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Posted: January 03, 2013

Do you know where your retirement savings are? Part One

The case for consolidation

Bruce Hemmings

A traditional IRA here, a rollover IRA there, four job changes (so far!) and three retirement plan account balances left in the plans of former employers…

If this describes your situation, you are not alone. Over the years, people accumulate a significant sum in retirement savings, often spread across various accounts.  As accounts multiply and companies change ownership, it can become difficult to keep track of exactly how much you have saved toward retirement and how those funds are invested. You may also find it challenging to determine your distribution requirements on various accounts once you turn 70½.

Consolidating accounts can help you make sure your savings are invested appropriately for your overall goals, track the performance of your holdings and, in many cases, discover more investment choices and incur lower fees.

With retirement savings in just a few accounts, it becomes far simpler to execute your strategy and to measure your progress.

Why Consolidate? Streamlining the account structure of your retirement savings has many potential benefits.

Comprehensive investment strategy. Over time, your investment objectives and risk tolerance may have changed. Thus, it can be difficult to maintain an effective retirement investment strategy—one that accurately reflects your current goals, timing and risk tolerance—when your savings are spread over multiple accounts. Once you begin the consolidation process, you can strategize investments to match your current goals and objectives.

Greater investment flexibility: Often, 401(k) plans, other employer-sponsored retirement programs and even many IRAs have limited investment menus. A Morgan Stanley Smith Barney self-directed IRA can offer you the ability to choose from a wide range of investments including stocks, bonds, mutual funds, managed accounts and more.

Simplified tracking: It is easier to monitor your progress and investment results when all your retirement savings are in one place.

Less paper: By consolidating your accounts, you will receive one statement instead of several. That simplifies your life while protecting the environment.

Lower costs: Reducing the number of accounts may result in fewer account fees and other investment charges.

Clear required minimum distributions (RMDs): Once you reach age 70½, having fewer retirement accounts to manage can mean having fewer RMD requirements to follow.  

Comprehensive knowledge of your assets. If your employer-sponsored retirement plan is terminated or abandoned (an “orphan plan”) or is merged with or transferred to a retirement plan of another corporation after you leave, it may be difficult to locate the plan administrator to request a distribution of your benefits or to change investments. By contrast, assets in an IRA are always accessible if you want to change your investment strategy or need to take a distribution.  

What Can Be Consolidated?  Listed below are types of retirement accounts eligible for consolidation.

  • IRAs held at financial institutions (banks, credit unions, mutual fund companies, etc.).
  • Retirement plan assets held at former employers including:
    • 401(k) plans
    • profit-sharing plans
    • money purchase plans
    • defined benefit plans
    • Keogh plans
    • ESOPs
    • government 457(b) plans
    • 403(b) plans

How it works. There are several ways to combine retirement assets into a single account.

  • IRA-to-IRA transfers: Ask the IRA custodian where you will be establishing your account to help you complete their IRA transfer paperwork. Once you’ve set up your IRA, the custodian will do the rest, including contacting your previous IRA custodian(s) to get your assets moved over. There’s no limit on the number of IRA-to-IRA transfers that you can complete in any given year. (However, please note that a Roth IRA can be consolidated only with another Roth IRA.)

Coming up in Part Two: Knowing how rollovers work can help you make a decision about whether to consolidate.

Bruce Hemmings is a Senior Vice President - Wealth Management and Financial Advisor at Morgan Stanley Smith Barney at Centerra. He can be reached at bruce.hemmings@mssb.com or (970) 776-5501.
The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC, Member SIPC, or its affiliates.
Morgan Stanley Smith Barney Financial Advisors do not provide tax or legal advice. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are urged to consult their personal tax or legal advisors to understand the tax and related consequences of any actions or investments described herein.

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