Reasons to Consolidate Your Retirement Accounts

Should You Consolidate Your Retirement Accounts?

Older couple looking over paperwork

According to the Bureau of Labor Statistics, you might have had up to 11 jobs between the ages of 18 and 44. 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

  • Saving money. Say you have $3,000 sitting in one retirement savings account, $4,000 in another, and $2,000 in a third. They may be costing you money, because many financial institutions charge annual fees for accounts containing less than $5,000.
  • Greater investment options. Some employer 401(k)s offer limited investment choices. But with an IRA, you can tailor your investments to better meet your specific retirement goals. There are also more flexible distribution provisions with an IRA.
  • More control. When your accounts are all in one place, it's simpler to keep an eye on your investments and monitor their progress. When your accounts are scattered, it's easy to forget about them.
  • Less paperwork. One regular statement is easier to keep track off. And once you reach age 70 1/2, you will generally have to start taking money out of those accounts and keeping track of IRS paperwork for each account.

Some disadvantages of consolidating

  • You may be able to get a loan from an employer-sponsored 401(k) account, but not from an IRA.
  • You may be able to 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 eligible for favorable tax treatment on withdrawals if your 401(k) is invested in company stock.


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