FINANCIAL FOCUS: Should you consolidate retirement accounts?

submitted by Sasha Fitzpatrick

One of the rewards for working over several decades is the ability to contribute to tax-advantaged retirement accounts, which can help provide needed income for you when you do retire. As the years went by, you may well have accumulated several retirement accounts, such as IRAs and 401(k)s or similar employer-sponsored plans. But you might find it advantageous to consolidate these accounts with a single provider.

Consolidating them can provide you with several potential benefits, including these:

Less confusion and clutter – If you have multiple accounts in different locations, it may be difficult to keep track of tax documents, statements, fees, disclosures and other important information. Consolidating accounts could help provide clear, simplified account maintenance.

Less likelihood of “lost accounts” – It may be hard to believe, but many people abandon their retirement accounts, leaving thousands of dollars behind and unclaimed. In fact, at the end of 2021, there were nearly 25 million forgotten 401(k) accounts, worth about 20 percent of all 401(k) assets, according to an estimate by Capitalize, a financial services company that helps individuals roll over retirement plan assets into new accounts. It’s possible that employers can even move small, old accounts out of their 401(k) plans and into an IRA on behalf of their former employees, thus increasing the chances that savers will lose track of their money. By consolidating your retirement plans with one provider, you can ensure you don’t lose track of your hard-earned money.

Ability to follow a unified strategy – With multiple retirement accounts, and different investment portfolios, you might find it difficult to maintain a unified financial strategy that’s appropriate for your goals and risk tolerance. But once you’ve consolidated accounts with a single provider, you’ll find it easier to manage your investment mix and to rebalance your portfolio as needed. The need to rebalance may become more important as you near retirement because you may want to shift some of your assets into investments that aren’t as susceptible to swings in the financial markets.

Possible improvement in investment options – Often, 401(k)s may have limited investment selection, so consolidating accounts with a full-service firm may allow for a wider array of products and strategies. This broader exposure can potentially help you improve your overall retirement income strategies.

Greater ease in calculating RMDs – Once you turn 72, you will need to start taking withdrawals — called required minimum distributions, or RMDs — from your traditional IRA and your 401(k) or similar plan. If you don’t take out at least the minimal amount, which is based on your age and account balance, you could face a penalty. If you have several accounts, with different providers, it could be cumbersome and difficult to calculate your RMDs — it will be much easier with all accounts under one roof.

So, if you do have multiple retirement accounts, give some thought to consolidating them. The consolidation process is not difficult, and the end result may save you time and hassles, while also helping you manage your retirement income more effectively.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.

Edward Jones, Member SIPC.