01 Mar Should I roll over retirement accounts?

Q. I have an old 401(k) and an old 403(b). Can I roll them into one IRA? What are the advantages and disadvantages?
— Organizing

A. You sure can, and there are plenty of reasons you may want to make the move.

For starters, consolidating multiple accounts into a single account makes for easier housekeeping.

That’s in part because you will have only one statement to review, said Andrew Wang, senior vice president of Runnymede Capital Management in Mendham.

“Further, updating beneficiaries is something that people either forget to do or fail to update when circumstances change,” Wang said. “You’ll be more likely to update your beneficiaries on a single account.”

He said another benefit is that the more money you have in one place, the more likely you’ll pay attention to it.

Wang said it can be difficult to establish and maintain a strategy when your portfolio is segmented across numerous accounts. Combining accounts into a single place will make it easier for you to initiate a plan and better implement a well-constructed portfolio, he said.

“Managing `one pot’ makes important considerations like diversification and asset allocation easier to manage and monitor,” he said.

Also, moving your funds to an IRA will give you more flexibility because most employer plans limit your investment options to choices available on a set investment menu. Instead, Wang said, rolling 401(k) funds into an IRA account will open up investment options where you may invest in individual stocks/bonds, mutual funds, exchange traded funds and more. Further, your IRA account can be managed professionally by an investment advisor while 401(k) is usually do-it-yourself, he said.

Wang said there are exceptions and times it may make sense to leave your accounts along.

For example, if you retire from a company at age 55 or older, you can get penalty-free access to your 401(k) account, Wang said.

“Once you roll your 401(k) into an IRA, IRA rules require you to wait until age 59 ½ to gain access to your funds without penalty, so your employer plan allows withdrawal 4 ½ years earlier than an IRA,” he said.

You may also want to leave the funds if you plan to take a loan against your retirement assets.

“You cannot borrow from an IRA but many 401(k) plans have loan provisions that allow you to borrow against your funds while you are actively employed with your company,” he said.

You should also look twice if you have company stock in your 401(k) that has appreciated significantly, so you should consult your tax advisor before you make a move.

“Under `net unrealized appreciation’ rules, you may be able to take a lump-sum distribution of your 401(k) account, moving the employer stock into a taxable account which may have preferential tax treatment,” he said.

Also, federal law protects the money in 401(k) plans but IRAs are protected by state law. You should check with an attorney because money in an IRA may not receive the same protection from creditors and lawsuits that 401(k) plans receive, Wang said.

Rolling over your accounts isn’t a difficult process but it can be a pain, and even daunting and frustrating, Wang said.

“Moving accounts requires calling 401(k) providers — navigating complex phone trees, waiting on hold, and talking to customer service reps who give you different answers to the same question each time you call their 800 number,” he said. “In my opinion, the short-term pain is worth the potential long-term gains.”

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This story was first posted in March 2019.