Everyone needs a plan—whether you’re a football coach before the big game, a college student trying to get through finals, or someone striving for a comfortable retirement. And it’s much easier to stay organized and execute a plan when your retirement accounts are consolidated!
We’ve encountered many clients who have acquired multiple retirement accounts from various jobs. The way we always put it to them: Investing is complex as it is, so why make it more complicated with multiple plans from multiple providers? Not to mention, many employer plan providers offer limited investment options and beneficiary rules.
So, why not merge your retirement accounts into one IRA? Here at Carlson Investments, we are all about simplifying your money matters! Read on for answers to seven key questions about consolidation.
7 FAQs About Retirement Plan Consolidation
How Do You Consolidate Retirement Accounts?
Consolidating retirement accounts involves rolling them over into—you guessed it—a rollover IRA. A rollover IRA is specifically intended for holding funds from an employer-sponsored plan, like a 401(k), and is funded with pre-tax dollars. Even if you have several 401(k) accounts, you can merge them into one rollover IRA. However, one exception would be 401(k) Roth dollars, which can be rolled over into a Roth IRA.
Are There Fees for Consolidating or Transferring Funds?
Typically, there are no fees for the transfer itself. However, you should understand the costs associated with your current retirement plan. This could include:
- Expenses related to your investments
- The employer’s costs paid to the plan service provider (some companies pass this along to employees)
The best way to determine your fees is by reviewing your annual statement for each account. Then, your financial advisor can help you compare these costs to the costs of an IRA, which can be much lower.
What are the Eligibility Requirements for Consolidating?
To roll over your retirement accounts, you must no longer work for the company that issued the plan. This is the most common reason people don’t qualify to move their retirement money out of an employer-sponsored plan.
What are the Benefits of Consolidation?
What would be easier—staying on track and working toward your goals with several accounts to manage or just one? That’s why we recommend consolidating retirement plants into one IRA where possible! Again, life is complicated enough. Merging accounts simplifies your money management, making it easier to:
- Track your investments and their performance
- Stay organized
- Reach your retirement goals
Are There Any Downsides?
When you have an IRA or retirement plan, you must take Required Minimum Distributions (RMDs) once you reach age 72 (73 if you turn 72 after December 31, 2022). However, you may delay your RMD with a retirement plan (401(k), 403(b)) if all of the following is true:
- You are still working.
- You do not own more than 5% of the business where you work.
- You have an employer-sponsored plan through that business.
So, consider your plans to work beyond age 73 before doing a rollover.
Another question to ask yourself: Does your retirement plan offer a unique investment not available outside the plan? Our experience at Carlson is that “unique” investments are rare.
A third consideration is very low expenses for investments in your retirement plan, as we discuss in the next section.
Finally, consider the rule of 55.
What Low-Cost Investment Options are Available?
Many large company plans offer low-cost investment options, which is great. But are you getting the advice you need?
Low-cost investment options are prevalent among IRAs, and the annual cost to keep an IRA at a reputable custodian should be low or zero.
Exchange-traded funds (ETFs) are one option with low investment expenses. An ETF is a type of investment fund that combines the features of a mutual fund and a stock. ETFs are designed to track the performance of a specific index, commodity, bond, or basket of assets. They are traded on stock exchanges and offer benefits like:
- Diversification, thanks to representing a collection of investments
- Lower expense ratios compared to some mutual funds
- The ability to trade like individual stocks
What are Examples of Unlimited Investment Options?
As mentioned earlier, IRA investment options are almost unlimited vs. the limited menu of investments you can access at old 401(k) or 403(b) plans.
For example, an IRA at Schwab or Fidelity can buy almost any publicly traded stock, mutual fund, or ETF with low to no commissions. A company retirement plan, on the other hand, will have a limited menu.
Some people get overwhelmed by choices, while others get frustrated by a limited menu! However, a financial advisor would prefer to have all publicly traded securities at their disposal to find what’s best for the client. They can evaluate all your options, explain the risk/reward, and help you choose an investment mix that increases your chance of reaching your goals.
Consolidate Your Retirement Accounts & Simplify Your Life
As you plan for your future and a comfortable retirement, ensure you’re doing so efficiently by streamlining your retirement accounts. If you have multiple plans from previous employers, it’s time to consider consolidating. Not only will this simplify one aspect of your busy life, but it will also give you many more investment options!
Are you ready to consolidate your retirement accounts? Contact Carlson Investments today to get started!
Let's Talk
Finding a better way doesn’t start with you learning about investment strategy. It starts with us learning about you.
Let’s get started.
Contact Us