Stop Me Before I Open Another Account
Hello, I’m Luke, and I’m addicted to credit card points. I have one credit card for groceries, another for restaurants, one for gas, and a fourth for everything else. This is normal, according to data from Experian, which has found that the average American has four active credit cards. But this collection of credit cards probably consumes more of my brainpower than it’s worth.
Having multiple bank accounts is common as well. I have clients who came to me with a dozen accounts spread across multiple banks. Primary checking, primary savings, money market accounts, CDs, an account for the kids, and so on. Generating meaningful interest can’t be the motivation, for the savings accounts anyway—the average savings account right now pays just 0.4 percent interest.
Another place I see bloat is retirement and investment accounts. I’m guilty of this one too. People often have one or more old 401(k) or 403(b) plans, one or more IRAs, Roth IRAs, perhaps several brokerage accounts. This proliferation of investment accounts makes investing more difficult, in large part by making it harder to apply an orderly asset allocation.
Then there are those who’ve inherited several IRAs from parents who never consolidated their IRAs—leaving their beneficiaries with two or three additional inherited IRAs. These IRA accounts could all be rolled into a single account, but inertia tends to keep them split up.
With all the various financial accounts—credit cards, bank accounts, loans, brokerage and retirement accounts—no one could blame you for not having a clear financial picture.
The Case for Consolidating Your Accounts
Allow me to make a brief pitch for simplifying your financial life. Consolidating investment accounts is one of the first things we do for new clients, and it creates a great sense of accomplishment with relatively simple paperwork.
Especially as you approach retirement, it can make life easier if you transfer all your accounts to a single custodian.
For example, employer retirement plans such as 401(k)s and 403(b)s can be rolled into a single rollover IRA, along with any other old IRAs, Simple IRAs, and SEP-IRAs.
Combined with a brokerage account and Roth IRA, you can probably get away with having no more than three investment accounts in your name (married couples may have double that number as IRAs cannot be held jointly).
The tidy, stress-free desk of an account consolidator
Consolidation may end up saving time and effort. Moving accounts to a single custodian makes it easier to track investments and monitor performance. Moving accounts from old workplace retirement plans such as 401(k)s into a rollover IRA allows for more investment options and may help reduce your investment-related expenses.
Having just a handful of accounts also simplifies making withdrawals during retirement, thereby making it easier to manage your income. As you get older, the IRS requires you to distribute a minimum amount from tax-deferred IRAs each year. If you still have IRAs spread around in different places, you run the risk of missing one of these required minimum distributions—and possibly paying hefty penalties.
Having all your accounts in one place can help provide a clearer view of your total retirement savings, helping you plan better for your retirement goals. Consolidation can also help streamline tax reporting.
Finally, consolidating accounts in one place allows you to better and more easily manage your estate plans—for instance, should you want to name or update a beneficiary.
Your Money Is Still Yours—Even if You Consolidate
Some are wary of consolidating accounts at a single firm such as Schwab or Fidelity out of fear that these institutions could collapse. If that includes you, keep in mind that these custodians do not hold your assets on their balance sheet. The accounts and assets you hold are your own. They are not the property of the custodian. Even if Charles Schwab fails, creditors cannot go after your accounts.
In a world that usually encourages us to add more—more accounts, more options, more complexity—there may be value in doing the opposite. With fewer accounts to monitor and a clearer view of your overall financial picture, you gain confidence and control. Simplifying your financial life isn’t about giving anything up. It’s about making smart, intentional decisions with what you’ve already worked hard to save.
This article originally appeared in The Berkshire Eagle.