By KIRK G. AGUER
The typical American worker can easily hold a dozen or more jobs in his or her lifetime. The result is often a confusing array of retirement plan statements from multiple employers.
Fortunately, it’s easy to simplify your life by consolidating all your separate retirement accounts into one IRA. Doing so may be a savvy move. Here’s why: ■ Tax reporting is easier when you don’t need to collect tax-reporting statements from multiple sources. ■ Some retirement plans can charge periodic statement fees of up to $15. ■ IRAs may offer you more investment choices; employer plans limit you to their approved menu, which may not be suitable for you. ■ Eligible investors can convert traditional IRAs into Roth IRAs, reaping the advantages of tax-free growth — if certain criteria are met. ■ If your assets are still in an employer’s plan when you die, most plan rules will require your heirs to distribute the account within five years — regardless of the tax consequences. Roll it over to an IRA, and, if available, your heirs can spread their distributions over their entire life expectancy — a practice known as stretching. Note: A stretch IRA may not be appropriate for you and may not be an available alternative in all cases.
Consolidation may not be for you if you work in a high liability business or have pending lawsuits or judgments against you. This is because employer-sponsored retirement plans generally have greater protections against creditors than do IRAs, although this varies from state to state.
If you do decide to consolidate, don’t take the money yourself. The fund company or brokerage running your old retirement account will withhold 20 percent of your money and send it right to the IRS for tax purposes. Additionally, you may be hit with a 10 percent federal penalty if you’re under 59 years old. (Kirk Aguer is a financial advisor at Morgan Stanley. To reach him, call his Santa Monica office at (310) 319-5220 or e-mail Morgan Stanley DW Inc. member SIPC.)
Originally published in the Santa Monica Daily Press print edition on August 17, 2006. Read the original PDF.