Do You Have Too Many Retirement Accounts?

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BERLIN – Frequent job and career moves are part of the new American workplace. As a result, over the years a growing number of people have accumulated a disparate collection of 401(k)s, IRAs and SEP plans.

“With two spouses working, it’s not at all uncommon for an affluent household to have eight or 10 accounts, each holding significant assets,” said Stephen Mitchell, Director of Education and Planning Services for Merrill Lynch.

Whether through inertia or the belief that they’re diversifying their assets, many people leave this assortment of accounts untouched, sometimes for years. But while holding on to multiple retirement plans may offer the appearance of diversification, doing so can make it more difficult to determine whether your investments are working together to meet your retirement goals. In addition to making your life simpler, having fewer accounts can often give you a clearer picture of your retirement strategy and make it easier to plan your wealth-transfer strategy.

Current regulations let you consolidate most types of retirement accounts. You may generally roll over accounts between different traditional and rollover IRAs and different employer plan types. The rules are more restrictive with a Roth 401(k), in which you contribute after-tax income but are able to withdraw money tax-free if certain requirements are met. It can be rolled only into another Roth 401(k) or a Roth IRA.

It’s worth remembering that neglected accounts often become unbalanced over time, because normal fluctuations in the relative value of equities and bonds often shift as holdings outperform or falter, altering your overall allocation.

“You may find that you’re overly exposed to risk, or that you’re not taking advantage of opportunities to buy low,” Mitchell said. “Unless it has been recently rebalanced, that 401(k) from a job you left eight years ago may no longer reflect your personal goals and risk tolerance,” he adds.

Multiple accounts may also lead to an unintended overlap in holdings as well as unnecessary account fees. Maintaining multiple accounts may also entail extra paperwork and increases the chance that you’ll forget to update your address or beneficiary for one or more of your accounts. That can create headaches for you when you want draw assets from a particular account or for your heirs when your estate is settled.

What’s more, the complications for your estate might not end upon consolidation. Leaving different accounts to different individual beneficiaries may lead to unintended inequalities and resentment, Mitchell says. “Even if those accounts were the same size when you made the designations, if one outperforms the other, they could have significantly different value by the time your beneficiaries inherit them.” He adds, “Getting the right amount to each beneficiary is much easier with fewer accounts. Through a single IRA, you can designate multiple beneficiaries and specify the percentage that each is to receive …”

When it comes to retirement plans, that old adage “less is more” frequently rings true. Make a date with your financial advisor to start spring-cleaning those forgotten accounts and seeing to it that your retirement assets are working together toward your goals.

(The writer is a Merrill Lynch Senior Financial Advisor. She can be reached at 410-213-9084.)

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