Streamlining Retirement Accounts—Less Can Definitely Be More When was the last time you met someone who has worked for one employer for his or her entire career? If you can’t remember, you’re not alone. In fact, recent data compiled by the U.S. Department of Labor indicates that wage and salary workers have averaged just four years with their current employer. Not surprisingly, older workers tend to have more years of tenure than their younger counterparts. For example, employees between ages 55 and 64 have 9.3 years of tenure—about three times that of workers between ages 25 and 34, who have 2.9 years.1

If it is common for today’s work force to switch jobs voluntarily or involuntarily, what is the side effect of this cultural shift? For starters, many people find that they have retirement plan accounts and IRAs scattered among multiple custodians, such as banks, investment companies, and former employers.

It’s challenging to keep track of assets that are so widely scattered. If you find yourself in this position, regardless of how many accounts you have and where they’re held, you may want to consider the benefits of consolidating your retirement assets.

Simplify your IRAs and retirement assets through consolidation.
Whether you have a 403(b), 401(k), 457 plan, your own IRA, or some combination thereof, you may find that consolidating your retirement assets into a single account is a good choice if you want to:

Avoid paying multiple custodial fees.
Many mutual fund companies and brokerages charge an annual fee of $10 or more on IRAs worth less than $5,000. If you transfer all your IRAs into one retirement account and add in your old 401(k), you may have a big enough balance to earn a fee waiver.

Simplify tracking on one statement.
If all your retirement assets are in one place, you’ll find it easier to monitor your progress and investment results. You’ll receive a single statement that eliminates the need to keep track of multiple accounts from a variety of sources. You’ll also have the benefit of accessing your information through one website and one phone number.

Get a clearer picture of your asset allocation.
With a full view of your retirement picture, you are more likely to receive appropriate guidance whenever you think allocations should change or investment opportunities should be considered. Plus, if you have an old 401(k) that only offers expensive, underperforming mutual funds, you‘ll have the chance to roll it into an account that offers a variety of investment choices to help increase your bottom line.

Manage risk exposure.
With several accounts invested in different funds, you may become over-invested in certain sectors or companies through overlapping investments. With one consolidated account, you can more easily track underlying investments and manage your risk exposure.

Simplify your required minimum distribution (RMD) calculations.
When you reach age 70½, you must begin taking RMDs from IRAs and other retirement accounts, such as a 401(k)s. It’s typically easier to calculate and take withdrawals from a single account.

Do your homework before taking action.
For many people, consolidating their retirement assets makes life easier and provides financial comfort. To avoid costly mistakes, however, be sure you fully understand each retirement account you own and the tax rules that apply to it before doing anything. Keep in mind the following:

Review your current holdings.
If you have worked for awhile, this process may take some time, but it is important to have a clear picture of all your accounts. You should determine where each account is located and what it is worth.

Avoid hidden charges or fees.
Some financial institutions charge egregious fees to let you go. Consolidate only if the payoff outweighs any fee. Some firms may assess charges, such as service and transaction fees, on some or all of your assets when you roll them over.

Avoid directly receiving a check.
Have all the retirement assets from another firm sent directly to the new account, in what is called a direct rollover. A direct rollover allows you to preserve your entire accumulation without having taxes withheld from the funds you are moving. Always remember that you should never take possession of the money. If you do and then fail to reinvest it in an IRA within 60 days, you’re looking at an income tax bill, as well as a 10-percent early withdrawal penalty.

Even if you’re far from retirement at this point in your career, starting to consolidate your assets now may help you in the long run to develop an effective overall financial plan that provides the maximum benefit to you and your family. A financial professional can provide more information on consolidation and help you determine if it may be a good choice for you.

1. Bureau of Labor Statistics of the U.S. Department of Labor, Current Population Survey (CPS), January 2006.

Labels: accounts, assets, diversification, retirement

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