If you’re like most Americans, by the time you enter your early 50s you’ll probably have held about a dozen different jobs at nearly as many different employers.¹ It’s a far cry from the 1940s and 1950s, when working your entire life for the same employer was a fairly commonplace occurrence. Today, workers are far more mobile, job skills are far more translatable, and employers tend to be considerably less likely to carry excess labor costs through any sort of prolonged economic downturn.

As a result, it’s not at all uncommon over time to accumulate a number of different “legacy” retirement plan accounts, all being held and managed at various previous places of employment. Although this isn’t necessarily a bad thing – it can be challenging.

On the plus side, because company plans have greater purchasing power than individual investors, their mutual fund investment options typically waive transaction costs and minimums and often utilize institutional shares which carry lower management fees. In addition, if there’s a likelihood that you may need to tap into your retirement savings prior to age 59½ for some reason (e.g., a major purchase or early retirement), then any existing plan loan features along with IRS provisions allowing for penalty-free withdrawals from 401(k) accounts starting at age 55 may make it advantageous to keep your assets where they are.

There also may be certain tax considerations that could make holding on to an old retirement plan account advisable. Employees who have a significant holding of appreciated company stock in a previous employer’s plan will want to sit down with their financial advisor to determine the income and capital gains tax implications of moving those assets.


When a Consolidation Makes Sense

Whether moving older plan assets into your new employer plan or combining them into a Rollover IRA, there are a number of potential advantages to consolidating your retirement assets. First and foremost, consolidation provides far greater convenience and simplicity. Not only will it help to dramatically reduce the growing pile of account statements, investment prospectuses and plan notifications in your mailbox, it often makes managing your retirement assets far more efficient.

When your retirement investments are spread across multiple accounts, it can be incredibly difficult to ensure you maintain proper asset allocation and investment diversification. Even though you’re invested in 25 funds across 5 different plan accounts, you may be nowhere near as diversified as you thought due to a significant overlap in fund holdings. Without a single, consolidated picture of all your investments, it’s much harder to avoid duplicating exposure to certain investment types and periodic rebalancing becomes a far more difficult challenge. And when assets are consolidated, it makes keeping track of and changing/updating your beneficiary designations that much easier. Certainly, investment costs may be nominally higher with a Rollover IRA compared to a 401(k) account, but the vastly wider array of available investment choices may more than justify those costs for many investors.

When considering whether to leave your retirement assets in a previous employer’s plan, to move them into your current employer’s plan, or to roll them over into a Rollover IRA, there are a multitude of factors that need to be weighed – from investment options and costs to plan features, current holdings and personal preferences. Plus, the laws governing taxes and penalties associated with retirement assets are complex. So it’s vital that you talk with your advisor about the pros and cons of each option to determine which best fits your particular needs, goals, and circumstances.

¹U.S. Department of Labor, Bureau of Labor Statistics, March 2015