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Simplify Your Financial Life: Why, When, and How to Consolidate Investment Accounts

Updated: May 28


Investment statements that need to be organized


Consolidate your investment accounts to make managing risk and asset allocation easier than ever.


How many investment accounts do you have?


Count up your various IRAs, 401(k)s, any brokerage accounts, and any other retirement account you might have sitting out there.


Do you have 1-2? 3-5? Half a dozen or more?


Anecdotally, I often meet new clients with half a dozen retirement accounts or more. They’ll have a 401(k) at their current employer, a Traditional and a Roth IRA at Schwab or Fidelity, a random annuity, and a few accounts with a broker they met a decade ago.


As you can imagine, this gets confusing and it’s hard to track. When you start looking at managing risk, it’s harder to track your overall allocation when your accounts are spread out. The more accounts one has, the harder it is to know what you own in each one. I find that investors with more than two or three accounts have a hard time knowing if their portfolio has the right level of risk.


Today, I’m going to walk you through the process I use to help my clients simplify their situation by consolidating their accounts.


Here’s what you’ll learn.

  • Why you should simplify your accounts

  • When and how to transfer accounts

  • 3 reasons to not combine accounts

  • What accounts can be consolidated 


Jeb



 

Let’s start with why


Why should you simplify your investment accounts?


I like to say that it’s easier to keep track of your kids when they’re all in your backyard, instead of playing at the neighbor’s backyard three doors down. Applying that to portfolios and you get five big reasons for simplifying things.



When you can look and see your accounts in one place, it makes management simpler. You can access them through one login and see the total via one statement. This frees up your time for more fun things.


You can make better decisions with a holistic view of your finances. Having a complete picture of your financial situation makes it easier to assess your overall asset allocation, risk exposure, and investment performance.


Some investment platforms offer lower fees for larger account balances. By consolidating, you may qualify for the lower rate. You can avoid paying multiple sets of account maintenance fees.


Taxes are easier to manage. Tax reporting is more efficient when you have one set of statements. Likewise, strategies like tax-loss harvesting are easier when they can be executed through the same account. You also have a lower chance of accidentally triggering a wash-sale when you investments are in the same place.


Tracking asset allocation across multiple accounts in multiple locations can be hard. Having one place to review all your holdings can help you better understand and manage the risk in your portfolio. Retirement isn’t the time to take unnecessary risk.



 

When should you not consolidate accounts?

When I’m reviewing accounts, I start by assuming that everything that can be consolidated, should be consolidated. I review portfolios account by account to decide what should and shouldn’t be combined. That said, there are a few reasons I will keep an account where it is.


  • Unique Benefits: Some accounts, like certain 403(b)’s at TIAA-CREF, offer a fixed interest rate option. I’ve seen fixed rates of 4-5%. It can make sense to keep a portion of your account there to take advantage of the fixed rate. I’ve used accounts like this in place of traditional bonds for some clients, as the fixed rate was higher than bond yields at the time.


  • Early Withdrawals: For those who retire after 55 but under 59.5, a special provision allows for penalty-free withdrawals from a 401(k). If you’re retiring during that window and plan to live on retirement account withdrawals, you’ll want to leave those funds in the plan.


  • Loan Options: You can borrow money from a 401(k), then pay yourself back with interest. It’s rarely a great option but it is an option. If you expect you’ll be taking a 401(k) loan, don’t roll those funds into an IRA. IRAs don’t allow for loans.


  • Asset Protection: Asset protection laws are different based on state, so I’ll keep this high level. Not all accounts have the same level of protection against bankruptcy, lawsuits, and Medicaid. Sometimes, employer sponsored retirement plans will offer greater protection than a corresponding IRA. Your situation might be such that you’re better off keeping some or all of your funds in the employer account.


  • Penalties and Taxes: Depending on the type of accounts you're consolidating and how you go about it, there could be tax consequences, such as capital gains taxes or penalties for early withdrawal from retirement accounts. If you’re going to consolidate accounts, you need to know what accounts can and can’t be combined, along with the tax treatment for each transaction. I’ll go into more detail on that below.



 

What accounts can be combined?


Not all accounts can be combined, it depends on the tax treatment of the accounts.


If you want the deep dive into what you can and can’t do, keep reading.


If you want a spreadsheet that does the organizing for you…here’s my free organizer. You put in the original account type and the spreadsheet will automatically update with the receiving account type and how to begin the transfer.



