Four reasons to consolidate accounts

Putting savings and investments in one place can lower costs and may be a way to help improve tax efficiency.

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Four reasons to consider consolidation

Complete view of investments

Track tax opportunities

Reduce fees and commissions

More effective planning

Besides simplicity and convenience, there can be other benefits of having your money under one roof—for example, more effective management of your asset allocation and diversification, potentially lower fees, more services, and better planning.

“Managing your financial life takes time; adding the complexity of planning across multiple providers can make it more time consuming,” says Ann Dowd, CFP®,  vice president at Fidelity. “Why make it hard to have a complete view of your cash flow, financial needs, and investments?”

Here are four things that may help simplify your financial life if you decide to consolidate your financial accounts into one place.

1. Complete view of investments

Taking control of your portfolio and having your investments work effectively for your goals are among the most compelling reasons to consolidate multiple accounts. If you have investments in several locations, it can be difficult to stay on top of your overall portfolio. It’s also complicated to make your investments work together. In fact, you could be duplicating exposure to certain investment types. When you consolidate, it’s much easier to take charge of your strategy and keep your intended asset allocation on track. Moreover, rebalancing can be a much simpler task with one integrated view. It can be easier to form a clear picture of your performance and investment mix when it’s all in one place.

For instance, moving money from a 401(k) held at a former job to your new employer's 401(k) plan or, after retirement, rolling it over to an IRA, are typical consolidation opportunities. A rollover IRA can offer more investment options and the simplicity of managing a single portfolio. Of course, you always want to carefully consider any potential benefits of remaining in the 401(k) plan before deciding to roll it over. You will want to think about the investment choices, fees and expenses, and tax considerations, along with the plan’s withdrawal rules and any protection it might offer against creditors. For example, investors with company stock in their 401(k) or other workplace retirement plan might lose the option to elect net unrealized appreciation (NUA) if they roll these assets into an IRA. (Read ViewpointsMake the most of company stock.)

2. Track tax opportunities.

Bringing retirement accounts and brokerage accounts together with one service provider may make it easier to implement a tax-efficient investing strategy. For taxable accounts, tax-loss harvesting may be easier when your investments are all in one account where you can easily see your gains and losses. You can look at all your holdings at once rather than having to view each account separately. Or you may find it easier to implement an asset location strategy. Your more tax-efficient investments can be in one taxable account, while less tax-efficient assets can be kept in tax-advantaged accounts like IRAs. If they are with one provider, it is much easier to keep track of them.

3. Reduce fees and commissions.

If you’re investing through multiple providers, you might be paying more fees than necessary. This is because financial providers typically have thresholds for price breaks. Generally, the more assets you have with one financial provider, the more opportunities you may have for reducing or eliminating account fees and lowering investing expenses.

4. More effective planning.

Consolidating may also improve your financial planning, such as retirement income planning. For example, retirees need to determine how much to withdraw from their retirement accounts each year to ensure that their retirement savings will last their lifetimes—a sustainable withdrawal rate, as we call it—and monitor investments to make sure they are not depleting their money too quickly. They also need to make sure they are meeting their minimum required distributions (when the time comes) from retirement accounts.

“Being able to speak with one person about all your savings can make it easier. Planning across multiple providers can make it harder to get a realistic view of your cash flow, needs, and progress,” notes Dowd.

Look before you leap.

If you decide to consolidate, do it wisely. Consider whether consolidating will mean liquidating certain investments and possibly incurring tax consequences. For mutual fund investors, consider the investment options, particularly if your 401(k) or workplace plan offers institutional shares, which may be less expensive. Overall, you need to be sure that the benefits outweigh any potential costs.

Consolidating is a decision that needs some time and consideration, but the potential benefits may make it worth your while. You could improve and find it easier to maintain your asset allocation, as well as diversify your portfolio more effectively. You might find opportunities to save money, through both improved tax efficiency and the lower fees often associated with having more money at one provider. Most of all, you’ll have a chance to plan more effectively and to take control of your finances. That’s a move that, in the end, could improve your overall financial picture.

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This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Views and opinions expressed are not necessarily the opinions or recommendations of Fidelity Investments. This material is provided for informational purposes only and should not be used or construed as a recommendation for any security.

Be sure to consider all your available options and the applicable fees and features of each before moving your retirement assets.

Keep in mind that fees may apply when closing and consolidating accounts.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

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Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

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