Yesterday, I wrote about diversifying your retirement savings by having more than one type of retirement account. While such a concept is a good idea, it also needs to be done reasonably. While it’s okay to have more than one retirement account, it’s not a good idea to have multiple types of the same account or to have so many retirement accounts that you can’t keep track on them. If you find yourself in such a situation, you should consider streamlining your retirement accounts by doing a conversion or rollover so that you only have two, maybe three, accounts. Thus, if you have multiple IRAs, you should strongly consider rolling them over into one account. This will not only allow you to better track your money, but it will also save you on paperwork as one IRA means only one beneficiary document and one statement. Same thing goes with 401(k)s. If you find that you have multiple 401(k)s after working for multiple employers, I would strongly urge you to merge them all into one account. Again, this will save you time and paperwork hassle. This is even more important as you get closer to retirement and have to begin taking required minimum distributions (RMDs) as it will make it easier to calculate your distribution and ensure that you are meeting requirements. While this may seem a bit contrary to what I wrote about yesterday, it is really intended to make things easier for you. Furthermore, yesterday I was encouraging diversification and having multiple accounts of different types and not multiple accounts of the same type. This time of year is a good time to consider streamlining your retirement accounts also because tax season is right around the corner and you probably are going to review your account paperwork very soon, if you haven’t already. If you need help with streamlining your retirement savings, as always, you should speak with a certified financial planner or retirement expert.
As you work and save up for retirement, you may find it best to have multiple retirement accounts. Sometimes the reasoning behind that is to prevent the commingling of various funds (after-tax vs. taxable) or because an account is set up through a former employer and there are certain perks to having that account. While having multiple accounts is not a problem, it can create inefficiency once you get into retirement. As you grow older, keeping track of those accounts can become tricky and confusing. It lead to issues regarding how much of a required minimum distributions (RMDs) you have to take and where you can take it from. There’s also the issue of beneficiaries and what they may have to deal with in sorting through multiple accounts. If you want to avoid any confusion in retirement and beyond, it can be a smart idea to consolidate your retirement accounts once you enter retirement. If you have multiple Traditional IRAs, you may want to either roll them into one or close them out and put the money into a Roth IRA. If you have multiple employee retirement accounts, you may want to consider exploring ways to consolidate them as well. You can still have multiple accounts to fund your retirement, but it’s best to have as few as possible. If you have questions about consolidating or reorganizing your retirement accounts, you may want to speak with a certified financial planner.