By Mary Kane

Kiplinger’s Personal Finance

If you’ve worked for multiple companies in your lifetime, you probably have accumulated several 401(k) accounts, a couple of IRAs and a brokerage account or two.

As you near retirement, you might consider consolidating some of the accounts to help you organize and track your investments and perhaps save some money with fewer account fees.

Consolidating your employer plans in one IRA “retains the tax-advantaged status of the assets, allows more choice of investments and ensures you remain in touch with your assets,” says Terry Dunne, senior vice president at Millennium Trust Co.

But while consolidation may result in “simplification and convenience,” it’s not as easy as it sounds, says Ajay Kaisth, a certified financial planner in Princeton Junction, N.J. And there are some good reasons for maintaining separate accounts, so you “need to be sure that the benefits outweigh the costs,” he says.

You might, for instance, want to keep a 401(k) plan that has lower-cost institutional shares of mutual funds and access to commission-free trading, instead of rolling it into an account without those features. Or, if you want to make a qualified charitable distribution someday, you can only do that through an IRA.

Before you make any moves, review the rollover chart at IRS.gov to learn which accounts can be rolled over into another. Study the specific rules of each of your plans; custodians can vary in whether rollovers are allowed and what kind of fees are involved, says Joyce Streithorst, a CFP in Melville, N.Y.

Next, weigh the pros and cons of consolidating. Combining accounts makes it easier to manage your money and “to see the big picture,” Streithorst says. Fewer accounts mean fewer monthly or quarterly statements and possibly lower costs.

Consolidating also makes it easier to calculate and take required minimum distributions after age 70 1/2, Kaisth says. For each 401(k) you own, you must take a separate RMD. But if you consolidate old 401(k)s into one rollover IRA, you can take a single distribution.

But there are some drawbacks, and many of them affect early retirees, who might lose options to access money penalty-free if accounts are consolidated. For instance, if you leave your job at age 55 and your 401(k) allows partial withdrawals, you’d want to keep that account separate, says Tiffany Beard, a CFP in Jacksonville, Fla. This would allow you to take out money before age 59 1/2 without paying the 10 percent penalty for early withdrawals that you would usually face if you rolled the 401(k) into an IRA.

You can still take penalty-free withdrawals from an IRA if you’re younger than 59 1/2, although it may take a few financial steps. This involves using the 72(t) strategy, in which you withdraw the money in substantially equal periodic payments, Beard says. Say you have $1 million in your IRA but you don’t want to take distributions based on that large balance. You could split off $500,000 into a separate IRA and take withdrawals penalty-free using the 72(t) rules on the new, smaller IRA. Once you finish the distributions from that IRA, you’d still have the other IRA to use later in life.

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