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

“Managing your financial life is hard enough; adding the complexity of planning across multiple providers can be an unnecessary headache,” notes John Sweeney, executive vice president of retirement and investing strategies. “Why make it hard to have a realistic view of your cash flow, financial needs, and investments?”

Here are four things you can do when you simplify your financial life by consolidating your financial accounts in one place.

1. Take charge of your 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’s 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 investment mix 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.

Moving money to a rollover IRA from a 401(k) held at a former job or after retirement is a typical consolidation opportunity. 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.

Rolling over to an IRA doesn’t automatically mean you to have sell what you own in your 401(k). Many funds and stocks can transfer directly. Even if they don’t and you have to sell, you can usually find a comparable investment, or explore new opportunities. Because rollovers happen in qualified retirement accounts, there are no tax consequences on the transaction, as long as the rules are followed.

2. Keep track of 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. Plan more effectively.

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

“Managing a complex financial life is hard enough; adding the complexity of planning across multiple providers can be an unnecessary headache, making it harder to have a realistic view of your cash flow, needs, and progress,” notes Sweeney.

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 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 those assets into an IRA. After you consider the tax implications, determine whether the scenario works with your financial plans.

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 investment mix, 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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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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