How Many Retirement Accounts Can I Have?
You can have as many retirement accounts, IRAs, 401ks, 403bs etc as you choose. The amount you can contribute in a single year is, however, restricted. You can have an unlimited number of retirement accounts, but you may want to consolidate retirement accounts into one.
There’s no limit to the number or types of retirement plan accounts you can have, but there are some considerations to keep in mind when deciding how many to open.
- One factor to think about is whether you want to have all your eggs in one basket. Diversifying your retirement savings across multiple accounts and a range of investment options, can give you peace of mind knowing that if one account takes a hit, your other accounts may still be doing well.
- Another consideration is fees. If you have multiple accounts, you’ll have to pay fees on each one. So it’s important to weigh the cost of fees against the benefits of having multiple accounts.
- Finally, you’ll need to think about how much time and effort you’re willing to put into managing your accounts. The more accounts you have, the more work it will be to keep track of them all. So there’s no right or wrong answer when it comes to how many retirement accounts you should have. It’s a personal decision that depends on your unique circumstances.
Asset allocation, fees, withdrawals, tax implications, paperwork, account questions, and asset transfers to beneficiaries are all easier to manage when you consolidate retirement accounts and IRA’s .
See my recent article for details on How Many IRAs Can I Have?
How Many Roth IRAs Can I Have?
How Many Individual Retirement Accounts (IRAs) Can You Have? How many IRAs can you have? How many Roth IRA accounts do you want to have? That’s how many you can have. There is no limit to how many individual retirement accounts, or IRAs, you can. Whether they are Roth IRAs or regular IRAs, it doesn’t … Continue reading
Reasons To Consolidate Retirement Accounts
Should you aggregate or consolidate retirement accounts such as your 401k, IRAs, Roth IRA??
An IRA rollover is the process of transferring multiple investment accounts into a single IRA in order to combine retirement assets. There are several benefits to aggregating or consolidation of your IRAs, 401ks, and other retirement accounts.
When you retire, you’ll need to figure out how to structure your investments so that they continue to generate income while still generating returns. This is difficult to do when you have multiple accounts. When you combine your retirement accounts, you’ll have a better chance of finding investments, mutual funds, stocks and whatever meet your short- and long-term objectives.
1. Investments Are Easier to Manage
It will be far easier to consolidate retirement accounts and your IRA accounts and take a single payout from one IRA account each year than it will be to manage cash distributions from several 401ks and IRAs. Retirement planning will be easier. Your taxes situation will be simpler as well, with fewer statements to give to your tax advisor.
If you have multiple IRA accounts, you can choose to take all of your RMDs from just one of them. However, you must still figure out your RMDs using the values of all of your IRA accounts.
You must withdraw the RMD from each account separately in other retirement funds, such as 401ks.
2. Keep Your Costs Low
An IRA account must be held at a custodian. For tax purposes, the custodian is responsible for reporting contributions and withdrawals to the IRS. The cost to the company is both time and money as a result of this.
The majority of companies will charge you an annual custodian fee to keep your IRA. You may be charged several fees if you have multiple accounts.
Furthermore, whether you buy or sell an investment, there will be a cost associated with the transaction. Over time, if you consolidate retirement accounts into one IRA account it should lead to fewer overall sales and purchases, resulting in lower total transaction fees.
The $20,000 Mistake – Fee Waivers
Many companies may waive fees if you deposit $x with them. Most will reduce or even waive fees transaction costs once your account reaches a particular size. If you aggregate or consolidate your retirement accounts, it can help you reach those milestones while also lowering your investment fees and saving you money.
For Example
- You have 4 IRA’s with four different firms.
- Each bank or firm charges you a $45 annual custodial fee (some are as high as $200).
- That is $180 per year. Over 20 years that’s about $4,500
- Even worse, if that stayed invested at 10% return, these fee’s have cost you nearly $20,000!!!
OR
- You can consolidate your retirement accounts to one account. That waives custodial fee’s with over $150,000 invested with them.
- Saving you $20,000!!!
3. Save Time
It might be time consuming to keep track of many IRAs. If you aggregate and rollover your 401k accounts, it will help you save that time. There will be fewer letters and emails to read, passwords to remember, pieces of paper to file, and time spent looking for information will be reduced.
You’ll have fewer accounts to link to an online service like Quicken, and you won’t need to keep spreadsheets to manage investments across multiple accounts. In addition, if you need to change your email address, mailing address, phone number, or beneficiary, you’ll only have to make one phone call.
4. Get Better, More Comprehensive Advice
Another benefit if you choose to consolidate your IRA accounts is having all of your accounts with one financial advisor or one financial planner is that you may get comprehensive financial advice and investment diversification. Improper retirement asset allocation is one of the most important rules of a wise investment strategy.
Even with the best of intentions, investing in several accounts with various financial advisors can be a major disservice to yourself. When the left hand does not understand what the right hand is doing, it is more likely to make investing mistakes.
5. Avoid Confusion and 50% Penalties
Once you turn 72, you must follow an IRS calculation that determines the minimum amount you must withdraw from your retirement plan assets each year. This is known as an RMDs (required minimum distribution).
