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Should I combine all of my retirement accounts?
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November 2, 2001: 11:30 a.m. ET
What are the pros and cons of consolidating my 401(k)s?
MONEY columnist Walter Updegrave
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NEW YORK (CNNmoney) - Should I combine all of my retirement accounts -- 401(k)s, IRA rollovers, etc. -- or keep them separate? What are the pros and cons of consolidation?
Let me begin by saying that, today at least, you don't always have the option of combining retirement accounts. Let's say, for example, you leave your job and transfer your 401(k) into a rollover IRA. Then, after you sign up for the 401(k) offered by your new employer, you decide you'd like to move your rollover IRA into your new 401(k) plan. If your new employer's 401(k) plan accepts such transfers, you can go ahead with that plan. But if your new employer's plan prohibits rollover money or transfers from other plans, then you're out of luck. Most plans do accept such transfers. And since the new tax law passed in June also allows 401(k)s to accept money from regular IRAs as well as other retirement plans, such as 403(b)s, I suspect that more and more plans will accept transfers. But the right to do so depends on the plan.
Of course, you do have the right to combine separate IRA accounts, if you hold several. So, for example, if you've switched jobs three times and each time you transferred your 401(k) balance into a new IRA rollover, there's nothing to prevent you from consolidating your three IRA rollovers into one account.
The pros and cons
Now let's get to the pros and cons of combining accounts. On the plus side, combining accounts can certainly cut down on paperwork and make your retirement portfolio a bit easier to manage. Tasks like tracking performance and monitoring the overall asset allocation of your portfolio are somewhat simpler if you have all your money in one place. In some cases, consolidating your assets can have other benefits. You can't borrow assets held in an IRA account. By moving that money into a 401(k), however, you may have the option of borrowing that money by taking out a 401(k) loan.
There are some potential downsides to consolidation, however. Obviously, you wouldn't want to combine your accounts into your 401(k) or an IRA rollover held at a particular brokerage firm or fund company if the investment choices are limited or just plain lousy. And even if you're satisfied with the array of investment options, putting all your money in one place subjects does expose you to another risk. Although instances of money being pilfered from 401(k) plans is certainly rare, they do occur. Similarly, there are cases of employees having to wait a long time -- sometimes upwards of a year -- to get their 401(k) money after leaving a job.
Call me paranoid, but when I weigh the pros and cons of consolidation, I come out in favor of spreading my money around. That doesn't mean I'd set up accounts at dozens of firms -- or that I'd bother to do this at all if I were dealing with small amounts of money. But if I had accounts totaling into the high five or six figures, I'd certainly consider holding accounts at, say, two or three different places. So, for example, if your 401(k) assets are at one firm, I think it would make sense to keep any IRA rollover assets at a different firm and, if you have additional funds, say, a Roth IRA or traditional deductible IRA, you might consider keeping those assets with a separate firm as well. This type of arrangement may mean you'll have to spend a bit more time managing your accounts, but I also think it increases the odds that no matter what happens you will always have access to at least some of your retirement stash. 
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