By Paul S. McNulty, CFP®
Planning for retirement is one of your top priorities—which is why you’ve been diligently saving into your retirement account for years. In fact, if you are like most people, you probably have several different retirement accounts from different positions you have held with different companies. Perhaps you also have a retirement plan that you set up for yourself and your employees when you started your own business. With multiple fees and investment decisions associated with each account, you’re probably familiar with what a hassle it can be to manage the details of each retirement account.
Have you considered consolidating these accounts to streamline the management of your retirement? The good news is that consolidating your retirement accounts not only can make it easier to manage your retirement, it can also help you maximize your returns.
We at Boston Metro Advisor know your retirement is of the utmost importance—it’s a large part of why you’ve been working so hard all these years. Before you consolidate your accounts, consider the following points we’ve outlined below. We hope this serves as a guide to help you determine which decision is right for you.
Benefits Of Consolidation
Consolidating your retirement into a single account can save you on annual maintenance fees, as the fewer retirement accounts you own, the less you will have to pay on the annual fees. Combining your retirement accounts will also enable you to streamline your investment strategy to maximize tax efficiency. What if you need to change an address or add a beneficiary? Having just one or two accounts makes tasks like these easier and will help you manage your retirement with more peace of mind.
Perhaps most importantly, though, consolidating your accounts allows you to clearly understand how well your investments are working for you while enabling you to easily tweak the account to meet your retirement goals. For example, with a single retirement account—or just a few retirement accounts—you can easily analyze your rate of return or decide if you need to rebalance your account.
Tax Implications
When you are thinking about whether to consolidate, carefully examine the benefits, fees, and investment options of each account. You may also need to calculate what you could lose if you close the account, while also carefully considering any tax implications of combining one account with the other.
For example, completing a Roth conversion will result in the retirement accounts being converted as taxable income for that year. A Roth conversion is when retirement accounts, such as an IRA, 401(k), 403(b), 457 plan, SIMPLE IRA, SEP-IRA, or Keogh, are rolled into a Roth IRA. (1)
Remember, it may not make sense for you to consolidate all your accounts into one at the moment. While reducing your accounts to one or two may save you some money and headache, it is usually not advisable to combine pre-tax and after-tax accounts.
When To Consolidate
If you are still working for a company that is contributing to one of your retirement accounts, you will not be able to move that retirement account to a different provider, but you may be able to move your previous retirement accounts into your current company’s retirement account. Check with the account provider to see if such conversions are possible.
Additionally, the IRS has certain rules pertaining to the timing of the rollovers. For example, you can only make one rollover between IRAs each year without being subject to a penalty tax. (2)
We Can Help You Consolidate And Maximize
If you have multiple retirement plans floating in the ether, it’s time to consider consolidating your assets. When it comes to the rules surrounding consolidation, the above points were just a few pieces of the retirement puzzle. To ensure you’re keeping the big picture in mind, our team would love to help you review your options. Let us help you consolidate your assets and maximize your returns by providing you with a comprehensive retirement plan. Contact us for a complimentary consultation by calling (781) 995-0253 or email me directly at [email protected] today!
About Paul
Paul McNulty is the founder of Boston Metro Advisor with over 20 years of experience helping people navigate the ups and downs of the economy toward the financial future they envision. His education consists of a Bachelor of Science in business administration from the University of Rhode Island and the CERTIFIED FINANCIAL PLANNER™ (CFP®) professional designation.
Paul’s experience and education have made him a multi-faceted professional capable of assisting people with virtually all their financial needs. His services include every facet of retirement planning, from 401(k) rollover services and income planning to wealth management and estate planning. Paul has been active in his community over the years as a youth sports coach. When he’s not spending time with his wife, Cindy, and their two children, who are both recent college graduates, Paul enjoys reading, playing golf, and fishing. Learn more about Paul by connecting with him on LinkedIn.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
LPL Financial does not provide tax advice. Clients should consult with their personal tax advisors regarding the tax consequences of investing.
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(1) https://www.irs.gov/pub/irs-tege/rollover_chart.pdf
(2) https://www.irs.gov/retirement-plans/ira-one-rollover-per-year-rule