'What is the best plan for the three accounts that are just sitting there?'
Dear Help Me Retire,
I have three 403(b) accounts from previous jobs and, in my current position, I have a Thrift Savings Plan (TSP). What is the best plan for the three accounts that are just sitting there, not being added to?
Between the three of them, there is a little over $200,000 and about $50,000 in my TSP (I put in 15% of my bi-monthly pay). Should I consolidate them into my TSP? Or set up a separate IRA account?
I'm 50 so I have about 20 more working years ahead of me, but I'd like to have a better handle on where my retirement money is and how it's performing.
Not-Marian, but still a Librarian
See: My friend inherited a $160,000 house. Will this put her Social Security disability income at risk? What can she do?
Dear Not-Marian,
Having control of your retirement assets is so important, whether they're in one account or a dozen.
Unfortunately, people sometimes forget about old retirement accounts, which means they lose the chance to properly invest that money so that it works for them - or they cut themselves short of more savings they can use in their later years altogether.
Consolidating accounts can be helpful for keeping your money in one place, but it does require a little planning and research. Think about your investment options for each of those plans, as well as the fees you're currently being charged and would be in a new account.
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Before you make any decisions, ask yourself one question: "Why is this consolidation in my best interest?" said Sean Williams, a certified financial planner and principal at Cadence Wealth Partners.
"Going from four accounts to one can provide great peace of mind. It can also save on management fees at times," he said. "But the best reason for consolidation is a coordination of focus. Having one account that is designed to achieve the client's goals is far better than four uncoordinated and, sometimes, competing accounts."
Start with your current plan and see if it will accept rollovers from old plans (or if it's even in your best interest to do so). The rules vary based on the type of account and the company.
"When rolling over an old retirement account, don't assume that your new plan can receive funds from your old plan," said Charles Pastor, a certified financial planner and contributing expert at The Motley Fool. "Not all plans are created equal, so confirm with your new plan administrator whether your old accounts are eligible to be rolled over."
If that's not an option, IRAs can work, and they do come with their own benefits. "The IRA gives you more options, flexibility and better service than with employer-sponsored plans," said Devin Pope, a certified financial planner with Nilsine Partners. Employer plans may also change over the course of your career, and if that happens, you could be subject to black-out periods, he added.
Samuel Wagner, a certified financial planner and founder of WealthGuides, echoed that. Wagner said there are three things to keep in mind when consolidating: performance, convenience and fees. Employer-sponsored accounts may not always compare to the IRA in performance, given the investment choices they offer.
"Employer-sponsored retirement accounts typically have less investment options to choose from than an Individual Retirement Account," he said. "That can limit performance. Plan-sponsor companies are getting better about this but many still pale in comparison to what you have available in an IRA." Having all of your assets in one account is more convenient for tracking, too.
While weighing your options, don't forget about required minimum distributions. That's the amount of money you'll need to distribute from your accounts at a specific age (73 years old, for now), and it is a figure the government calculates using the account balance from Dec. 31 of the prior year as well as a life expectancy table. If you miss an RMD, say because you have too many accounts and you forgot one, you'll be hit with a penalty.
Rollovers can be a headache, so be prepared for the possible hurdles you face. Sometimes you can do them online, but you'll likely end up on the phone facilitating the move. Before you do anything, verify you've called the correct number (you can find it on the firm's website or on an account statement you've received) and don't respond to "unsolicited calls claiming to be the custodian of your old account," Pastor said.
Next, be attentive to the type of rollover you do. Direct rollovers are often best, as they're sent straight to the new account. You could (or you might have to) do an indirect rollover, but you need to be careful. With an indirect rollover, you'll receive a check for the funds, and you have 60 days to deposit it into the new account.
"Otherwise, the Internal Revenue Service treats your rollover as a distribution, which comes with the triple hazard of taxes, penalties, and the loss of the tax-advantaged status of your savings," Pastor said. "Failing to deposit an indirect rollover within 60 days is a severe, and easy to make, mistake."
Don't forget to reinvest that money once it's in the new account. Sometimes, account holders don't realize that their money in their new IRA is just sitting there, not invested and earning barely any interest. Failure to do so means your money isn't working for you, which would be so unfair after all the work you put into consolidating - and saving in the first place.
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Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com
-Alessandra Malito
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