According to the Bureau of Labor Statistics, you might have had up to 11 jobs between the ages of 18 and 48. Some of those jobs probably came with a 401(k) or an IRA account (SIMPLE or SEP) as a perk. This can create a lot of accounts to manage. So let's look at a few of the pros and cons of consolidating them with one institution.
Some advantages of consolidating
- Maintain tax- deferred status of your retirement savings as compared to cashing out the account value.
- Avoid tax penalties for early distribution as compared to cashing out the account value.
- Choose from a range of investment choices that may be broader than those offered by an employer plan.
- The more retirement accounts you have, the harder it may be to keep track of your money.
Some disadvantages of consolidating
- You may be able to get a loan from an employer-sponsored 401(k) account, but never from an IRA.
- You can generally withdraw funds without a 10% early withdrawal penalty from a 401(k) if you leave your employer at age 55 or older. With an IRA you generally have to wait until you are age 59 1/2 to withdraw funds in order to avoid a 10% early withdrawal penalty.
- You may be responsible for paying a sales load.
- A 401(k) may provide access to lower-cost institutional investment funds because of group buying power.
- You may be eligible for favorable tax treatment on withdrawals if your 401(k) is invested in company stock.
- A 401(k) may provide greater protection from lawsuits and creditors.