If you’ve been working for some time and have always had an interest in retirement savings, there’s a good chance that you’ve got multiple accounts and plans on the go.
Although it could be beneficial to stick with this approach, generally having more than one retirement account can get confusing and difficult to manage.
So, how does one combine retirement accounts and are you even allow to do it?
There are some options like rolling over one account into another or merging two of your 401k plans to the same one. This usually isn’t hard to do but you should consider the value of consolidating these accounts when compared to optimizing them and leaving them as they are, and so the question becomes harder to answer.
There are benefits and drawbacks to combining your retirement accounts and it takes some knowledge to know what the solution is.
We’ll look at some common accounts and what it’s worth to consolidate them, as well as if you’re actually able to, so you can get an idea of what’s possible with your retirement savings plan.
What is the Benefit of Combining Retirement Accounts?
The purpose of learning how to combine retirement accounts is twofold.
First, you want to simplify things by reducing the number of accounts you have to manage, but you also want to optimize them so you’re utilizing the best investment options possible.
These are some other benefits that might sway you either way:
Easier to manage
Having just one or two retirement accounts is easy to keep track of and ensures that you’re able to manage them effectively.
When we have too many on the go it’s easy to ignore them all as the thought can be overwhelming.
Retirement accounts usually have associated fees and there’s no point having many of the same types of account and being charged for it when you could easily consolidate them to a single provider.
Good for beneficiaries
An organized but diverse retirement savings plan will be easier for your beneficiaries to navigate, but also makes it easier for you to update any beneficiary information.
Anything we can do to reduce the mess of paperwork is a good thing, so consolidating accounts to one well-established provider can take care of this.
The main goal according to experts is having between one and three retirement accounts at any given time.
This ensures maximum consolidation but also optimization, with a variety of an employer-sponsored retirement plans, a traditional IRA, and a Roth IRA being the smartest approach.
Can Your 401k and 403b Be Combined?
The most common question people have is whether their 401k and 403b accounts can be combined.
This usually occurs because employees have multiple accounts from their previous employers and want to learn about consolidating them.
There are three options you can choose from if you have both of these accounts, including:
- Leaving all accounts where they are and continuing to manage them separately.
- Roll the accounts into the 401k you have with your current employer. This can be done by speaking to your employer, but there may be restrictions on rollovers.
- Roll the accounts into an IRA by selecting your own investment provider and options, usually by speaking to a broker or financial planner.
Can You Combine IRAs?
The second most common concern about combing retirement accounts has to do with IRAs.
This occurs when people open new IRAs at different times, have a few different providers or plans, or if you’ve previously used an IRA due to an old employer rollover.
If you need to combine IRA retirement accounts, you have the following options:
- Leave all of your IRA accounts as they are.
- Roll either one or more of the IRAs into your current 401k or 402b. However, some plans may not accept rollovers, so speak to your employer about what restrictions apply.
- Combine all of your separate IRAs into the one account and stay with just one provider. This will only work if you are combining the same type of IRAs together (like traditional/Roth), otherwise, you will need to do a Roth conversion and this comes with certain taxes.
Can You Contribute To a 401k And 403b In The Same Year?
In short, you are able to contribute to a 401k and 403b in the same year, but some restrictions do apply on much money you can put into either plan.
In 2018, the contribution limits state that you can make a salary deferral contribution up to $18,5000 and for those over 50 years of age, you can make an additional $6,000 contribution.
Both accounts need to be taken into consideration, with a combined contribution of $18,500 for both, or $24,500 if you’re eligible for age-related catch ups.
People who have worked with certain employers for at least 15 years might be given an extra contribution limit of $3,000.
Therefore, if you’re over the age of 50 the maximum amount you can put into these accounts in a year would be $27,500.
If both of these accounts are in place with the one employer, they will usually be able to monitor how much is going in and let you know if you’re close to reaching his limit.
However, for people with different employer 401k and 403b plans, they will be unable to find this out.
Therefore, it’s your responsibility to stay on top of your combined contributions otherwise you will be liable for hefty penalties and taxes if you go over.
Can You Merge 401k Accounts?
Having multiple 401k accounts is fairly common as people generally sign up to a new provider whenever they change employers.
Merging these accounts is usually allowed but it depends on the new employer plan that you’re trying to move the old ones into, as sometimes restrictions apply.
Just because there is the option to merge your 401k accounts, that doesn’t always mean that it’s the best approach.
Although convenient, merging your previous accounts into a new one might not be ideal because your new plan simply might not be as good.
It could have fewer investment options or higher fees, so you’ll want to do your research.
Your other options when merging 401k accounts is to stick with one of the older providers and make this the account that the rest consolidate into.
Otherwise, you could roll your old plans into a self-directed IRA instead, which gives you greater control over your investment choices.
Things to Factor in Before You Combine Retirement Accounts
There are four things you should ask yourself before you attempt to combine or consolidate retirement accounts.
Consider each of these factors before you come up with a final plan for combing accounts, and you’ll be making a much smarter decision in the long term.
Does This Fit My Investment Plan?
Look at your investment plan in its entirety, including the end goal and the investment options in your portfolio.
Will moving these accounts together be working towards that goal or will it be minimizing what I’m capable of in terms of investments?
What Fees Are Associated?
Rolling funds over or merging them into one plan or provider sometimes comes with extra costs.
There are administrative fees and management fees to consider with every type of retirement account so make sure you’re aware of them.
Is It Really More Convenient?
You might assume that having just one retirement account is better because of the convenience factor, and while this is usually the case, you have to weigh up that convenience with the other financial benefits.
What Is My Protection Against Creditors?
Certain retirement plans like 401ks have lifetime protection from creditors so they can’t be touched even in the case of bankruptcy.
Moving these to another type of account might take away this protection so think about how it could affect you.
Retirement accounts are something that most employed Americans have, but they can easily get confused and overwhelming when we have too many on the go.
Here are some commonly asked questions about these plans to point you in the right direction of consolidation.
Can I Merge My 401k With My Spouse?
A 401k cannot be merged with someone else’s at any time, even if they are your spouse.
However, there are options for merging both of your separate accounts to a sole provider which can sometimes reduce fees.
How Often Can I Rollover My Accounts?
You are only allowed to roll over IRA accounts once every 12 months.
With a 401k, there is no limit to how many times you can roll them over, but your employer must allow rollovers to your new plan to be eligible.
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