Money Matters

Money Matters: Advice for investors looking to consolidate their retirement plans

CorrespondentMay 24, 2014 

Q. I’ve worked many different places, had my own businesses and am currently employed in hopefully the last job of my working career. I’ve dutifully contributed to all the retirement plans offered by each employer, including plans I established when I had my own company. When I changed jobs, I just left the money in the former company plan. I also contributed to traditional IRAs when I was eligible for a tax deduction and to Roth IRAs when my income allowed. I have about 25 different plans from my past including seven individual IRAs held by different custodians. The plan at my current employer offers a 401(k) plan and a Roth 401(k) plan. As I near retirement, I think it would simplify things if I could consolidate all of my retirement accounts into one or two. Could you please explain what plans can be bundled together and also the advantages or disadvantages of perhaps putting all of my accounts with my current employer?

A. I’m not sure how you could keep up with that many plans; I suspect you are not doing a very good job of knowing how each of the plan’s assets are performing and how each plan fits in with your overall portfolio and financial goals. Consolidating plans will make analyzing investments, tracking performance and rebalancing to your desired asset allocation much easier. This will also be of benefit when you begin withdrawals in retirement and need to decide from which account you will take a distribution and how to generate the cash for the distribution. Your current employer may or may not accept rollovers from other retirement plans. If it does, the advantage is consolidation and perhaps low fees. The two main disadvantages are that you are limited to the investments offered by the employer plan and loss of flexibility if you should need to use some of the money while employed. Ideally, when combining plans the transfers should be made via a direct trustee-to-trustee rollover. Not all retirement plans can be combined with other retirement plans. I’ll try to cover the rollover rules for the most common retirement plans.

Individual Roth IRAs can only be combined with other individual Roth IRAs. You could consolidate them with an existing custodian or establish a new Roth IRA at a discount brokerage firm, such as Schwab, TD Ameritrade, Scott Trade, Vanguard or Fidelity and then transfer the other Roth IRAs to the brokerage firm. You can either keep your current investments or select new investments.

There are a few more options with individual traditional or “non-Roth IRAs. They can be converted to Roth IRAs, combined with other traditional IRAs, rolled to a SEP-IRA and in some instances, they may be rolled to a qualified pretax plan if allowed by the plan.

SIMPLE IRAs may be combined with other SIMPLE IRAs. After the account has met a two-year minimum, they may be converted to a Roth IRA, rolled to a traditional IRA, a SEP-IRA and to a qualified pretax plan if allowed by the plan.

Qualified pretax plans such as profit sharing, 401(k), money-purchase and defined benefit plans can be rolled into other qualified plans if allowed by the plan. These plans can also be converted to a Roth IRA, rolled to a traditional IRA and to a SEP-IRA.

Qualified Roth accounts may be rolled into an individual Roth IRA or into other qualified Roth accounts if allowed by the plan.

Working with a knowledgeable financial planner or professional money manager for help with consolidation, portfolio development and implementation would probably be of value.

Holly Nicholson is a certified financial planner in Raleigh. She cannot answer every question. Reach her at askholly.com or P.O. Box 97128, Raleigh, NC 27624

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