Do You Need Help Consolidating Old 401(k) Accounts?

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Published by Daniel Morrison, Founding Partner and Wealth Advisor

 

Staying with one employer for your entire career is now a relic of the past. American workers will have an average of 2.9 jobs between the ages of 35 to 44, and 1.9 jobs between ages 45 to 52.[1] Because you switched jobs several times throughout your career, you likely have several employer-sponsored retirement accounts. As a busy professional, you probably haven’t given them much thought, but these accounts may cause some serious headaches down the road as you find yourself juggling various investment decisions, fees, and rules for each account.

Luckily, consolidating your accounts allows you to streamline the management of your retirement savings accounts and possibly maximize your returns. In this article, we will break down how account consolidation works and why it could be a good option for you.

Understanding Your Consolidation Options

Different retirement plans have their own benefits and their own set of rules. It’s important to first get an understanding of the rollover options available to you. You may or may not be able to roll some types of accounts into others; some accounts only allow rollovers once every 12 months, while others only let you roll over after two years.[2] A financial advisor can look into this for you, or you can contact the plan provider to find out.

Is Consolidating Right for You?

How do you know if it’s time to consolidate? There are a few things you’ll want to consider before consolidating retirement accounts:

  • What kinds of benefits and features do your retirement accounts offer?
  • Are there similar investment options in all your accounts?
  • What are the fees associated with each of your accounts?
  • Can you roll over previous plans to a new employer? Or do you need to move to a self-directed retirement account?

You’ll want to do your research to answer these questions before you make any moves. And remember, you don’t necessarily need to consolidate everything into one. You can merge some while keeping others open. What’s best for you will depend on your specific situation and goals for retirement.

Benefits of Consolidating Multiple Retirement Plans

When it comes time for retirement, there are several benefits of consolidating your accounts. Here are just a few benefits to consider:

  • Reduced investment fees: Fewer retirement accounts can mean fewer fees. Instead of paying fees for each of your account management services, you’ll only pay one—meaning more of your money can grow.
  • More opportunities to save: You can’t contribute to an old employer-sponsored 401(k). You will need to roll over the account to a new 401(k) or a self-directed account so you can continue contributing to that retirement fund.
  • Reduced administrative work for you: Fewer accounts mean simpler management. You won’t need to worry about managing investments and documentation across different platforms. For example, instead of three monthly statements, you could have just one. You’ll also be able to see all of your investments in one location for more cohesive planning.
  • Simpler portfolio rebalancing: When it comes time to rebalance your portfolio, having all your accounts consolidated makes it easier to calculate your asset allocations.
  • Easier calculations and withdrawals of required minimum distributions: If you have multiple 401(k)s at retirement, you will eventually need to take required minimum distributions (RMDs) from each of those accounts.[3] When juggling multiple accounts, you risk missing a required minimum distribution or withdrawing the incorrect total amount, for which the IRS can make you pay a penalty. Having a single account makes RMDs much easier.
  • A clear picture of your money: 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.

Lastly, one of the biggest benefits of consolidation is saving time. Time is one of your most valuable assets. Having one consolidated account means you’ll spend less time managing all your accounts and free up more time and energy for doing what you love.

We Can Help You Consolidate

Although consolidating accounts may lead to greater returns and less headache in the future, the process can be challenging to navigate. If you have multiple retirement plans, we at Jacob William Advisory would love to talk about how we can help you optimize your plan. Contact our office by calling 410-821-6724 or emailing info@jacobwilliam.com or schedule an appointment at https://www.jacobwilliam.com/insights/#contact.

 

About Dan

Daniel Morrison is a Founding Partner and Wealth Advisor of Jacob William Advisory, a wealth management firm whose sole mission is to service their clients’ needs beyond their expectations. Dan Morrison has 27 years of industry experience, and for the past decade, he has been committed to building Jacob William Advisory into one of the foremost wealth advisory firms. Dan graduated from Towson University with a bachelor’s degree of finance in economics and obtained his master’s degree in finance from the University of Baltimore. He is a CERTIFIED FINANCIAL PLANNER™ professional and holds the Chartered Financial Consultant® (ChFC®), Chartered Life Underwriter® (CLU®), and Chartered Advisor in Senior Living® (CASL®) designations. He and his wife Beth reside outside of Baltimore, Maryland, and have three wonderful children. Dan is involved in his church and he enjoys spending time with his family, playing golf, and sailing. A good book is also never far from his reach. Learn more about Dan by connecting with him on LinkedIn.

 

Distributions from traditional IRA’s and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching 59½, may be subject to additional 10% IRS tax penalty.  Some IRA’s have contribution limits and tax consequences for early withdrawals. For complete details, consult your tax advisor or attorney.

[1] https://www.thebalancecareers.com/how-often-do-people-change-jobs-2060467

[2] https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

[3]https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

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