Three Effective Strategies for Organizing Your Retirement Accounts

Getting your retirement accounts organized and optimized is crucial for building a sustainable and secure financial future. Despite the significance of streamlining your investments and gaining control over your money, many Americans tend to prioritize amassing a large retirement fund rather than organizing it effectively. However, without proper organization, achieving the retirement you desire can become challenging.

If you’re like most pre-retirees, you likely have retirement accounts scattered across various employers, along with your own IRAs. Additionally, if you have a spouse, the number of accounts can grow even larger. Nationally, there are over $1 trillion held in 401(k) accounts from previous employers. It’s important to consider different approaches to optimize your retirement prospects and secure a comfortable life during your retirement years.

Here are three strategies to help you streamline and manage your investments effectively:

Strategy #1: Get a Clear Overview of Your Accounts

Begin by gaining a comprehensive understanding of all your retirement accounts. This includes accounts from current and past employers, as well as any individual retirement savings accounts like traditional or Roth IRAs. Utilize online tools, such as Morningstar, Empower, or Mint, or simply create a spreadsheet to keep track of your accounts. If you’re married or have a partner, do the same for their retirement savings.

Record specific details of your investments within each account, such as mutual funds, exchange-traded funds, stocks, and stable value funds. It’s important to have knowledge of where your money is being allocated to make well-informed decisions that align with your retirement goals.

Strategy #2: Consolidate Your Retirement Accounts

Consolidating your retirement accounts into a single place can simplify your financial management and provide greater investment flexibility. Consider rolling over retirement accounts from previous employers into a single Individual Retirement Account (IRA). IRAs generally provide more investment choices compared to restricted 401(k) plans.

To consolidate, initiate a direct rollover where your old 401(k) provider transfers funds directly to your IRA custodian. This ensures a smooth transfer without any tax implications. Alternatively, you can opt for an indirect rollover, where you receive the funds and deposit them into the IRA within 60 days to avoid tax penalties. However, this method involves a 20% tax withholding, so the direct rollover is generally recommended.
Remember that this process may require effort and coordination between the various providers. If you work with a financial adviser, they can assist you in handling the consolidation process to save time and reduce potential mistakes.

Strategy #3: Consider In-Service Withdrawals

Explore the possibility of in-service withdrawals if your current employer-sponsored retirement plan allows it. An in-service withdrawal lets you initiate a rollover from your employer’s retirement account into an IRA, even before age 59½, without tax penalties. This approach enables you to keep a portion of funds in your 401(k) while rolling over the rest into an IRA tailored to your retirement goals.

In-service withdrawals offer benefits similar to rollovers from former employers’ 401(k) plans. You gain greater control over your investments in an IRA, which becomes increasingly crucial as retirement approaches and you shift from the accumulation phase to the distribution phase.

By utilizing in-service withdrawals, you can create a retirement income strategy that aligns with your needs, reducing the risk of sequence of returns issues. This way, your money can work more effectively to support your retirement goals.

Implementing these three strategies—getting a clear overview of your accounts, consolidating your retirement savings, and considering in-service withdrawals—will help you organize your retirement investments effectively and increase your chances of achieving a sustainable retirement.