP®