7 Reasons to Consolidate Retirement Accounts

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1. Easier to Manage Investments

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Combining IRA's simplifies your life and saves you money. Gary Waters / Getty Images

You can consolidate retirement accounts by transferring money from multiple accounts into one established IRA account (or into a new IRA you open). This is called an IRA rollover or IRA transfer. Here are seven reasons to consolidate your IRAs and other retirement accounts.

1. Easier to Manage Investments

Once you retire you'll need to figure out how to structure your investments so you get a monthly (or bi-weekly) "paycheck" from your account. This is difficult to do when you have multiple accounts. When retirement accounts are combined you can carefully select your investments and put them into time segments; safe choices for the money you will need to withdraw in the next few years, and more aggressive choices for money you won't need to touch for quite a while. Check out the Income for Life website to see how such a time-segmented investment process works. 

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2. Reduced Fees

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Consolidating IRA's can reduce your transaction and total account fees. Rubberball / Mike Kemp / Getty Images

Retirement accounts like an IRA require a custodian who must report contributions and withdrawals to the IRS for tax reporting purposes. Most custodians charge an annual fee. The more accounts you have, the more fees you'll likely pay.

In addition, when you buy or sell an investment, a transaction fee may be charged. If you consolidate accounts, over time you should have less total sales and purchases - this can help reduce transaction fees - and some companies reduce or waive fees when your account reaches a minimum size. 

One of the best ways to increase your investment returns is to focus on finding ways to reduce the investment fees you pay and consolidating accounts helps.

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3. No Missed Required Minimum Distributions

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Combining IRA's means one account to check on for RMD calculations. Cultura RM Exclusive / Leon Harris

Once you reach age 70 1/2 there is an IRS formula you must follow that determines a minimum amount you must take out of your retirement account each year. This is called a required minimum distribution.

If you have multiple accounts, each financial firm will send you paperwork each year and notify you of your required minimum distribution. It can be a hassle. And if you miss a required distribution there is a penalty. As you get older, it can be easy to overlook paperwork that arrives and miss an important notification.

You'll find it will be much easier to consolidate your accounts (per person - you can't combine your IRA with a spouse) and take one distribution from one IRA account each year rather than trying to manage distributions from multiple 401(k)s and IRAs. You can also work with your financial institution to set this distribution up monthly so it becomes more like a paycheck.

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4. Frees Up Your Time

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Combining IRA's means more free time for spending with your loved ones. Cultura RM Exclusive / Uwe Umstaetter / Getty Images

Ultimately combining accounts will free up time. There will be less filing, less mail, less passwords to track, less time spent dealing with paperwork, and less time looking stuff up.

You won't need to keep spreadsheets to track investments across multiple accounts and/or if you link accounts to an online service such as Quicken, you'll have less linking issues to troubleshoot. And when you need to make changes, such as email, address or beneficiary changes, you'll only need to make one phone call.

If you have accounts in multiple places it will take time and paperwork to get them combined, but once you do, you'll find your time invested will provide a good return of time.

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5. Less Filing

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Combining IRA's means having less mail to deal with. Janie Airey / Getty Images

If you get paper statements from lots of accounts, think about how many trees you can save by consolidating! Even if you receive your documents by email, it can still be a hassle to try to keep track of everything, navigate security questions and remember how to log in using one site vs. another.

Your investments can be just as safe and diversified if you combine accounts with one well established custodian. Inside of a brokerage account you can own mutual funds, stocks, bonds and even CDs. You don't need to have these investments spread across too many financial institutions. Simplify your life and consolidate.

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6. Makes Updating Your Address Easy

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Combining IRA's means less addresses to update if you move. Photo_Concepts / Getty Images

Moving is a hassle. Moving when you have retirement money in ten different accounts it is even more of a hassle. And lots of people move once retired. They downsize, move into a retirement community, or move to be closer to grandkids and other family.

Amazingly enough, many people lose track of money in old retirement plans because when they move they forget to update their address. If you consolidate your old 401(k) accounts you won't have to worry about this.

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7. Best for Beneficiaries

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Combining IRA's makes it easier to update your beneficiary designations. Sollina Images / Getty Images

If you want to change your beneficiaries and you have accounts all over the place, it's a hassle. When you combine your retirement money into one account, it is easy to update and change beneficiaries. In addition, if something happens to you, it is much easier on your beneficiaries to deal with one consolidated account rather than having to track down accounts in numerous places. If your beneficiary is your spouse, make it easy on them. Combine your retirement accounts so they aren't faced with a hassle one day.

When you combine accounts, this can also be a good time to review your beneficiary designations and make sure you have them structured in a way that is best for your family and loved ones. If accounts are in multiple places it can be difficult to remember who you named as the beneficiary on which accounts.