Stop Me Before Opening Another Account! – Center for Retirement Research
Reducing the number of your accounts can give you a clearer view of your overall financial picture, which supports greater confidence and control.
Hi, I’m Luke, and I’m addicted to credit card points. I have one credit card for groceries, one for restaurants, gas, and four for everything else. This behavior is common, according to data from Experian, which found that the average American has four active credit cards. But this stack of credit cards is probably eating up more of my brain power than it’s worth.
Having multiple bank accounts is also common. I have clients come to me with a dozen accounts spread across multiple banks. Basic checking, basic savings, money market, CDs, children’s account, and more. Generating reasonable interest cannot be a motivation, for savings accounts – currently paying, on average, only 0.4 percent interest.
Another area where I see bloat is in retirement and investment accounts. I am guilty of this too. People often have old 401(k) or 403(b) plans, one or more traditional IRAs or Roth IRAs, and possibly multiple trading accounts. This increase makes investing difficult, especially by making it difficult to use asset allocation in a systematic way.
Then there are those who inherited IRAs from parents who never merged theirs IRAs – leave their beneficiaries with two or three additional inherited IRAs. These IRAs can all be put into one account, but inertia tends to keep them separate.
With all the various financial accounts – credit card, bank, loan, brokerage and retirement – no one can blame you for not having a clear financial picture.
Allow me to make a short suggestion to make your financial life easier. Consolidating investment accounts is one of the first things we do for new clients, and it creates a great sense of accomplishment with simple paperwork.
Especially as you approach retirement, it can make life easier if you transfer all of your accounts to one custodian.
For example, employer retirement plans such as a 401(k) or 403(b) can be rolled over into a single traditional rollover IRA, as well as any other traditional traditional IRA, SIMPLE IRA, and SEP-IRA. (Note that assets from a Roth 401(k), Roth 403(b), or Roth IRA can be rolled into one Roth IRA as well, although these are not called “rollover” accounts.
Combined with a brokerage account and a Roth IRA, you can get away with not having more than three investment accounts in your name (married couples can double that number since IRAs can’t be held jointly).
Integration may end up saving time and effort. Moving accounts to a single custodian makes it easy to track investments and monitor performance. Moving accounts from old retirement plans like 401(k)s to a rollover IRA allows for more investment options and can help reduce your investment-related expenses.
Having just a few accounts makes it easier to take withdrawals during retirement, thus making it easier to manage your income. As you get older, the IRS requires you to withdraw a minimum amount from tax-deferred IRAs each year (currently beginning at age 73). If you have such IRAs spread across different jurisdictions, you risk missing out on one of those required minimum distributions — and potentially paying huge penalties.
Having all of your accounts in one place can help give you a clearer picture of your total retirement savings, helping you better plan your retirement goals. Consolidation can also help simplify tax reporting.
Finally, combining accounts allows you to better and more easily manage your estate plans – for example, if you want to name or update a beneficiary.
Some are wary of consolidating accounts at one company such as Charles Schwab or Fidelity because they fear these institutions could collapse. If that includes you, remember that these custodians do not keep your assets on their balance sheet. The accounts and assets you manage are yours. It is not the property of the keeper. Even if the custodian has failed, creditors can’t go after your accounts.
In a world that often 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 is not about giving up anything. It’s about making smart, deliberate decisions about what you’ve already worked so hard to save.
Luke Delorme, CFP® is the Director of Financial Planning at Tableaux Wealth in Great Barrington, MA (www.tableauxwealth.com), is accessible at luke@tableauxwealth.com. To stay updated on the Squared Away blog, join our free mailing list.
This blog post is for informational and educational purposes only and should not be construed as financial advice. Consult a qualified professional for advice specific to your situation.
