Are we strong candidates to consolidate our retirement funds?
My wife and I (in our low 50's) have 401(k) accounts from 5 different employers. We also both have IRA accounts, individual stock accounts, and other various mutual fund accounts. All together, I count 33 different mutual funds and 5 different individual stocks. I recently performed an exercise to ensure the fund fees were all below 1%; in fact, most of our fees are below 0.7%. We are generally satisfied with their performances as well. Still, should we be moving to consolidate and if so, are there general guidelines as to where we should be moving everything and how to go about doing it?
Fantastic question and thank you for asking!
You may be strong candidates for consolidating, but there are a couple of considerations before doing so.
The fees that you have on the accounts seem reasonable, however, there may be some additional fees to consider. In addition to looking at the expense ratios of the mutual funds, there may also be administration fees and servicing fees attached to these 401(k) plans If, indeed, there are other fees on the retirement plans that you have not noticed or been aware of, your decision to consolidate may be more clear. Also, take note of any fees attached to any IRAs that you are considering, like any annual admin fees or fees for closing the account.
Of course, fees are not the only reason to consolidate. The investments themselves may need some attention. The biggest concern for your portfolio may be overlap and the concentration of your dollars to certain asset classes. You may be way overweight in US Large Cap stocks, which is a common issue for folks with multiple retirement plans and mutual funds. This over concentration could affect your returns as well as your risk profile.
Another big consideration is peace of mind. If having your money scattered all over the place causes undue stress or anxiety, then absolutely, you should consolidate. Many folks talk about the numbers and often overlook the mental health side. I am a firm believer that you can make better money decisions and take better action on your portfolio if you are in a place of peace, as opposed to anxiety.
Lastly, if you are self-managing your investments at this point and you are spending too much time or are starting to have more questions about what retirement is going to look like from a draw down perspective, it may be time to consider hiring an advisor to help get you to and through retirement. There are many advisors that are fiduciaries, that do not sell products, that can truly help you and may be able to reduce your fees even further. I hope this is of some help. If you still have questions, consult with a fee-only financial planner.
I would highly encourage you to consolidate for a number of reasons. It is much easier to control your asset allocation and understand your risk and exposure when everything is in one IRA. Statements and emails are reduced as well. When you get to required minimum distribution age, it will be a pain to calculate your RMD and make sure you take the correct amount out. It will make your life so much easier to consolidate all like kind accounts into the least amount possible.
It sounds like your fee-sensitive which is a good thing I would consider housing your accounts at a brokerage firm that offers low-cost funds and low trading fees for your stock positions. Vanguard is great if you want to use their funds exclusively, Fidelity, Schwab, and TD Ameritrade also work great because you can invest in low cost index mutual funds or ETFs (if you use certain ETFs they won't charge you trading fees).
I would transfer one account at a time and not work on another one until you have completed the one you are working on. I recommend this strategy to keep you organized. Brokerage firms will charge you a fee when you leave and the receiving brokerage firm will usually comp you for that, make sure that get's done. The receiving brokerage firm will also give you some incentives like a cash deposit to your account or free trades. Ask for those incentives and make sure they're awarded before moving on to the next account.
Boy! I’m glad you’re tracking all of your investments. It may be easy for you to manage now when you have the time, energy, and expertise to handle all financial matters, but one client of mine said well, “I thought I’m pretty sophisticated in managing my own finance (he was a VP & worked for one of the Fortune 500 companies), but working with you made me realized you don’t know what you don’t know.” So, I’m glad to see you’re open-minded about further improving your finance.
There’s nothing wrong to spread eggs in difference baskets, however, doing so may result in these possible headaches:
1) Reduced efficiency. One way to test yourself is, “Do you know what percentage of each asset class for your portfolio is?” In other words, can you quickly tell how much percentage in the domestic large cap, small cap, or international asset class in your portfolio? If you can’t, then how do you know you have reached the best possible return based on the risks you’re taking?
2) Estate planning nightmare. Have you designated beneficiaries for all of the 401(k)s, IRAs, and taxable accounts? If you think the paperwork is overwhelming now, it will take a much longer time and more energy and effort for your beneficiaries to track down those assets that are rightfully theirs.
