Gone are the days of Americans staying at one job for the duration of their career. If you’ve changed jobs a few times, chances are you’ve left behind a trail of 401(k) accounts with former employers. While it might seem easier to let them sit where they are, consolidating those accounts into one can bring you a lot of benefits. From simplifying account management to potentially saving on fees, rolling over your old 401(k)s could help set you up for a smoother path to retirement.

I’ll explore the advantages of consolidating your 401(k)s and why it’s worth considering as part of your retirement strategy.

Simplified Management

When you have multiple 401(k) accounts with different employers, it can be challenging to keep track of each one’s balance, investment options, and fees. By consolidating these accounts, you bring all your retirement savings under one roof, which makes monitoring your investments much simpler. A single account allows you to easily track performance, review statements, and make adjustments to your investment strategy.

More Investment Choices

If your old 401(k) accounts have limited or underperforming investment vehicles, consolidating into an account with more diverse and better-performing investments can benefit your portfolio’s growth. For example, many IRAs offer a broader range of investment choices, including stocks, bonds, ETFs, and mutual funds, which may not be available in a traditional 401(k).

Potentially Lower Fees

Each 401(k) plan may have its own administrative and investment fees, which can erode your savings over time. By consolidating accounts, you may be able to reduce the number of fees you’re paying, potentially saving you a significant amount over the years. If you roll over your 401(k)s into an Individual Retirement Account (IRA) or into a new employer’s 401(k) plan with lower fees, you could save even more. Make sure you confirm the fee platforms prior to rolling over the account.

More Control and Access

Rolling over old 401(k) accounts into an IRA provides you with greater control over your retirement savings. IRAs generally allow you to name beneficiaries, and change them at any time, unlike some 401(k) plans that may have restrictions. This control extends to the timing and method of withdrawals in retirement, which can help you optimize your tax strategy.

Compounding Growth Potential

One of the most compelling reasons to consolidate your accounts is the potential for enhanced compounding growth. By combining your funds into one IRA, you can take advantage of a larger investment base, which can lead to greater overall returns. The power of compounding means that even small differences in fees or investment performance can have a significant impact on your retirement savings over time. When your money is working together in one account, you can optimize your investment strategy to harness this growth potential effectively.

Less Stress Around Required Minimum Distributions (RMDs)

Once you reach the age of 73, the IRS requires that you start taking Required Minimum Distributions (RMDs) from certain retirement accounts. Having multiple accounts can make calculating and managing these distributions more complicated. Consolidating your 401(k)s into a single IRA can streamline the process, reducing the risk of accidentally missing an RMD deadline, which could result in hefty tax penalties.
The bottom line is consolidating your old 401(k) accounts can make it easier to manage your retirement savings, potentially cut down on fees, and give you more control over your investments. It’s a straightforward move that can help set you up for a more secure and organized financial future.

About the author: Maggi Keating, CFP®, Senior Portfolio Manager & Shareholder – Maggi brings over 24 years of financial industry experience to her practice. Maggi values her client relationships and delights in her role as an educator to her clients, helping them create tangible goals for their financial life. Prior to joining FBB Capital Partners, Maggi spent 12 years at Charles Schwab & Co., Inc., specializing in assisting families and high-net-worth individuals and foundations. Maggi holds a Bachelor of Science degree from Radford University and is a Certified Financial Planner® practitioner and a NAPFA associate with the National Association of Personal Financial Advisors (NAPFA). Maggi and her husband Pete, a retired Marine Corps Colonel, live in her native Virginia. As the parent of two children, Maggi is very active in their sports activities.

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