By age 50, baby boomers have held an average of 12 different jobs, according to the Bureau of Labor Statistics. In many cases, they may have several company retirement plans from old employers, as well as an IRA or two, along with at least one Roth IRA.
By combining these accounts, you may be able to save both time and money and make your life more stress-free. Say, for example, you have three IRAs, two old 401(k) plans, an old Simple IRA and an old 403(b) plan. These seven different accounts can actually be transferred into one IRA. There are several reasons why you might want to do that.
When you buy or sell an investment, a transaction fee is often charged. If you consolidate your accounts, you may have fewer total buys and sells, which could significantly reduce fees andboost your net return.
For example, if you wanted to purchase 12 different investments for diversification, by consolidating, you could just buy those 12 investments all in one account.
However, if you had the seven accounts in our example, and you wanted to be diversified over 12 investments in each account to reduce risk, you would be trading 12 investments in seven accounts — or 84 total different investments — which could create a lot more transaction fees.
Also, some companies reduce or waive fees if your account reaches a minimum size, so combining accounts increases the likelihood for this to happen.
Reduces RMD Errors
Once you reach age 70½, you must take a required minimum distribution from your pretax retirement accounts each year. Failure to do so will result in a 50% penalty on the required distribution that was not taken.
If you have multiple accounts, each financial firm will send you paperwork each year to take this RMD. As the years pass it can be easy to overlook paperwork that arrives and miss this required distribution.
You'll find this less likely to happen if you consolidate your accounts and take one distribution from just one IRA.
Consolidating accounts will make it much easier to manage your investments. You can focus on the performance of one account, instead of watching the performance of seven different accounts. It is also more convenient to work with one very good IRA custodian with good service and investment choices rather than seven.
Also, once you retire you may need to structure your investments to get monthly income. With seven different accounts, often people end up getting seven different checks, as opposed to receiving one check on one IRA.
Ultimately, combining accounts will free up time. It will mean fewer statements to read, forms to fill out, information to look up and passwords to remember.
And when you need to make changes, such as an e-mail address or an investment change, you'll only need to make one phone call.
Combining accounts also makes it much easier to verify that your beneficiaries are up-to-date and none are overlooked.
Downsizing, relocating to a retirement community, or moving to be closer to family can increase the chances that you may lose track of old retirement plans, because when you move you may forget to update all the multiple addresses on your retirement accounts. If you consolidate these accounts into one, this is less likely to happen.
While you may not be so lucky as to get all of your different retirement accounts and IRAs into one account, any reduction in the number of accounts will help. Also, once you retire, you may be able to boil your portfolio down to no more than two retirement accounts: a traditional IRA for pretaxretirement accounts and a Roth IRA to combine all the Roth accounts.
When combining retirement accounts, transferring the assets directly from one retirement account to another where you make the check payable directly to the new custodian on yourbehalf is the most hassle-free way to do it. It avoids unnecessary headaches like the 20% withholding on indirect rollovers, or the possibility of missing a 60-day rollover deadline when you take receipt of the funds.
5 Mistakes Veterans Most Often Make When Filing for Disability Benefits
Our military takes care of us, and when they are injured, sick or unable to work, the VA can help take care of them. For a successful benefits claim, here are some mistakes to avoid.
By Brett Buchanan • Published
Don’t Poke the Bear! How to Respond to Angry Customers
Arguing, doubling down and refusing to negotiate could make matters worse, so it’s best to aim for a win-win solution. And if that doesn’t work…
By H. Dennis Beaver, Esq. • Published
Doing Your Retirement Income Planning in the Right Order Matters
A strong retirement income strategy considers many factors, including the retiree’s unique financial resources and needs. How and when you tackle them is critical.
By Jerry Golden, Investment Adviser Representative • Published
2 Ways Retirees Can Defuse a Tax Bomb (It’s Not Too Late!)
If you’re retired and find yourself sitting on a “tax bomb,” you may think there’s nothing you can do. But two strategies could seriously reduce your taxes in retirement.
By David McClellan • Published
Short-Term Investments to Protect Against Inflation and Market Volatility
Rates on Series I savings bonds, T-bills and fixed annuities are all above historical averages and could serve investors well during turbulent times like these.
By Bradley Rosen • Published
What’s the Difference Between Average and Actual Rate of Return?
An average rate of return can mask losses over time, so what investors really want to keep an eye on is the actual rate of return.
By Carlos Dias Jr., Wealth Adviser • Published
Can You Build a Retirement Income Plan With Both Risk and Reliability?
Two strategies for making retirement savings last — probability-based income planning and guaranteed income planning — can help ensure you have what you need in your golden years, but which is right for you?
By Scott M. Dougan, RFC, Investment Adviser • Published
10 Common Investing Mistakes That Can Easily Be Avoided
Some of these missteps might be a given when you’re starting out. A financial adviser offers tips on how to stay on track for years to come.
By Vincent Birardi, CFP®, AIF®, MBA • Published
I'm a New Widow. Who Are the Experts I Should Consult?
A support network of experts who can help a new widow can be just as important as your personal support network at such a difficult time.
By Stacy Francis, CFP®, CDFA®, CES™ • Published
Is Your Money Really Working for You? A Math Lesson in Rates of Return
Getting a high average rate of return does not necessarily equate to actual money in our pocket. A personal finance expert explains why math doesn’t equal money.
By Kyle Winkfield • Published