Are your retirement savings like a jigsaw puzzle dumped on a table?
Do you have some in employer-sponsored plans, such as 401(k) and 403(b) plans, with current and past employers? And perhaps there’s more spread out in traditional and Roth IRAs and taxable accounts in different full-service and online accounts. If you have a spouse or partner, is their situation similar?
Your savings represent your chance for a new beginning – the opportunity to live the life you really want. To work toward where you want to be, it helps to be able to see your entire retirement savings picture, not a lot of random pieces.
That’s where consolidating your retirement savings can help.
Make working toward your long-term goals simpler
Consolidating your retirement savings in one place may help you better see how everything fits together and simplify ...
Understanding how your assets are allocated. Asset allocation – the way your investments are proportioned among different types of assets, primarily stocks, bonds, and cash – is the core of any retirement plan. When your savings are in a variety of places, it can be difficult to see exactly how you’re allocated.
If you can’t tell you have too much in stocks, for example, market volatility could make it harder to achieve your goals, especially if you’re nearing retirement. Too much in bonds may mean you’re not getting the returns you need in this low-interest-rate environment. Consolidating your savings can make it easier to see your asset allocation.
Deciding whether it’s time to rebalance. Having an appropriate asset allocation is one thing; maintaining it is another. Over time, market activity can cause your savings to drift away from where you intended.
For example, a 60% stocks/35% bonds/5% cash allocation over time could become 70% stocks/25% bonds/5% cash without you being aware of it. That’s why it’s important to periodically review your savings to see whether they need rebalancing by getting them back to your desired allocations. This can be simpler if your savings are consolidated.
Knowing exactly what you own. Investing can be emotional, and it’s not unusual to fall in love with, for example, a stock or mutual fund. If you have your savings spread out, it can be difficult to know how much you own of a favorite investment. Maybe you’ve bought a little here and some more there and over time have amassed more than you realize, which can prove costly if that investment takes a tumble. Consolidating accounts can help you see how much you hold of each investment.
Saving time. The more accounts you have, the more paperwork you receive. Here’s the big question: Where do you find time to keep track of all of it?
If you’re not reading your statements or periodically checking your accounts online, you really don’t know all you should about your savings. By reducing the accounts you have to follow, you can make your recordkeeping more manageable and save yourself valuable time. And this can really help at tax time.
Please keep in mind that rolling over your qualified employer sponsored retirement plan (QRP) assets to an IRA is just one option. Each option has advantages and disadvantages, and the one that is best depends on your individual circumstances. You should consider features such as investment options, fees and expenses and services offered. Investing and maintaining assets in an IRA will generally involve higher costs than those associated with a QRP. We recommend you consult with your plan administrator before making any decisions regarding your retirement assets.
Managing beneficiary designations. Your estate may not be distributed how you want if you don’t stay on top of your beneficiary designations on your employer-sponsored plans and IRAs. These designations are vital because they supersede whatever you have in your will or trust or what you’ve promised people will happen.
So, for example, if your ex-spouse is still named as the beneficiary on your 401(k) account from three jobs ago, he or she will get that money even if your will says it should go to your children. By consolidating accounts, you can make managing your beneficiary designations less complicated.
Getting help can make it easier
You can put a jigsaw puzzle together on your own, but you may need help solving the complexity of a portfolio in pieces. Working with a financial advisor can help you better understand these and many other potential benefits of consolidating your retirement savings. And with their assistance, the entire process can be remarkably easy. In addition, they can work with you to develop a retirement plan that can help make the most of your own new beginning.
When considering rolling over your assets from a QRP to an IRA, factors that should be considered and compared between QRPs and IRAs include fees and expenses, services offered, investment options, when you no longer owe the 10% additional tax for early distributions, treatment of employer stock, when required minimum distributions begin and protection of assets from creditors and bankruptcy. Investing and maintaining assets in an IRA will generally involve higher costs than those associated with QRPs. You should consult with the plan administrator and a professional tax advisor before making any decisions regarding your retirement assets.
Wells Fargo Advisors is not a tax or legal advisor.
Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns.
Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Both stocks and bonds involve risk and their returns and risk levels can vary depending on prevailing market and economic conditions. Bond prices fluctuate inversely to changes in interest rates.The investment return and principal value of a mutual fund will fluctuate and shares, when sold, may be worth more or less than their original cost.