When it comes to things like your retirement investments, maintenance is just as important as those first steps you take to open accounts and set up contributions. These accounts will be with you for decades as you move through your career and get closer to retirement.
You can benefit from periodically revisiting your retirement investments and make sure they’re properly organized. Take these three steps to spring clean some of your most valuable financial assets this year.
Step 1: Consider Consolidating Old Accounts From Previous Employers
Ever opened a retirement account with one employer, only to move to a different company for a new job? There’s nothing wrong with that, but it could leave you with several retirement accounts to keep up with over time.
Managing everything in separate locations can cause confusion. “With consolidation comes simplification,” explains John Fischer, Ph.D. and president of Andalusian Wealth Management. You can consolidate most old retirement plans — like 401(k), 403(b) and 457 plans — into your current employer’s 401(k) plan or, as this chart from the IRS illustrates, roll them into your own IRA.
Look at all the factors involved before you make changes. Consider the costs, investment options and any other details unique to your financial situation.
Some special cases, like having employer stock in your 401(k), can trigger tax consequences if you consolidate. “One big potential issue that most people don’t know to watch out for is the issue of net unrealized appreciation, or NUA, of employer stock held within their 401(k),” explains Steven Fox, financial planner and founder of Next Gen Financial Planning. “Following the right strategy here can save you an enormous amount on your tax bill.”
(Not sure if consolidating old accounts makes sense for you? Skip to Step 3 below.)
Step 2: Check Your Asset Allocation
Whether you consolidate accounts or not, take this time to review how you’re invested. “Don’t leave your investment allocation decision for later,” advises Fischer. “Set your course for investment success as part of your spring cleaning.”
“You should roughly understand your exposure to major asset classes (like stocks and bonds, or domestic versus international) and manage those exposures according to your risk tolerance, retirement timeline and overall goals,” Fischer says. He points out that most retirement portfolios can carry more risk because you want to look for higher long-term return potential. Though that comes with more volatility, it’s a smart strategy if you can stay the course between now and retirement.
Step 3: Seek Guidance
Spring cleaning your retirement investments gets tricky, thanks to complicated rules and regulations around retirement accounts and plans. If you feel uncertain or get stuck, working with a trusted fiduciary financial advisor is your best bet.
They’ll understand how to manage your retirement accounts in the best way to maximize your returns and avoid losses due to taxes that may be triggered by moving assets around on your own.
If you would like an outside perspective on the best next steps for your retirement funds, your MyLife advisor can point you in the right direction. Or, if you have a brokerage company in mind, you can call them, and they’ll walk you through the process. Otherwise, look for a fee-only advisor with experience working with clients like you — and make sure they sign a fiduciary oath. This means they have a legal obligation act in your best interest.
A good way to get started on reorganizing your retirement investments is to list out your previous jobs and reach out about accounts you may have had with them in the past. Once you know where your assets are, it will be much easier to get them into one place.