South Florida Sun-Sentinel (Sunday)
Consolidate your retirement accounts
The average baby boomer has worked for six different employers over the course of their adult years, according to the Bureau of Labor Statistics. That’s a lot of opportunities for retirement savings to be overlooked or lost.
“People tend to forget that they have old 401(k) plans from past jobs,” says Amie Agamata, a certified financial planner based in San Diego.
In retirement, a forgotten 401(k) account can cost you both time and money. One of Agamata’s clients, for example, can’t access her 401(k) account from a company that has now gone out of business, and has to search state abandoned property records in hopes of finding the missing funds.
Even if you’ve kept track of all your accounts, having too many of them unnecessarily complicates retirement planning. It means more companies to contact if you move or want to change beneficiaries, and more rules for you to follow — or risk hefty penalties for getting any of them wrong. This is particularly important once you turn 72 and must begin taking required minimum distributions. A missed RMD is hit with a 50% penalty on the amount that should have been withdrawn.
By consolidating accounts as retirement nears, you’ll also be able to organize and manage your investments better, with the potential to save on fees and taxes, according to financial planners.
A former employer must let you keep the money in the 401(k) if your balance is $5,000 or more. However, rolling the money into an IRA instead has advantages. “Typically, you’re going to have more investment options” with an IRA, says Henry Hoang, a CFP in Irvine, California. “More often than not, you’re going to have an opportunity to lower fees.”
One downside of consolidating accounts is that you can lose access to commission-free trading or a specific investment in your 401(k) that only institutions can purchase, such as a stable-value fund, says
Adam Wojtkowski, a CFP in the Boston area.
Also, you generally must pay a 10% early withdrawal penalty for taking money out of a 401(k) before age 59 ½. But if you leave or retire from your job at age 55 or older and keep your money in your employer’s 401(k), you can take distributions from the account without triggering the penalty.
You’ll still owe income tax on the distributions. “If I consolidate, if I roll it over to an IRA, I’ve now foregone that ability,” Wojtkowski says.