Consolidating Your Investment Accounts: The Full Guide
How many jobs have you had in your lifetime? If you're like the average American, you might have held as many as 12 different jobs by the time you reach the age of 50, according to the U.S. Department of Labor.1 And if some of those positions came with benefits like a 401(k) or pension plan, you might have multiple investment and retirement accounts to keep track of. Add to that the special considerations for Required Minimum Distributions (RMD) and estate planning that come into play once you reach 72 years of age, and you have additional requirements to consider.
To ensure you’re getting the most out of your retirement and investment accounts, it’s a good idea to take stock of them and your goals on a regular basis. If you're dragging your feet on this financial to-do, make sure you understand the top reasons for getting it done — all of which can benefit you and even make your financial goals easier to reach.
Look at the Big Picture
Having investment accounts in multiple places, managed by several different advisors, complicates your financial situation and makes the big picture harder to see because it's fragmented. When you can't look at how all of your assets are allocated and distributed at a glance, it can be difficult to catch mistakes or spot underperforming holdings that need to change.
Consolidating your investment accounts with a single institution or advisor will give you a more complete view of your nest egg, allowing for more informed decisions about how to allocate your assets in a way that's appropriate for your goals and the time line for when you'll need to start tapping into what you saved.
Stay Organized (and Save Time)
Tracking down individual accounts when they're serviced by different advisors isn't just a hassle, it can also waste time and open the door for errors. Staying organized may include consolidating your investment accounts so that you're not duplicating your efforts. Duplicating your efforts could double or even triple everything — from the decisions you need to make to the communication between you and the financial advisor, as well as the paperwork that needs to be signed.
You could also be duplicating your investments and creating unnecessary complication with your asset allocation in the process. By keeping your assets in one place, you can ensure that you're keeping your assets together, diversified, and not scattered across multiple funds in a way that's counterproductive to reaching your goals. Even if you're leaving a job with a pension, you often still have the option to move the cash value to an IRA.
Save Money on Investment Costs
Remember that all investments come with expenses and fees — and they can be well worth the price if it means getting better results than you could see on your own. But if you keep multiple accounts in many different funds with various financial advisors, you could be paying higher fees than necessary.
When you’re 72 years old or more and still working, there are some additional benefits and considerations that may come into play when you consolidate investment accounts to a single institution or advisor. If you’re considering consolidating 401(k) plans at this age, check to see whether your current employer will let you move a previous 401(k) into your current one. If so, you may be able to avoid taking the RMD for that year. With your investments consolidated, you’ll have fewer individual accounts to keep track of, so you can more easily track your RMDs. Remember, you’ll want to see if the fees on your new 401(k) would be lower than your old account, and take the opportunity to rebalance the portfolio.
Consolidating your investments and retirement accounts can make your financial life easier to track, more organized, and even less expensive to manage. Usually, it’s easier to get to a tax-efficient plan when your accounts are consolidated at a single institution. When investments are divided among a variety of brokerages or advisors, it’s more difficult to see the full picture and get the proper advice on potential tax losses for your personal situation. Change of address becomes easier, too. Especially for snowbirds who will reside in another state for several months at a time each year. Plus, consolidating investment accounts makes it easier to keep track of beneficiary designations. And, it it will make things easier on your beneficiaries, too.
If you want to take advantage of these benefits, schedule an appointment with a financial advisor who can help you get started.