A Financial Planner's Prescription for the Headache of Multiple Retirement Accounts

Having multiple retirement accounts may give you a heightened sense of financial security.

Many people, in fact, end up with multiple 401(k)s, IRAs and other accounts scattered across different institutions.

But having numerous accounts to manage can be difficult, and failing to properly attend to them all can create unnecessary headaches, especially as you get closer to retirement.

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Those issues can include hurting your investments' performance — and, ultimately, your retirement plan.

Consolidating your retirement accounts, on the other hand, can simplify your financial life, reduce stress, save you time and help you possibly get more out of your investments.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

Types of accounts that can be consolidated include 401(k) plans, IRAs, SEP IRAs and SIMPLE IRAs. They can be rolled into one another, giving you far easier oversight over your retirement savings.

Sure, for some people, managing multiple retirement accounts makes sense. But if you're considering that route or are already doing it without a specific strategy, here are some downsides to consider about holding numerous accounts:

Difficulty with asset allocation. Diversification is key to achieving strong long-term investment performance. But when you have multiple investment accounts, trying to implement an asset allocation strategy for each can lead to over- or under-diversification.

Also, there might be too much overlap in investments. Some people have multiple 401(k)s from past jobs, and that type of retirement plan may be limited in investment options, thus hampering your ability to achieve your ideal asset allocation.

Investment fees. These add up and can be hard to track when you have multiple accounts. Portfolio value can shrink significantly when you're paying fees for several years.

Some accounts may begin charging you a management fee if you're no longer contributing to them or no longer employed at your old company.

Tax time hassles. More accounts mean more tax forms and possibly paying more taxes than you would if you consolidated your accounts.

Plus, tracking down 1099-Rs from multiple institutions can be time-consuming and frustrating. You may receive tax statements at different times. But fewer accounts mean less paperwork and make it easier to track your earnings.

Consolidating can help reduce taxes, allowing you to strategically place investments in tax-advantaged accounts.

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Leaving a burden on a surviving spouse. Many couples have one spouse who handles the finances, while the other isn't as involved. When the financially adept spouse passes, having accounts scattered everywhere can be overwhelming for the surviving spouse.

Consolidating makes managing the money much simpler. And it can make it easier for the surviving spouse and heirs to execute the estate plan.

Missed opportunities to rebalance your portfolio. When holding multiple accounts, especially old ones, there's a tendency to neglect some of them.

A set-it-and-forget-it approach can prove costly, especially if investment choices you made years ago may not align with your current goals.

Tracking required minimum distributions (RMDs). Once you hit age 73 (or 75 if born in 1960 or later), you'll need to take RMDs from each of your 401(k) and IRA accounts separately.

Managing multiple calculations and withdrawals can be frustrating. Consolidating makes it easier to calculate and take the RMD.

Consolidating isn't the best move for everyone, and not all accounts can be transferred, such as certain types of annuities and securities. Check with your financial adviser to see if it makes sense for you.

Whichever route you choose, weigh all your options to ensure that managing your retirement accounts isn't a pain, but rather a streamlined process toward the pleasurable retirement you've earned.

Dan Dunkin contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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