Is consolidating accounts right for you?
As a public employee, you may be looking at your financial picture and seeing a mix of different retirement accounts: a 401(k) from a past job, maybe an IRA, and probably a Deferred Compensation Program (DCP) account. Each of these accounts has served a purpose over the years, but managing them all can feel like juggling too many balls at once. That’s where consolidation comes in.
Consolidating your retirement accounts means rolling multiple accounts into one. For many people, this step can simplify their finances and reduce headaches both now and down the road. But is it the right move for you? Let’s explore some of the key reasons why consolidation might make sense and what to consider before making changes.
Advantages of consolidation
Streamlined investment strategy
With all your retirement savings in one place, it becomes easier to manage your overall investment strategy. You can make sure your portfolio is properly diversified and aligned with your retirement timeline and risk tolerance, without needing to coordinate between multiple financial institutions.
Potential for lower fees
Some accounts charge maintenance or management fees. Consolidating into a low-fee account (like many public employee DCP plans) could help reduce your overall costs. Over time, those savings can add up.
Reduced likelihood of errors for multiple Required Minimum Distributions (RMDs)
Once you reach age 73 (or 75 if you were born in 1960 or later), the IRS requires you to start taking minimum distributions from certain retirement accounts, such as traditional 401(k)s, 457s, and IRAs. If you have multiple accounts, you may be required to take separate RMDs from each and that can mean more math, more deadlines, and a greater risk of missing something.
By consolidating your accounts, you may be able to take one RMD instead of several. This reduces the likelihood of errors and makes tax planning in retirement much more manageable.
What to consider before consolidating
While consolidation can simplify your financial life, there are a few things to consider first:
- Review fees and investment options: Not all accounts are created equal. Compare the investment choices and costs of your existing accounts with the one you’re thinking of consolidating into.
- Check for penalties: Some accounts may charge fees for transferring out, or have early withdrawal penalties.
- Understand tax implications: Make sure you’re rolling funds between similar account types (like traditional to traditional) to avoid unintended tax consequences.
For more information about DRS-specific rollovers, visit the rollover information page. The Deferred Compensation Program (DCP) is the only DRS administered plan that accepts rollovers from other plans. More about DCP rollovers.
It’s also a good idea to talk to a financial advisor or retirement counselor familiar with public employee plans. They can help you evaluate whether consolidation aligns with your retirement goals.
The bottom line
Simplicity can be your friend. Consolidating your retirement accounts may help reduce stress, cut down on paperwork, and make it easier to manage your finances. For many public employees, rolling other accounts into their DCP account with strong investment options and low fees is a smart move. Just be sure to weigh your choices carefully. Talk to a financial advisor if you need some advice.
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