retirement

Consolidating 401(k) plans

Retirement » Basics » Consolidating 401(k) Plans

Some people collect stamps or coins. But perhaps you're looking at the tri-state record for most 401(k) plans held in a single portfolio.

Like trophies of your employment past, you've managed to accumulate a workplace savings plan for every job you've had. While your commitment to retirement savings is commendable, it may be time to simplify.

"When you have investments all over the map, you get paralyzed," says Bob Mecca, a fee-only certified financial planner with Mecca & Associates in Mt. Prospect, Ill.

"If you're getting statements from Vanguard, Merrill Lynch and everyone else and you come home tired from work, you're not even going to look at the paperwork."

3 good reasons to consolidate your account

What consolidation doesHow you benefit
  • Helps you avoid portfolio duplication
  • Turns several small accounts into one big account
  • Keeps paperwork centralized
  • Lower investment risk, higher returns
  • Better service and fees, prevents "lost" accounts
  • Helps loved ones locate savings after you die

Consolidating your retirement funds into a single account not only makes it easier to manage your asset allocation, says Mecca, but it can also help you avoid some costly mistakes.

"You may have duplication in your portfolio where you own two very similar funds with regards to investment philosophy and objectives," he said. "The left hand doesn't know what the right hand is doing."

Indeed, investors with multiple 401(k) plans run the risk of being overweight in one or two individual stocks or sectors within their portfolios.

By transferring 401(k) assets into your new employer's plan, or a single individual retirement account, investors are better positioned to rebalance their holdings when the market shifts.

Save some coin

Depending on the size of your accounts, consolidating multiple 401(k) plans may also yield a cost savings.

Indeed, some brokerage firms tack a small fee onto IRAs worth $5,000 or less.

Likewise, 401(k) plan sponsors often charge record-keeping fees, which can chip away at your earnings.

According to Mecca, however, the bigger issue is service.

"If you have a $500,000 portfolio, but it's spread among five different brokerage firms, you might get assigned a junior broker for each account," he said. "There is a tendency for clients to feel they have not been given the attention they deserve if they split their portfolio up too much."

Another good reason to consider keeping your 401(k) accounts to a minimum is that it "ensures those with responsibility for your assets have your current contact information," said David Wray, president of the Profit Sharing/401(k) Council of America.

Indeed, there are thousands of "lost" 401(k) accounts in the system where former employers have no forwarding contact information.

"If for some reason the former employer is acquired, merged into another company or goes out of business, the account will be maintained but will be very difficult to find when the participant wants it," said Wray.

Do it for your heirs

A final incentive to simplify your nest egg has nothing to do with you.

Consider the beneficiaries to your estate, scrambling to make sense of a scattered portfolio after you've passed on or become physically or mentally incapable of managing your investments in later years.

"We see this all the time," said Mecca. "Clients come into my office and throw a bunch of inheritance statements at me and say, 'I have no idea what this is.'

"Consolidating your accounts makes things easier on them, and that says a lot."

advertisement

Show Bankrate's community sharing policy
          Connect with us
MORTGAGE HOME EQUITY AUTO CDs CREDIT CARDS
Product Rate Change Last week
30 year fixed, 0 point 4.32%  0.05 4.27%
15 year fixed, 0 point 3.29%  0.02 3.27%
5/1 ARM 3.34%  0.13 3.47%
 
View Rates in your area Next
Product Rate Change Last week
30K FICO-based HELOC 4.38%  0.09 4.47%
50K FICO-based HELOC 4.11%  0.06 4.17%
100K FICO-based HELOC 3.96%  0.03 3.93%
 
View Rates in your area Next
Product Rate Change Last week
60 month used car loan 2.63%  0.10 2.73%
48 month used car loan 2.90%  0.07 2.97%
60 month new car loan 3.18%  0.04 3.22%
 
View Rates in your area Next
Product Rate Change Last week
1 Year CD 0.90%  0.01 0.91%
2 Year CD 1.09% --0.01 1.08%
5 Year CD 1.74% --0.00 1.74%
 
View Rates in your area Next
Product Rate Change Last week
Balance Transfer Cards 15.66%  0.01 15.67%
Cash Back Cards 16.36%  0.03 16.33%
Low Interest Cards 10.87% --0.00 10.87%
 
Next
advertisement
CD & INVESTING NEWSLETTER

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

Blog

Jennie Phipps

Stock gains send IRAs soaring

Fidelity Investments says IRA contributions set a record for the 2013 tax year.  ... Read more

advertisement
Partner Center
advertisement

Connect with us