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Managing retirement accounts can be difficult for many Americans—more than 25 million workers left behind at least one account when changing employers between 2004 and 2013, as reported by the U.S. Government Accountability Office. This resulted in hundreds of billions of dollars in lost benefits.
Additionally, you may be paying unnecessary fees or compromising your investment returns.
This is where account consolidation becomes important. Depending on your account type and other factors, combining your accounts may be a smart choice. This ensures you have a clear picture of where your funds are.
However, not all retirement accounts are eligible for rollover. While the rules can be complex, the IRS has provided this simplified chart to help you get started:
As Kiplinger explains, rolling over your employer 401(k) into a single IRA allows you to preserve the 'tax-advantaged status of the assets' and opens up more investment options. It also reduces paperwork, and simplifies the process of calculating your required minimum distributions when you reach retirement age.
However, there are reasons to be cautious about consolidation. Kiplinger suggests that you might prefer to keep a 401(k) plan that offers lower-cost institutional shares of mutual funds and access to commission-free trading, rather than rolling it over into an account that lacks these benefits. Additionally, if you plan to retire early, you’ll need an account that allows penalty-free access to your funds.
That said, refer to the chart above and review your plan’s rollover rules before moving forward.
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