Consolidating Your Old 401(k) Accounts: A Guide to Simplifying Your Retirement Savings
By Trent Derrick, CMT®
In the past several years, it has seemed like many Americans have gone through a job change at a surprising rate. (1) If you have gone through a job change recently, there’s a good chance you have one or more employer-sponsored retirement accounts. It’s easy to forget about them, thinking that you’ll just access them when it’s time, but it can cause a major amount of stress when you juggle so many accounts, fees, and rules.
But it doesn’t have to be this way. You can consolidate all these accounts and simplify how you manage your retirement. Here’s why consolidation is important.
Is Consolidating Right for You?
How do you know if it’s time to consolidate? There are a few things you’ll want to consider before consolidating multiple retirement accounts.
- What kind of benefits and features do your retirement accounts offer?
- Are there similar investment options in all your accounts?
- What are the fees like on each of your accounts?
- Can you roll over previous plans to a new employer? Or do you need to move to a self-directed retirement account?
You’ll want to do your research to answer these questions before you make any moves. And remember, you don’t necessarily need to consolidate everything into one. You can merge some while keeping others open. What’s best for you will depend on your specific situation and goals for retirement.
Benefits of Consolidating Multiple Retirement Plans
When it comes time for retirement, there are several benefits of consolidating multiple plans into one account.
Here are just a few benefits to consider:
- Reduced investment fees: Fewer retirement accounts can also mean fewer fees. Instead of paying fees for each of your account management services, you only need to pay one—meaning more of your money can grow.
- More opportunities to save: You can’t contribute to an old employer-sponsored 401(k). You need to roll over the account to a new 401(k) or a self-directed account so you can continue contributing to that retirement fund.
- Reduced administrative work for you: Fewer accounts mean simpler management. You don’t need to worry about managing investments and documentation across different platforms. For example, instead of three different monthly statements, you just have one. You can see all your investments in one location for more cohesive planning.
- Simpler portfolio rebalancing: When it comes time to rebalance your portfolio, having all your accounts consolidated makes it easier to calculate your asset allocations.
- Easier calculations and withdrawals of required minimum distributions: If you have multiple 401(k)s at retirement, you will eventually need to take required minimum distributions (RMDs) from each of those accounts. (2) When juggling multiple accounts, you risk missing a required minimum distribution or risk withdrawing the incorrect total amount, for which the IRS can make you pay a penalty. Having a single account makes RMDs much easier.
- A clear picture of your money: 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.
Lastly, one of the biggest benefits of consolidation is saving time. Time is one of your most valuable assets. Having one consolidated account means you’ll spend less time managing all your accounts and instead spend it doing what you love.
What Are Your 401(k) Consolidation Options?
Different retirement plans have their own benefits, but also their own set of rules. It’s important to first get an understanding of the rollover options available to you. You may or may not be able to roll some types of accounts into others. (3) Some accounts only allow rollovers once every 12 months. And some only let you roll over after two years.
Some options include:
- Leave your money in your former employer’s plan if you are allowed to do so.
- Choose to roll over the assets into your new employer’s plan if one is available and they permit rollovers.
- Roll over your old 401(k) to an IRA.
- Cash out the value of the account.
Based on your unique circumstances, you can decide which route is best.
We Can Help You Consolidate and Maximize
When you boil it all down, consolidation means simplification. It creates less stress on your part and allows you to have an overall better understanding of your retirement situation. However, actually figuring out the small details of consolidating your accounts can be a hassle. That’s why I’m here to partner with you in this process. At Legacy Wealth Management, I’m fully dedicated to helping you set a clear vision for your financial future. Book a consultation with me here or email me at trent@legacywm.com.
About Trent
Trent Derrick is a financial advisor and Chief Market Technician at Legacy Wealth Management. Trent is passionate about the value small businesses bring to their communities and specializes in serving small business owners by providing seamless financial advisory services tailored to their financial needs, including tax planning, cash flow management, retirement planning, and bookkeeping. Trent has a bachelor’s degree from the College of Charleston and studied economics at the University of South Carolina, Columbia. He is a Chartered Market Technician® (CMT®) professional. Trent serves as a guest lecturer for the College of Charleston’s MBA program and acts as chairman of the Market Technician Association’s Charleston chapter. When he’s not working, Trent, a proud Eagle Scout, enjoys volunteering with the Charleston Animal Shelter’s outreach program. Trent and his wife love to cook international cuisines and host dinner parties with their friends. To learn more about Trent, connect with him on LinkedIn.
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(1) https://www.bls.gov/nls/questions-and-answers.htm#anch41
(2) https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions