Is Your Mishmash of Retirement Accounts a Baffling Investment Puzzle?
After decades of job hopping – by necessity or design – some people have accumulated several retirement accounts, making it a confusing chore to keep track of what’s happening with their money.
They may, for example, have three 401(k) accounts, a Roth IRA and a couple of traditional IRAs.
“That’s just the way it is these days,” said Bryan Slovon, founder and CEO of Stuart Financial Group. “It’s a natural result of people changing jobs several times over their lifetimes.”
But it raises a question: Is it best to leave everything as is, keeping a mishmash of accounts, or is consolidation worth considering?
For anyone weighing that question, Slovon says factors to take into account include:
If you are in a consolidation mood, one thing to remember is you don’t want to mix the money in a Roth IRA with the money in a traditional IRA or a 401(k) account. The reason: Contributions to a Roth IRA have already been taxed, so you don’t pay tax on them when you reach retirement and begin withdrawing money. But with traditional IRAs and 401(k) accounts, the taxes were deferred, so they are subject to tax when you begin withdrawals.
Money placed in a nondeductible IRA, as the name implies, isn’t a deduction on your income taxes. That means you won’t pay any taxes on the money you contributed when the time comes to withdraw it either. Just as with a Roth IRA, you don’t want this money mixed with retirement money that is taxed when it is withdrawn.
Merging 401(k) accounts
Often you can merge a 401(k) from a previous employer into a 401(k) at your new employer. That kind of consolidation can be convenient because you just have one account to monitor. But it’s not always the best strategy because some 401(k) plans are better than others. Fees with the old plan might be lower than the new plan or the investment options might be more varied. You also have the option to roll the old 401(k) into an IRA, which could be worth considering, depending on your circumstances.
“The real issue with leaving your retirement planning in the hands of a former employer is you have to ask yourself what help you are really getting with your investment,” Slovon said. “You want proactive help with investments, someone who takes your entire financial picture into account, not someone on the phone who just tells you where your money is allocated.”
Bryan Slovon is the founder and CEO of Stuart Financial Group, a boutique financial planning firm exclusively serving retirees and soon-to-be retirees in the District of Columbia metro area. He is a financial planner specializing in retirement planning and wealth preservation to a select group of clients. He currently holds his Series 65 license and is a registered financial consultant, as well as a comprehensive wealth manager, offering investment advisory services through Global Financial Private Capital, an SEC-registered investment advisor. For more information, visit Stuartfg.com.