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Merge retirement accounts for cash and clout -- Page 2

Increased leverage
If you combine several accounts with smaller balances into one or two heftier accounts, you'll gain leverage, says Parker. "You can demand more time (from your financial planning expert) and a higher level of competency." In fact, many larger investment planning firms serve customers whose accounts are less than $100,000 through the Internet or an 800 number, he adds.

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Money savings
Many financial planners earn their keep by charging a percentage of the value of your accounts. As your account balance goes up, the percent you pay to manage your money typically goes down, so several small accounts may well cost you more than fewer, but larger, accounts.

Steps to consolidation
Consolidating your accounts shouldn't take inordinate amounts of time or money. To start, decide which account(s) you'll keep, then inform the financial professional you want to work with that you'll be consolidating your accounts. Many firms, although not all, will help you complete the paperwork necessary to close the other accounts. Their motivation, of course, is to get more of your money under their management.

On the other hand, the companies you're leaving may charge fees to close your accounts. These can hit $100 or even more, says Parker. Keep tabs on the charges. It's possible that the firm you'll be retaining will agree to pick them up, if you ask. (Even if they won't, you'll still be eliminating the ongoing fees from the accounts you close.)

If you're leaving an employer and have a 401(k), you'll have the choice of moving the funds to a new 401(k) at your new employer (if it offers one that allows for rollovers) or opening up an individual retirement account and keeping your money there.

Each has pros and cons, says Meigs. You can borrow from your 401(k), but not from an IRA. However, it may be easier to withdraw the funds from an IRA. One more point to keep in mind: You'll probably have more control over your investment options if you go with an IRA. With a 401(k), an investment professional decides which options to offer.

Two may be better
While consolidating accounts to a manageable number usually makes a great deal of sense, in some cases you'll want to keep more than one account. Some investors believe that gives them access to more than one investment expert's insight. That's a reasonable argument, although you still want to keep the number of accounts manageable.

Another reason to maintain separate accounts is when beneficiaries have very different needs and goals, says Julie Welch Runtz, CFP, CPA and director of tax services with Meara King & Co. in Kansas City, Mo. She gives this example: One of your children is doing fine, and doesn't really need the money. The other is disabled, and will depend on the money in the account to cover living expenses.

Given their different lifestyles, it may make sense to set up separate accounts. That way, the investment style for each account can be tailored to the beneficiary's needs.

Similarly, if you're planning to name both an individual and a charity as beneficiaries, you may want separate accounts. "When you co-mingle, the individual gives up the right to have the proceeds distributed over a lifetime," says Parker. Instead, he or she takes the money all at once.

There is a way around this: The two beneficiaries have until the year following the account holder's death to establish separate accounts. However, you may decide it's cleaner to establish separate accounts from the get-go.

Outside of these reasons, consolidating a grab-bag of retirement accounts typically makes sense.

"You need to be proactive, and take control of your retirement assets," says Meigs. "These are dollars you worked hard to save. You don't want to write them off by forgetting about them."


-- Posted: July 27, 2004




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