By the time you retire, you’ll probably have accumulated money in a variety of retirement-savings vehicles at a variety of locations — an IRA here, a 401(k) there and so on. At first glance, that may sound all right, but there are some sound reasons why you might want to consolidate your retirement accounts to one provider.
Here are some of the key benefits you can receive from this type of consolidation:
•You’ll keep better track of your assets. Like most people, you probably think that you will never lose track of any of the money you’ve saved for retirement. But many equally well-meaning people do misplace or forget about savings and investments. In fact, the National Registry of Unclaimed Retirement Benefits lists more than 50,000 individuals who are owed benefits from 401(k)s, profit-sharing plans and IRAs and either can’t be reached or don’t respond to inquiries. But if you hold all your retirement accounts in one place, you are probably far less likely to “misplace” them than if you kept them with several financial institutions.
•You’ll have less trouble calculating minimum distributions. Once you reach age 70 ½, you’ll need to take distributions from your 401(k) and traditional IRA. (This requirement does not apply to a Roth IRA.) It’s not particularly difficult to calculate the amount of a distribution from a single IRA or 401(k), but if you hold several accounts, it could get a bit tricky. For example, if you have multiple IRAs, you’ll need to add them together, then divide the total balance by the IRS’ life expectancy numbers for someone your age. If you have several 401(k)s, you’ll need to calculate the required minimum distribution for each 401(k) separately, using the same life expectancy figures as you would with an IRA. Clearly, if you held a mix of these accounts at different places, you’d have to do a bit of detective work and a lot of number crunching to arrive at your required minimum distributions.
•You could save money. If you held accounts at several locations, you could be paying a number of fees and maintenance charges. Individually, each fee or charge may not seem like much, but they can add up. By consolidating your accounts to one provider, you might be able to save some money.
•You can create a unified strategy. To achieve the retirement lifestyle you’ve envisioned, you will need to create a sufficient income stream, drawing from all your retirement accounts. Among other things, you’ll need to know how much you can afford to withdraw each year, how you can stay ahead of inflation and how best to control your investment-related taxes. You’ll find it far easier to accomplish these goals if you have a single, unified investment strategy — and it will be far easier to develop such a strategy if you have all your retirement accounts at one place, possibly under the guidance of a single financial advisor.
So, to sum up: The more retirement savings vehicles you own, the better — but when it comes to the number of institutions holding these accounts, you might just want to stop at one.
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