Retirement asset spring cleaning: It may be time to simplify and consolidate your retirement assets

When was the last time you left a job? When you said goodbye to your colleagues and boss, did you also bid adieu to a retirement account? Perhaps you had the best of intentions to circle back to it “later,” or maybe you planned to roll it over whenever you settled into your new role, but that never happened. First of all, don’t feel guilty – there’s an estimated 24 million forgotten 401(k) accounts out there today, with around $1.35 trillion in assets.¹ And with a record number of people leaving their jobs today as part of the so-dubbed “Great Resignation” – an estimated 47 million Americans left their jobs in 2021– the number of abandoned retirement accounts seems destined to climb. But guess what? With some legwork and patience, you may be able to consolidate your old 401(k)s, IRAs, 403(b)s, pensions and other retirement accounts that you may not have laid eyes on in years. With spring cleaning in mind, it may be time to stop worrying about where your money is and to start cleaning up those old accounts. You may be surprised how quickly a little financial mopping up can help you regain your sense of financial control, with a new understanding of the progress you’ve made toward your long-term financial goals.

Where to start

If you’ve been saving diligently throughout your career, congratulations. But if you’ve also taken steps to increase your earning power and sharpen your skill set with new challenges, chances are that you’ve probably changed jobs several times over the years, and many of those positions came with their own employer-sponsored retirement plans. Fast-forward to today, and you may have retirement assets located in several places. To get started, consider speaking with your financial advisor and tax professional about your retirement accounts held in former employer retirement plans. They can assist you in reviewing your options. If you’re unsure of where or whether you have a retirement plan account with your former employer, take a look at your resume. Really. Make a list of everywhere you’ve worked – even if you don’t think you had a retirement account there, or even if you were there for less than a year. There’s a chance that you may have been automatically enrolled into your employer’s plan, and you might have funds there that you don’t know about. A quick call or email to your former employer’s HR representative can point you to the person who can guide you in your search. Once you get answers and find out where your account(s) may be held, then you can follow up with each financial institution to confirm the amounts in your accounts, secure your log-in information and assess what your options may be.

Questions to ask once you have access to your accounts

Whenever you start the process of reviewing these old retirement accounts, you’ll likely be presented with several options. For example, you might be able to keep an old plan open with a former employer, roll your account over to your new employer or take a lump-sum distribution. There will likely be pros and cons to each situation – an important move you can make is to review all your options with a financial advisor and tax professional who can help you with which option aligns to your retirement goals and understand how your money has been performing in each account. Assessing your asset allocations is an important move to make during this process, because chances are good that, if it’s been a few years since you set up those accounts, you may want to readjust your mix of investments to make sure your money is working toward your future goals the way you want it to. You may decide to consolidate your retirement assets at this juncture so you can see them all in one place. It can be helpful to see your assets at a glance when you’re strategizing for your long-term retirement goals. In many cases, it can be convenient for your assets to be held at the same financial firm where you do your primary banking and investments.

Review, organize, and simplify

If you decide to consolidate your accounts, or do a “rollover” of any kind – for example, rolling over money from an old 401(k) into an IRA –you may want to speak to your financial advisor and/or tax professional to walk you through your options and help you decide which is best for your situation. When you’re considering how to consolidate your assets, ask yourself which accounts have been funded with pre-tax dollars and which accounts have been funded with after-tax dollars. Retirement assets can generally only be consolidated into the same type of retirement account, unless you choose to pursue a Roth conversion. More specifically, pre-tax retirement accounts may be able to be consolidated into traditional IRAs. Similarly, Roth or after-tax retirement accounts may be able to be consolidated into Roth IRAs. There is also a way to move retirement assets to a Roth IRA even if your IRA or 401(k) is in pre-tax dollars. This would involve a Roth conversion that allows for some or all of traditional IRA or 401(k) assets to be converted to a Roth IRA (subject to applicable taxes). This may be an appropriate option if you (and your tax professional) believe a Roth IRA would be best for your situation. Keep in mind that in addition to IRAs, your employer-sponsored plan accounts can often be rolled over into other employer-sponsored plans. Also keep in mind that other rules may apply to your circumstances (for example, for SIMPLE IRAs or inherited retirement accounts). You can speak with your financial advisor and tax professional on whether consolidation is an option and how it may affect you and your retirement goals.

Consider future tax implications and ease of use

Everyone wants their long-term retirement planning to be as solid – and as simple! – as possible. By being able to see all your assets in one place, you may be able to more easily review your retirement savings, including your investment allocation, and decide when (and how) you’d like to make changes. You may want work with your financial advisor and tax professional to build a retirement strategy that fits your needs, taking into account anticipated tax implications. For example, retirees with pre-tax retirement accounts and Roth 401(k) or Roth 403(b) accounts may need to take required minimum distributions (RMDs) from their accounts when they reach age 72. However, Roth IRAs of original owners are not subject to RMDs. Inherited IRAs follow their own RMD rules. Having to calculate your RMDs from multiple accounts may become tedious, which is why consolidating your accounts into one centralized “home” (if you are eligible and determine that it is appropriate) can help. Keep in mind, RMDs are subject to applicable taxes. Your advisor and tax professional can walk through your options and help you to make sure that your consolidation experience makes sense for your situation. Whatever you decide to do with your retirement assets, make sure you don’t forget about them. You worked hard for that money, and it’s yours to keep – wherever your career takes you!