Should I Consolidate My Retirement Accounts?

To many people, consolidating retirement accounts might sound like a small administrative step. But small actions can have powerful impacts.

However, as with almost all financial decisions, the answer depends on personal factors. That’s what makes personalized financial planning so important.

Here some answers to common questions about whether combining your old 401(k)s, IRAs and other accounts makes sense.

Why do people end up with so many retirement accounts?

It’s more common than you might think. According to the Bureau of Labor Statistics, younger baby boomers held an average of 12.7 jobs through age 56. Each new job can mean a new 401(k) or similar plan.

In fact, a Government Accountability Office (GAO) study found that around 25 million Americans left behind money in a 401(k) when separating from a job between 2004 and 2014. Over time, that can lead to a patchwork of old accounts spread across multiple employers and financial institutions.

What does it mean to consolidate my retirement accounts?

Consolidation generally means combining accounts into one place. For instance, rolling over old 401(k)s or 403(b)s into a single IRA, or merging multiple IRAs held at different firms.

You can also roll an old employer plan into your new employer’s plan if it allows rollovers. The right choice depends on your investment options, fees and preferences for managing your savings.

What are the main benefits of consolidating accounts?

1. Simpler management
   Fewer accounts mean fewer statements, passwords and year-end tax forms to track. You can easily see your total balance, investment mix and progress toward your retirement goals.
2. Clearer investment picture
   When all your investments are visible in one place, it’s easier to spot duplication or overconcentration in certain sectors or funds. It also allows your financial adviser to create a more holistic, tax-efficient strategy for your household.
3. Potentially lower fees
   Many investment firms offer discounted fees or enhanced benefits once your household assets reach a certain threshold. For instance, you might gain access to lower-cost share classes or more personalized planning tools.
4. Easier income planning in retirement
   When the time comes to take required minimum distributions (RMDs) or withdrawals, it’s much easier to coordinate from one account. You can be more strategic about which account to pull from and when, potentially reducing taxes and helping your portfolio last longer.
5. Simplified estate planning
   For your heirs, fewer accounts mean less paperwork, fewer passwords and fewer chances that an account gets overlooked. A consolidated account can make it easier to execute your estate plan as intended.

Are there any reasons not to consolidate retirement accounts?

Yes. Sometimes it’s best to leave things as they are. You might not want to consolidate if:

• Your current employer plan has excellent, low-cost investment options.
• You left your company in or after the year you turned 55, since that plan allows penalty-free withdrawals before age 59½.
• Certain accounts, such as Inherited IRAs or some annuities, can’t be combined.
• You value the stronger legal protections of 401(k)s, which are generally shielded from creditors in ways IRAs are not.

Before moving funds, it’s worth reviewing fees, investment options and withdrawal rules carefully.

Does consolidating retirement accounts affect taxes or penalties?

If done correctly through a direct rollover you won’t owe taxes or penalties when moving funds from an old 401(k) or similar plan to an IRA.

However, withdrawing funds instead of rolling them over could trigger income taxes and, if you’re under 59½, a 10% early withdrawal penalty. Always confirm that your transfer is completed directly between institutions to avoid that pitfall.

How can a financial adviser help?

A financial adviser can help you:

• Evaluate whether consolidation fits your personal goals
• Compare investment options, costs and tax consequences
• Handle the paperwork for rollovers
• Develop a unified investment and withdrawal strategy
• Keep your plan aligned as your life and markets change

Bottom line

If consolidating retirement accounts sounds like it makes sense for you, remember it isn’t just a paperwork task. It’s a chance to take control of your financial picture. But it’s one that you want to do right to prevent it from making things more complicated rather than simplified.