If you’re like most people, you’ve probably worked for multiple companies throughout the course of your career and have a similarly diverse collection of different 401(k) accounts and IRAs to show for it. According to the Bureau of Labor Statistics, the average person now holds 10 different jobs by the time they are 40 years old. Maintaining separate retirement accounts can be a costly mistake.
While the fees associated with each retirement account may be minimal, when added together over the long term, they can eat away at the overall amount you are saving for retirement, particularly when you factor in the power of compounded interest. Given this reality, consolidating accounts is one of the easiest ways of boosting your long-term savings by eliminating fees. Consolidating accounts also makes it easier to get a complete picture of your total savings and to gauge where you are in relation to your ultimate retirement goals.
As many company-sponsored 401(k) plans have limited options for where the money within them can be invested, consolidating accounts can open up the number of investment options that are available to you. If you currently have a combination of retirement savings plans that includes both a company-sponsored 401(k) plan and a bank managed rollover IRA, you should take the time to look into both and see which has the best investment options and the lowest fees. Often the two will not be found in the same place, so you may even want to consider rolling both into a third IRA managed by another bank or securities firm.
In addition, consolidating accounts can make things easier at the time you retire by reducing the likelihood that you could wind up being hit with penalties because of the different distribution requirements between different plans.
Consolidating accounts is a decision that needs some time and consideration, but in the end, it could improve your overall financial picture.