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Key points
  • Consolidating retirement accounts can help simplify your finances.
  • Fees on multiple accounts can chip away at your savings.
  • Seeing all your savings in one place can help you monitor investments.
  • Rolling over assets into an IRA may offer advantages.

Consider consolidating retirement accounts

Many Americans own two or more 401(k) or IRA accounts. If you are one of these people, consolidating accounts can help you save time and may provide a more comprehensive view of your financial situation. You may also benefit from the perks of a higher balance such as waived fees.

Consolidation can save you time and money

When you have multiple accounts, it can be more difficult to understand how much money you have and where it is. Over time, you may even lose track of some older accounts. Consolidating your accounts can save time by making account information more easily accessible.

You may be able to save money as well, because fewer accounts often mean fewer fees to pay. Also, by having a larger balance in one account, you may be eligible for a reduced fee or no fee at all. For example, at Ameriprise Financial, if you have $100k or more in household assets, there are no custodial fees on your IRAs and additional benefits may be available as well.

Consolidation can help you diversify your assets

Having money in multiple accounts with different funds does not necessarily make your portfolio more diversified. In fact, it may make it harder to evaluate your holdings, and may actually conceal very similar investments in various accounts.

Consolidation makes it easier to allocate assets according to your investment strategy. Seeing your entire portfolio in one place can reveal when you are too concentrated in one area of the market, and make it easier to adjust these imbalances. It can also help reduce unnecessary risk and better align your savings with your goals.

Leaving your assets with an employer's plan versus rolling them into an IRA

When you leave your job or need to take a distribution from your former employer's qualified plan1, such as a 401(k) or 403(b), your options include rolling the assets into an IRA or your new employer's plan or leaving them with your former employer's plan. The right choice for you depends on many factors, but the following chart can help you compare.

  Employer's plan Ameriprise IRA
Investment options
  • Determined by plan administrator
  • May be employer-directed and/or self-directed
  • May allow insurance
  • Expansive choice of investment options
  • Self-directed
  • Insurance not permitted in any IRA
Ownership
  • Plan participants are bound by the constraints of the plan.
  • Assets may be subject to occasional blackout periods that limit account access.
  • IRA account holder has full rights of access.
  • No blackout periods
Beneficiary planning and options
  • May limit ability to name multiple or contingent beneficiaries
  • Spouse beneficiaries can roll plan assets to their own IRA, an inherited IRA or to their employer's plan.
  • Non-spouse beneficiaries may be allowed to roll inherited qualified plan assets to an inherited IRA or to spread distributions over the applicable life expectancy.6 Check plan provisions for available options.
  • Very flexible beneficiary options.
  • Multiple and contingent beneficiary designations, as well as certain custom beneficiary designations are allowed.
  • Spouse beneficiaries can roll assets to their own IRA or to their employer's plan, or maintain an inherited IRA.
  • Non-spouse beneficiaries can generally spread required distributions over the applicable life expectancy (conditions apply).
  • The IRA owner may choose to restrict beneficiary access to the assets.
10% IRS early withdrawal penalty Waived if any one of the following conditions is met:
  • Over age 59 1/2
  • Separates from service in the year they turn 55 or older
  • Disabled
  • Taking substantially equal periodic payments
  • Death distributions2
  • On account of a Qualified Domestic Relations Order (QDRO)
  • Other miscellaneous reasons
 Waived if any one of the following conditions is met:
  • Over age 59 1/2
  • Disabled
  • Taking substantially equal periodic payments
  • Death distributions2
  • First-time home purchase (up to $10,000)
  • Certain medical expenses
  • Health insurance premiums while unemployed
  • Certain higher education expenses
  • Other miscellaneous reasons
Roth Conversions
  • Rollovers from qualified plans to a Roth IRA are allowed.
  • Regular income taxes would apply to any pre-tax dollars when rolled over as a conversion (income limits apply).
  • Direct rollovers from designated Roth qualified plan assets to a Roth IRA are allowed.
  • Can convert an IRA to a Roth IRA (income limits apply)7
Withholding Rules
  • Distributions are generally subject to mandatory 20% federal income tax withholding, unless directly rolled to another eligible plan or IRA.
  • Distributions are generally subject to 10% withholding; IRA owners can elect out of the withholding.
Required minimum distributions (RMDs)
  • 403(b) plans: must begin RMDs the later of the April 1 after attaining age 70 1/2 OR full retirement (restrictions may apply)
  • 401(k) plans: same as above, but may have exceptions depending on plan provisions or whether or not a participant is a 5% owner
  • Traditional: must begin RMDs by April 1 of the year following the year age 70 1/2 is attained
  • Roth: RMDs are not required until after the owner's death.
  • RMD rules also apply to inherited traditional and Roth IRAs.
Fees
  • Distribution options may include low-cost annuities that are not available outside the plan.
  • Employers are allowed to charge reasonable expenses to former workers, and their beneficiaries who remain in their old 401(k), even if the expenses for active workers are paid by the employer.
  • Typically, qualified plans do not charge fees for trading within the account, mutual fund loads or commissions. Investment expenses may also be lower due to institutional pricing.
  • Annual IRA custodial fees are waived if household total asset balance with Ameriprise Financial is $100,000 or more.3
  • Other fees that apply are disclosed in the applicable product prospectus, contract, offering or other disclosure document you receive.
Loans
  • Loans may be allowed but typically for active employees only. Outstanding loan balances may need to be paid in full upon separation of service, regardless of whether or not you are taking a distribution from the plan. Taxes and penalties may apply.
  • Loans not allowed
Employer securities and net unrealized appreciation (NUA)4
  • If employer securities are distributed in-kind in a lump sum distribution, tax on the NUA (amount appreciated while held in the plan) is deferred until the shares are sold. Tax is determined using the long-term capital gains rate, which is lower than income tax for most individuals.
  • NUA tax treatment is not available on distributions from IRAs.
  • Employer securities rolled to an IRA are no longer eligible for NUA tax treatment.
  • A partial distribution from your employer's plan (including a direct rollover to an IRA) may eliminate your ability to receive NUA tax treatment on employer securities left in your former employer's retirement plan. 

