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Do You Have Multiple Retirement Plans? How To Consolidate And Maximize Returns

Do You Have Multiple Retirement Plans? How To Consolidate And Maximize Returns

February 08, 2021
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If you are like most people, you probably have several different retirement plans from different positions you have held with different companies. Perhaps you also have a retirement plan that you set up for yourself and your employees when you started your own business. With multiple fees and investment decisions associated with each account, you have also likely discovered that managing the details of each retirement account can be quite a hassle.

Have you considered consolidating these accounts to streamline the management of your retirement? If the thought has crossed your mind, the good news is that consolidating your retirement accounts can make it easier to manage your retirement. It can also help you maximize your returns.  

At 1on1 Financial, we know your retirement is a priority. Below, we have outlined some points to consider before you decide to consolidate your accounts. We hope this serves as a guide as you think about whether this decision is right for you. 

Benefits Of Consolidation

Consolidating your retirement into a single account can save you on annual maintenance fees, as the fewer retirement accounts you own, the less you will have to pay on the annual fees. Combining your retirement accounts will also enable you to streamline your investment strategy to maximize tax efficiency. What if you need to change an address or add a beneficiary? Having just one or two accounts makes tasks like these easier and will help you manage your retirement with more peace of mind. 

Perhaps most importantly, though, consolidating your accounts allows you to clearly understand how well your investments are working for you while enabling you to easily tweak the account to meet your retirement goals. For example, with a single retirement account—or just a few retirement accounts—you can easily analyze your rate of return or decide if you need to rebalance your account.    

Tax Implications 

When you are thinking about whether to consolidate, carefully examine the benefits, fees, and investment options of each account. You may also need to calculate what you could lose if you close the account, while also carefully considering any tax implications of combining one account with the other. 

For example, completing a Roth conversion will result in the retirement accounts being converted as taxable income for that year. A Roth conversion is when retirement accounts, such as an IRA, 401(k), 403(b), 457 plan, SIMPLE IRA, SEP-IRA, or Keogh, are rolled into a Roth IRA. (1)

Remember, it may not make sense for you to consolidate all your accounts into one at the moment. While reducing your accounts to one or two may save you some money and headache, it is usually not advisable to combine pre-tax and after-tax accounts. 

When To Consolidate

If you are still working for a company that is contributing to one of your retirement accounts, you will not be able to move that retirement account to a different provider, but you may be able to move your previous retirement accounts into your current company’s retirement account. Check with the account provider to see if such conversions are possible. 

Additionally, the IRS has certain rules pertaining to the timing of the rollovers. For example, you can only make one rollover between IRAs each year without being subject to a penalty tax. (2)

We Can Help 

When it comes to all the rules surrounding consolidation, this guide was just the tip of the iceberg. If you are interested in consolidating your retirement accounts but don’t know where to start, that’s okay. We’re here to help. Call our office today at 909-981-1720 or simply click here to schedule a free 15-minute introductory phone call!

About 1on1 Financial

1on1 Financial is an independent financial advisory firm specializing in guiding working and retired professionals, executives, and business owners along the path to financial well-being. Founded in 1997, we use a team approach to help our clients accumulate wealth, generate income, preserve their life savings, and strategically plan for the distribution of their estate. With more than 50 years of combined experience in the financial services industry, we remain true to our fundamental mission: to provide personalized guidance, treatment, care, and service so our clients can gain control of their future and feel confident in their financial life.

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(1) https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

(2) https://www.irs.gov/retirement-plans/ira-one-rollover-per-year-rule