Pre-tax money like 401(k)s, 403(b)s, (most) 457(b)s, Simple IRAs, IRAs, and SEP IRAs can be rolled into a Traditional or Rollover IRA.


Post-tax money like Roth 401(k)s and 403(b)s, plus after-tax 401(k) contributions can be rolled into a Roth IRA.


Inherited IRAs can’t be combined, they have to stay separate from other IRAs so their Required Minimum Distributions can be tracked. Likewise, spouses can’t combine retirement accounts. Each retirement account is tied to a specific Social Security number and that can’t change.


Brokerage accounts go by a number of names; they can be called non-qualified, individual, cash accounts, or joint accounts. The important thing to know is that you’re taxed gains in this account when the gains are realized, not when withdrawals are made. Brokerage accounts can be combined.



 

When to consolidate accounts?


It’s never too early to simplify your finances. If you’re still working but you have multiple retirement accounts at various firms, now is the time.


If you’re nearing retirement, I would do my best to consolidate prior to giving my retirement notice. The thought process here is that having some retirement accounts outside the company’s retirement plan will give you flexibility during the retirement process.


You can’t combine all accounts until you’re completely retired though. If you’re still working, you’re likely still contributing to a plan at your current job, which means there will be money there when you retire. If you’re still working, you should wait and close the final account after you retire. 


If you’re over 59.5 and still working, you can take an in-service distribution of the funds in your 401(k). This is typically a great option for someone with a substantial balance in a mediocre retirement plan. By mediocre, I mean a plan with high fees or limited investment options.

Summarized


  1. You can’t totally consolidate until you’ve retired.

  2. Consolidate everything but your current retirement plan as soon as possible.

  3. If you’re over 59.5 and still working, you can roll over a portion of your retirement plan via in-service distribution.



 


How to combine accounts


Organize


Make a list of your various accounts. List the account number, account type, custodian, owner, and account value. Also include if you’re still active in the plan. I would recommend using an Excel spreadsheet for this.


Review each account for reasons why you shouldn’t combine them. If they make sense to combine, make a note on the spreadsheet.


Identify the receiving account type. If you’re rolling over a 401(k), the receiving account will likely be a Traditional or Rollover IRA, depending on the firm. Likewise, if you’re rolling over an individual account, the receiving account will be an individual account or potentially a joint account, if you’re adding a spouse to the account.

If you’re not sure of the receiving accounts, I made an organizer you can use. You put in the account type and it shows you the receiving account, plus how to begin the transfer.




Open

Once you know the receiving account types, you can open the corresponding accounts. You have plenty of options here, I would stick with one of the major firms. Charles Schwab, Fidelity, and Vanguard are all great options.


Tally the accounts to open from your list of accounts, then open the accounts at your chosen firm. (I use Charles Schwab for my clients, due to low fees and extensive investment options.)

Combine


Account transfers happen in one of two ways.

  • Direct Transfer

  • Rollover Request


The difference, for you, is where the transfer originates. Direct Transfers originate at the receiving firm. Rollovers originate at the transferring firm.


401(k)s are transferred by contacting the transferring firm and requesting a rollover. Typically you call the firm and tell them you want to transfer your money to Schwab or wherever you chose. The transferring firm will sell everything in your account and send a check for the full amount. The receiving firm deposits the funds and you’re set.


The key here is to confirm you’re making a trustee to trustee transfer. This will keep the distribution from accidentally becoming taxable income. When you receive the check, don’t be surprised when it’s made out to Charles Schwab: For Benefit of Your Name. You can’t actually deposit the check into your regular bank account and that’s a good thing. You’ll just mail it to your new firm and you’ll be fine.


IRAs and brokerage accounts are typically transferred via the ACAT system. High level, the ACAT system was designed to transfer assets without requiring an investor sell their securities and move the funds manually.


If you open an account through one of the major brokerages I mentioned earlier, they’ll provide the option to transfer an account. You just click through and provide the information they request.


For taxable accounts, like brokerage accounts, I recommend transferring assets “in-kind.” This means that your exact account holdings will transfer, rather than liquidating the entire account and then transferring the cash.


In a retirement account, the difference is minor. You’re not taxed on gains, so you can easily sell and then repurchase. In taxable accounts, the liquidation could have serious tax implications if you have sizable gains. Instead, in-kind transfers are non-taxable transactions. You can move the assets, then make the choice to hold or sell once they arrive.



 


Jeb Jarrell

Founder & Retirement Advisor



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