Each year, you will receive statements or an email from your financial institution alerting you of your RMD. What if you have a few different accounts?
That can be aggravating. As you become older, it’s also easy to dismiss these notices. The IRS will charge you a penalty of 50% of the amount you should have taken out if you fail to take an RMD. This is perhaps the best reason for a retiree to choose to consolidate your IRA accounts.
Related Readings:
- Top Articles on RMD’s
- Do You Know When Annuities Have RMDs?
- How To Learn 6 Advantages To Having Multiple IRAs
- How Many IRAs Can I Have? Remarkably It Is Unlimited
- The Ultimate Guide to 2022 Tax Tables and IRA Contribution Limits
6. Beneficiaries Will Find It Easier
It will be a lot easier for your beneficiaries to deal with if you consolidate your IRA accounts into one, after you pass away than it will be for them to keep track of many accounts in multiple places. This could be a surviving spouse, or your kids.
As a financial adviser, I’d seen far too many instances where heirs were unaware of accounts. When they do locate them, the paperwork and headaches are excruciating.
Related Readings:
- Is There New Required Minimum RMD Tables For 2022?
- 2022 SECURE Act & RMDs Required Minimum Distributions
- How Will The 2022 SECURE ACT And RMDs Impact You?
- Is There a Penalty For Missing The RMD Deadline?
- Inherited IRA? How The New 2022 RMD Tables Affect You
- Find Out Now – Why Is RMD Considered Earned Income?
Reasons To Not Consolidate Retirement Accounts, IRAs, and 401ks
If you are taking aggregate Required Minimum Distributions RMDs from an IRA, you will need to know the RMDs for each account. The RMD can be calculated using a calculator or online tool. Learn more about Calculating RMDs here
Here are several reasons not to consolidate your IRA Accounts
Multiple IRAs allow you to have accounts with different firms that specialize in different areas.
- The FDIC and SIPC may insure your IRA if it is maintained in a deposit account. SIPC insurance does not cover market price fluctuations in the value of shares.
- Having multiple IRA accounts can help simplify the estate planning process for those planning to give to charity or leave money to specific beneficiaries.
RMDs From IRAs
RMDs can be taken from a single account or from all of your IRAs.
RMDs are the total amount of required distributions that an individual must take from all of his or her IRAs during a tax year.
You’ll need to know the RMDs for each account if you’re drawing aggregate Required Minimum Distributions RMDs from an IRA.
An RMD calculator or an online tool can be used to compute the RMD.
Should I Consolidate Retirement Accounts, IRAs, and 401ks
There are many factors to consider when making the decision to consolidate retirement accounts. There are several things to consider when making the decision to consolidate your retirement accounts, including your investment and retirement goals, risk tolerance, and time horizon.
Some factors may be personal, such as the number of accounts you have and whether or not you are comfortable managing them. Other factors may be financial, such as fees or the performance of your investments.
- One personal factor to consider is the number of retirement accounts you have. If you have multiple accounts, consolidating them may make it easier to keep track of your investments and monitor your progress. Having fewer accounts may also make it easier to make changes to your investment strategy if needed.
- Another personal factor to consider is your comfort level with managing your retirement accounts. If you find it difficult to keep track of multiple accounts, consolidating them may make it easier to stay on top of your finances. On the other hand, if you are comfortable managing multiple accounts, consolidating them may not be necessary.
- Financial factors to consider when deciding whether or not to consolidate retirement accounts include fees and the performance of your investments. If you are paying fees to multiple accounts, consolidating them may help you save money.
- Additionally, if the performance of your investments is different across accounts, consolidating them may help you achieve a more consistent investment strategy. The decision to consolidate retirement accounts is a personal one that depends on your individual circumstances.
If you have multiple accounts, are comfortable managing them, and are not paying excessive fees, consolidating them may not be necessary.
However, if you find it difficult to keep track of multiple accounts or are paying high fees, consolidating your accounts could be a good option.
How to Consolidate Retirement Accounts
Consolidating retirement accounts can be a great way to simplify your finances and save on fees. Here are a few tips to help you get started:
- Know your goals. Before you consolidate your accounts, it’s important to know what your goals are. Are you looking to simplify your finances? Save on fees? Or both?
- Compare fees. Once you know your goals, you can start comparing fees. Look at the fees associated with each account and compare them. Remember, even a small difference in fees can add up over time.
- Consider your investment options. When you’re consolidating your accounts, you’ll also want to consider your investment options. Make sure you’re comfortable with the investment options offered by the account you’re consolidating into.
- Rollover options or transfer? When you’re consolidating your accounts, you’ll need to decide whether to rollover your old account into your new one, or transfer the retirement assets out of your old account. Rolling over your account is usually the simplest option, but transferring an employer sponsored retirement plan may be a better choice if you’re looking to save on fees.
- Stay disciplined. Once you’ve consolidated your accounts, it’s important to stay disciplined with your finances. Remember, the goal is to simplify your finances, not complicate them.
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