Q. I have several accounts at different mutual fund companies and banks. My friend says I should move it all to the same place. What are the advantages and disadvantages of consolidating?
A. Consolidating accounts is often a great idea.
There are two main categories of accounts: retirement accounts, (IRAs, 401(k)s, etc.) and non-retirement accounts (taxable accounts in single name, joint name, etc.). You can only consolidate accounts in like categories.
“Consolidating accounts lets you see the big picture better,” said Jim Marchesi, a certified financial planner with Mill Ridge Wealth Management in Chester. “You can project income levels easier, as well as review asset allocation representations of your investments more efficiently.”
And if you’re 70 1/2 or older, having only one IRA account makes figuring your Required Minimum Distribution (RMD) much easier than if you had multiple traditional IRA accounts, Marchesi said. Keep in mind that Roth IRA accounts would be kept separate because they typically do not have RMD requirements.
If you consolidate, there should be not tax consequences as long as you transfer assets “in-kind.”
“Do not liquidate investments then transfer the proceeds to another account because that will undoubtedly create taxable events in non-retirement accounts,” Marchesi said. “Before consolidating accounts, check with the current institutions that house the accounts to understand what transfer out fees would result.”
Before you make any moves, if you have larger portfolios, you want to pay attention to FDIC and SIPC coverage/protection limits, Marchesi said, because there are limits to how much a bank account can have in it and still be covered by FDIC insurance. Also, with brokerage accounts, there are limits as to what SIPC coverage you have from each brokerage firm.
While many of these consolidation efficiencies can make life easier, there are some times when makes sense not to consolidate all accounts, Marchesi said. Some of the cases that would call for dedicated accounts that aren’t mingled with other assets include money set aside to take care of a specific need, or tax escrow accounts, or even in second marriages.
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