Now that people change jobs so often, it’s likely you have several different employer-sponsored retirement accounts to your name. Then, just to make it more complicated, you may even 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 have probably discovered that managing the details of each retirement account can be quite a headache, not to mention time-consuming.
Have you considered consolidating these accounts to streamline the management of your retirement? If the thought has crossed your mind, the good news is that consolidating your retirement accounts can make it easier to manage your retirement. Even better? It can also help you maximize your returns.
At Grace Wealth Management Group, we know your retirement is a priority. That’s why we try to simplify your options so you can make the best decisions for your future. If you’re curious about whether or not you should consolidate your accounts, keep reading!
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.
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
When it comes to all the rules surrounding consolidation, this information is just the tip of the iceberg. If you are interested in consolidating your retirement accounts but don’t know where to start, we’re here to help. Schedule an appointment here to get started!
About Jim Peters
Jim Peters is an independent financial advisor and the founder of Grace Wealth Management Group, Inc., a full-service financial firm committed to helping people pursue their financial goals. With more than 24 years of experience in the industry, Jim combines his extensive knowledge with his genuine interest in helping people pursue financial independence. Beyond his experience, he is certified as both a Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®), meaning he has advanced training and knowledge in financial planning and insurance. Based in Irvine, California, Jim specializes in working with individuals, families, and businesses throughout Orange County. To learn more, connect with Jim on LinkedIn or visit www.financialadvisorirvine.com.