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How to Consolidate my Retirement Accounts

Carrying multiple retirement accounts can get confusing. Managing multiple accounts, determining which account to contribute to, and which to withdraw from can be overwhelming. 

Consolidating your retirement accounts may be a better idea, but first, you must know how.

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Is Consolidating Retirement Accounts Smart?

While every investor is different, there are good reasons to consolidate your retirement savings accounts.

Easier to Choose the Right Investments

Choosing the right investments, especially as you near retirement, gets tricky. If you have multiple accounts, it’s hard to keep them straight and understand if you’ll meet your short-term and long-term financial goals.

With everything in one account, you can make better decisions and track your investments better.

Less Confusing for Beneficiaries

When you pass, your beneficiaries get your retirement accounts. If you have multiple accounts, it’s easier for them to miss one or two, letting your money go unused. Give them to a manager, certified financial planner, or another financial professional to worry about and consolidate your retirement accounts.

Pay Fewer Fees

Most retirement accounts charge custodian fees and transaction fees. The more accounts you have, the more fees you’ll pay. You can lower your fees and have more money available for retirement when you consolidate.

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Is It Bad to Have Multiple Retirement Accounts?

It’s not bad to have multiple retirement savings accounts, but it can be time-consuming and may cost you more in fees. If you’re looking to simplify your retirement, not worry about required minimum distributions from multiple accounts, or you want every dollar in your hand possible, it’s best to consolidate your retirement accounts when you can. Fewer accounts may be easier to keep track of.

Can I Combine My 401 K Accounts?

If you have all 401 K accounts, you may wonder if you can combine them. The answer depends on the administrator’s rules. If it’s an old 401 K, though, you cannot make new contributions to it, so the answer is “no.”

If you have a new 401 K with a new employer, they may allow rollovers from an old 401 K but only for a limited time. Ask your administrator what they do and don’t allow to determine if this is an option.

If you can’t consolidate them, you may wonder, what can I do with multiple 401 K accounts? The good news is you can roll them over into traditional IRA. There aren’t any rules regarding rolling them into an individual account, plus this puts you in control of how you invest the funds versus dealing with an administrator.

How to Consolidate My Retirement Accounts

If you’re ready to consolidate your retirement accounts, follow these steps.

1. Determine the Type of Account You Have

You can have one of many retirement account options. First, determine if you have an IRA, 401 K, 403b, SIMPLE IRA, or SEP IRA. You may also have a Roth IRA, Roth 401 K, or pension account.

2. Determine the Type of Account You’ll Roll the Funds Into

If you have any of the above accounts except a Roth IRA or Roth 401 K, you can roll them into an IRA. For example, if you have a Roth 401 K, you can roll it over into a Roth IRA and get the same tax benefits (contributions and earnings grow tax-free).

3. Have the Money Directly Rolled Into Your IRA

You want to avoid tax liabilities and penalties for early withdrawal of your retirement plan funds. To do this, you must roll the funds over to the account directly or at least within 60 days.

The easiest way is to have the administrator write the check directly to your new retirement account. You never receive money in hand, so you don’t pay taxes or penalties.

If the administrator will only issue the funds to you, deposit them in the new retirement account immediately or at least within 60 days to avoid taxes or penalties.

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4. Make Your Roth Conversions

If you have traditional retirement accounts and want to make them a Roth account, you can do a Roth conversion. The money you convert to a Roth conversion will be subject to taxes at your current tax rate. 

5. Manage Your New Retirement Accounts

Once you consolidate retirement accounts, you have one account to manage. This can be less confusing, less time-consuming, and cheaper for you in the long run.

How Often Can I Rollover My IRAs?

The IRS only allows investors to roll over IRAs once every 12 months. So if you rolled over an IRA already this year, you must wait until next year to do it again, if necessary. This doesn’t include Roth IRA conversions, 401 K to a rollover IRA, or rollovers between accounts other than an IRA.

What Are the Advantages of Rolling Over a 401K to an IRA?

Rolling over a 401 K to an IRA can seem time-consuming or overwhelming since you have so many decisions to make, but there are many advantages to consider.

Freedom of Choice

401Ks have limited investment options. When you roll your 401K into an IRA (when you no longer work there), you have more investment options. 401Ks focus on mutual fund investments, whereas IRAs can invest in just about any asset you want.

Better Management

Leaving your 401 K with an old employer is like abandoning an old friend. They aren’t going to watch over the account, and it won’t get any more contributions. It may not even be eligible for the same investments as employees who still work there. Rolling it over to your IRA gives you direct control and better management opportunities.

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Pay Fewer Fees

401Ks often have high management fees because of the overhead involved with an administrator. You manage the account yourself when you have an IRA, but you may pay a broker commissions when you make transactions or a percentage of your assets under management. It’s usually much less than the 401 K costs, though.

You May Be Eligible for Bonuses

Many financial institutions offer bonuses to get more people to invest with them. Depending on how much you roll over, you may be able to grow your retirement account instantly just by opening a new account.

What Are the Disadvantages of Rolling Over a 401K to an IRA?

Like any personal finance decision, there are downsides to rolling over a 401K to an IRA that you should know.

You May Not Have Loan Options

Many 401K administrators allow you to borrow from your retirement funds for emergencies, buy a house, or other financial needs. IRAs don’t always offer that option, which could leave you withdrawing early from your account, paying penalties and taxes as a result.

You May Lose Creditor Protection

If you’re going through a bankruptcy or have creditor issues, your IRA funds may not be protected, but your 401K funds would be. This could leave you with less money in your hand at retirement if you aren’t careful.

You Can’t Withdraw Funds at Age 55

If you retire at 55-years old, you may be able to withdraw your funds without paying a 10% penalty with a 401K. If you have your funds in an IRA, though, you have to wait until age 59 ½ to withdraw the funds without the penalty.

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Can You Move Funds From a 401K With Your Current Employer?

You cannot move your 401K account if you're currently employed. You may be able to roll other retirement accounts into your 401K, but not the other way around. You must wait until you no longer work there to move the funds.

Can You Combine Retirement Accounts of Your Spouse’s?

If you and your spouse both have retirement accounts, you cannot consolidate them. You may only consolidate funds that are in your name. The only exception to the rule is when one spouse dies, the other spouse can roll the retirement funds into their retirement account. 

Can You Have More Than One IRA?

The IRS doesn’t limit the number of IRAs anyone has. However, you can only contribute up to the annual maximum per year, which for 2021 and 2022 is $6,000.