3) Retirement RMDs. You can take a RMD from one IRA account as long as you calculate the amount correct from all IRA balances, but you can’t do that with the 401(k). You have to take a RMD from each 401(k) account. Can you imagine the 50% tax penalty for a miscalculation?
All in all, while you’re thinking about the consolidation, it may be the time to follow through. You will have a much cleaner portfolio to manage and fewer worries down the road. Best!
Consolidation makes sense, it just does. Consolidation will not affect equity performance, but is a matter of convenience more than anything else. A few clicks and you can see all you've got.
- If your 401(k)s are not active, then you can certainly exercise a 401(k) rollover to your current IRA accounts. The paperwork will be issued from the Plan Administrator carrying the 401(k). The Plan Administrator of the 401(k) will ask you how you would like the check of the proceeds be made out. The most popular is what the IRS calls a Direct Rollover. Here, the check(s) are made out to the 'new' or 'current' custodian with FBO 'Your Name'. Some Plan Administrators will send the check directly to the 'new' or 'current' custodian, but most send the proceeds to you at which point you have 60 days from the date on the check to get the proceeds into your IRA. It's a relatively simple process.
- Regarding the other accounts, consolidation is quite easy as the paperwork from the custodian you choose to use will provide the paperwork. If a new account is being created (and I am assuming you are going to manage these assets yourself), an Application (or go online), Account Transfer Form that will transfer IN KIND the current stocks and mutual funds to the new/current account. It is a VERY SIMPLE PROCESS. Once the paperwork/online forms are in good order. the IN KIND transfer normally is completed in eight days or less.
- Low funds fees are great and if you are pleased then 'stay the course'. WHY 33 MUTUAL FUNDS? Just Asking!
- As far as to 'WHERE' the consolidation be moved to, have your pick. TD Ameritrade, Fidelity, and Schwab are good choices.
Great question, it's a very common situation and many of our readers. It sounds like you have done an excellent job of trying to minimize the cost of your mutual funds. For you to make the decision to consolidate or leave your funds in custody with the various employer plans. You will need to understand the alternatives, associated costs and benefits. First, the advantages of leaving funds at your former employer. It's easier and it might be the low-cost option if you are happy with the investment alternatives. The disadvantages, the employer plan may require you to withdraw funds when the balance is less than $5,000, or when you reach 'normal' retirement age. You might be unhappy with the fund choices (401(k) plans change) but you have no other alternatives that meet your objectives. Having multiple accounts can make it more difficult to analyze your total holdings (i.e. multiple statements, logins, etc.). The most common issue that I see with multiple accounts is that investors have no overall investment objective. Some accounts are all in stocks, some of the accounts in bond funds and others may be in only in money market funds. Lack of guidance from a financial advisor. It might be difficult to find an experienced advisor to work for free with all your investment assets held in 401(k) plans.
Good news, you have several options to improve your situation regardless of your decision to consolidate, leave the funds in the existing plans or hiring a financial advisor. My first recommendation is to determine if your 33 funds and 5 stocks match your tolerance for market volatility. You mentioned that you were generally satisfied with the performance. I would suggest taking two minutes to determine your Risk Number. Find Your RiskNumber Your Risk Number will help determine if you are assuming too much or too little risk with your current holdings. A little affirmation that you are going in the right direction can make a huge difference at this stage in your life. Think of your Risk Number as a speed that you are comfortable driving at on the freeway. You don't want to be zooming along at 75 miles per hour (MPH) when you are more comfortable driving at 55 MPH.
The next step is use secure technology to consolidate all your accounts into one dashboard. Instead logging on to each employer website, you will be able to log on to one site and pull all your accounts at once. Learn more at eDASHBOARD This allows you to easily review your accounts at once and check the holdings at one site versus five different sites.
Once you have completed these steps, you can decide to continue to either manage your 401(k) accounts on your own or choose to roll the accounts into a rollover IRA. You also can opt to hire a financial advisor to assist. I would not worry about this step until you have completed the first couple of steps. It's very important that you understand the volatility (or speed limit) of your current holdings first. Followed by setting up your eDASHBOARD to consolidate your reporting of your existing accounts before you decide your next step. These two steps will help understand what you have and easily manage and monitor without rolling over your 401(k) or paying an advisor.