Note: Subchapter S stock cannot be rolled to an Ameriprise IRA.
Creditor protection
  • Plan assets cannot be attached by creditors or be liquidated in bankruptcy.
  • Qualified plan assets retain unlimited federal bankruptcy protection when rolled to an IRA.5 Outside of bankruptcy, creditor protection is determined by state laws.

Determining which accounts to consolidate and handling retirement plan distributions can be complex and requires careful thought and additional advice from your tax and legal advisors. An Ameriprise financial advisor can help evaluate your own situation and determine if consolidation is the right thing to do.

1 Plan qualifies under IRS Code §401(a) or 403(b). This includes, but is not limited to, the following plans: 401(k), Money Purchase, Profit Sharing and TSAs.

2 If rolled to an IRA by a spouse beneficiary, the death distribution waiver no longer applies and withdrawal from the IRA will be subject to the early withdrawal penalty.

3 The annual fee waiver applies to the custodial fee and does not include product fees. Ameriprise households are defined by the primary household account for an individual, his/her spouse or domestic partner and any accounts owned for, by or with their unmarried children under the age of 21. Please note that some assets may not be eligible for householding.

4 Additional information and requirements about NUA tax treatment is available from your advisor.

5 Federal bankruptcy protection afforded under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

6 Beginning after December 31, 2009, qualified plan must allow rollovers to inherited IRAs for non-spouse beneficiaries.

7 Beginning after December 31, 2009, the $100,000 modified adjusted gross income limit for Roth conversions is eliminated. Additionally, for Roth conversions that occur in 2010 only, the income associated with the conversion may be spread equally over tax years 2011 and 2012.

Diversification helps you spread risk throughout your portfolio, so investments that do poorly may be balanced by others that do relatively better. Diversification is not a guarantee of overall portfolio profit or protection against loss.

This information is not intended as legal or tax advice. Please consult with your legal and tax advisors regarding your individual situation.

Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA and SIPC.

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