Consolidating your retirement accounts could save you time and money

Almost one half of all Americans own two or more of the same type of retirement accounts, such as an employer-sponsored 401(k) plan or IRA. By continuing to maintain multiple accounts and spreading their assets, these investors may actually be doing their savings a disservice.

If you have multiple retirement savings accounts, a consolidation strategy may help you save time and money, and increase your investing power.

Multiple account fees could add up

By reducing the number of accounts you own, you may lower the amount you pay. Gathering your assets into a larger sum may also make you eligible for a lower fee category, to help you reap additional savings. Compounded over the years, these expense savings can make a real difference in your account balance.

Consolidation as a financial strategy

Consolidation can also help you gain better control of your savings. Managing assets that are spread out among various institutions and former employers is more challenging than when they're combined.

You and your financial advisor can get a clearer picture of your savings when they're in one location. Consolidating also makes it easier to allocate and track assets.

Some investors may presume they are adequately diversified merely by owning multiple accounts. The opposite may in fact be true. Even though your money is invested in three or four accounts, it may be sitting in similar asset classes with significant overlap in underlying investments.

Consolidating your investments can make it easier for you to see how your assets are allocated and how they may need to be adjusted to remove imbalance and unnecessary market risk.

Maintain access and control

When you retire or leave a job, ask yourself: "Do I want to own my retirement account or merely participate in it?" Typically, employers set up a trust to "own" the assets of their retirement plan, and this trust is considered the plan's "owner." If you decide to leave your retirement assets in an employer-sponsored 401(k) plan, you are considered an ex-employee participant — not an owner — although your vested interest cannot be forfeited, and the plan may give you a limited right to direct the investment of your account. Assets in a 401(k) plan may occasionally be subject to brief blackout periods, so at times they may not be accessible.

On the other hand, if you choose to roll your retirement savings into an IRA, you're the owner of that account — with full rights of access and control of your money.

Consolidation in an IRA can simplify your efforts to diversify and may also provide more investment choice and flexibility than is offered in most company retirement plans. With an IRA, it is possible to have hundreds of options to choose from, including mutual funds, stocks and bonds.

Simpler today, simpler tomorrow

Consolidation can also help you simplify your life. Fewer accounts will mean less paperwork. Instead of three or four statements each month, you'll receive one consolidated statement of your retirement investments.

Other advantages of consolidation are ones you'll realize down the road — either in retirement or when your beneficiaries inherit your assets. At age 70 1/2 , generally, you'll be required to take minimum distributions from your retirement accounts.

By consolidating assets in your IRA, you simplify the process of calculating and taking these required distributions, which may help you avoid the costly tax penalties that are assessed for failing to take them correctly.

Furthermore, your beneficiaries will generally have greater distribution flexibility than if you leave assets in employer-sponsored plans. This includes the ability for non-spouse heirs to stretch tax-advantaged investment growth over their lifetime.

Reward yourself today for saving for your future

There are many factors to consider when deciding what to do with your retirement savings — when retiring or changing jobs. A consolidation strategy may be beneficial to the future of your retirement savings. Your Ameriprise financial advisor can help you look at your total asset picture and evaluate if consolidation is the right thing to do.