So, how many IRAs do you have? Not a common question around the water cooler or anywhere for that matter. It is a question you should ask yourself. Maybe you have an old IRA from as far back as the 1970s or maybe you started a Roth IRA in the late 90s when they came into being. You probably have an old 401k that you rolled over into an IRA. After all, the average American will have 7 different jobs during their working life and that is a lot of old 401ks that probably got rolled over and forgotten about. For people who use their bank for investing, a great many of them open up a different IRA for you each year with a different CD in them. All of this adds up to a lot of IRAs. This is not inherently bad, at least not from a legal or tax standpoint.
However, there are a lot of common sense issues with continuing on in such a manner. First, there is the issue of annual fees that are included in every IRA account. Now I don’t know about you, but I’m not a fan of paying a separate fee in 6 different accounts when I can consolidate those accounts and pay only one fee. The fee is usually a standard fee and has nothing to do with account size. If these IRA accounts are smaller in size there is a good chance you are also paying a small account fee. Once again, condensing some or all of your accounts can solve this problem. Let’s go green for just a moment. Do you really need statements showing up every quarter from the plethora of accounts when you could have just one account statement? Not to mention the simplicity of tracking and accounting for just one account. I mean, why make your life easier, you know…who needs that?
There is also the issue of making more money. Many of the better money managers and investment products available today have minimums. Each IRA account may not qualify, but if you combine your accounts, you may qualify for a higher quality investment vehicle. This way, you can have your money working harder for you while you worry less. This is truly a win-win situation. Also, if you condense your accounts, you can use fewer mutual funds or mutual fund families if that is a direction you want to take. This will allow you to qualify for a bulk discount or “breakpoint” which will reduce the mutual fund fee you are paying.
A few of you may wonder if this is sound advice given that only one beneficiary is allowed to be listed per IRA account. Many people purposely broke their “tax qualified” money up into a few accounts to aid in estate or inheritance planning. Thankfully a change in tax law in 2002 now allows you to list more than one beneficiary per IRA account. So this old strategy no longer need apply. Just another great reason to bring your accounts together. When the day comes that you do pass away, it is much quicker and easier for the executor of your estate to handle fewer rather than many accounts. The whole process goes smoother, especially if you know there will already be tension amongst the relatives.
One final thought may be “How much of a pain in the butt will this be?” If you work with a good financial advisor, it won’t be difficult at all. Now I hope your advisor already has mentioned combining your accounts to you, but even if you have to bring it up, it’s still a good idea. It just takes a few signatures and perhaps picking a new home for your money and the transfers can begin behind the scenes. It is easy and allows you to revisit and rebalance money you may have forgotten about, or just let slip through the cracks. It truly is one of the easiest, most cost effective, and long term time saving things you can do with your money.
