Account consolidation: Streamlining your retirement savings

Photo of a woman who has consolidated retirement accounts from past employers into one retirement plan.

If you’re like a lot of people, you’ve probably had (at least) a few different jobs so far. That means you probably also have (at least) a few different retirement accounts.

Multiple retirement accounts may mean multiple investment decisions, statements, fees, emails, and more. And it can make it tough to manage your retirement savings.

In some cases, people have even lost track of old retirement accounts altogether. This can happen more easily than you’d think—especially if you forget to change your address on an account when you move (and who remembers to update their address with all their past employers?).

Consolidating your retirement accounts can help

Here’s some good news. In most cases, you don’t have to leave those accounts with your former employers. Instead, you may be able to roll them over into a single retirement account.

This is known as consolidating accounts. And it offers a lot of advantages.

Consolidating retirement accounts can make it easier to:

Manage your investments.

Knowing how much you have in different kinds of investments (stocks, bonds, mutual funds, etc.) is really important. Investing in a mix of different types of investments (also referred to as diversification) can help you manage risk while still working toward your goals. You’ll get a clearer picture of this mix when you consolidate.

Rollover options:

  • Old 401(k) to an IRA
  • Old 401(k) to your current employer’s 401(k) (if it accepts incoming rollovers)
  • IRA to a 401(k) (if it accepts incoming rollovers)
  • Multiple IRAs into one IRA

Rebalance your investments.

Over time, some investments may fluctuate more than others. After a while, your mix of investments isn’t the same as when you started. That could mean you’re taking on more risk (or less) than you originally intended.

Rebalancing resets your investments so they’re in line with your original mix. It may be a good idea to rebalance your accounts once a year. The fewer accounts you have, the easier it is to take care of this task.

See your overall returns.

Let’s say you have several accounts with different balances. Each account earns a different rate of return (the gain or loss from your investments). Figuring out your total rate of return across all accounts can be complicated. But if all of those assets are in one account, you just have a single, easy-to-understand rate of return.

Minimize fees.

Most retirement accounts have annual maintenance fees. The fewer accounts you have, the less you may pay in annual maintenance fees.

Keep your account up-to-date.

If you have to change your address or beneficiary info, for instance, you can just do it on one account.

Plan for taxes.

Utilizing a tax-efficient investing strategy can be complicated when working with multiple accounts.

Calculate required minimum distributions (RMDs).

This is a big advantage if you’re age 70½ or older. At that point, you’re required to take out a certain portion of your retirement savings—every year—from pre-tax retirement accounts.1

Rather than having to determine how much is required to be withdrawn from each of your accounts individually, it’s a lot easier to calculate your RMD when your accounts are consolidated. And considering the hefty 50% tax penalty if you don’t withdraw the correct amount, getting this right is really important.

Things to consider when deciding to consolidate retirement accounts

In some situations, you may not want to (or be able to) consolidate all of your retirement accounts. Here are a few of the reasons you may not want to consolidate:

Have pre-tax and after-tax accounts.

You generally can’t combine pre- and after-tax accounts without tax consequences. As an example, rolling a 401(k) into your Roth IRA will generally be treated as taxable to you in the year of the conversion.

Inherited an IRA.

A non-spouse beneficiary who inherits an IRA can’t move money tax-free from an inherited IRA into any other type of retirement account .

Want to contribute more money than an IRA allows.

Traditional and Roth IRAs have lower annual contribution limits than most 401(k) or 403(b) plans.

Have less-expensive investment options.

Employer-sponsored retirement plans may offer less expensive investment options than what’s available in an IRA.

How to consolidate retirement accounts

There are 2 main ways you can consolidate retirement accounts:

1. On your own.

If you want to manage the process yourself, you can usually roll over accounts online or by phone with an IRA provider of your choice (including Principal®). Keep in mind that you may need to track down paperwork from former employers.

2. With a financial professional.

A financial professional can take care of a lot of the legwork for you, like helping you track down your accounts and completing the necessary paperwork to move them. He or she can also help you choose investments.  You may also want to discuss the tax impact of consolidating the retirement accounts with your tax advisor prior to proceeding.

Learn more about your retirement savings options (PDF)

Next steps

1 RMDs don’t begin for employer sponsored plans at 70 ½ if the participant is still working

Investing involves risk, including possible loss of principal.

Asset allocation and diversification do not ensure a profit or protect against loss.

Past performance does not guarantee future results.

Account and investment fees may vary based on the product that is purchased.

The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.

Insurance products and plan administrative services provided through Principal Life Insurance Co. Securities offered through Principal Securities, Inc., 800-547-7754, member SIPC. Principal Life and Principal Securities are members of Principal Financial Group®, Des Moines, IA 50392.