How long is your list of User IDs and Passwords that you have for all of your various online accounts? Is it 10? 20? 50?!? Can you imagine if you still had to remember everyone’s phone number as well? I start to get a headache just thinking about it! When it comes to your finances, consolidating your accounts is a simple way to reduce not only the number of accounts that you have, but also those hard to remember passwords.
Diversification is one of the first rules of investing, however, I don’t believe that having two IRA accounts that are both invested for growth, at two different custodians is necessarily the point. For example, if you check out the top ten holdings in your best performing funds, you may find that both funds invest in many of the same companies. Consolidating can help you to have a more coordinated strategy that can reduce investment overlaps and gaps, plus could eliminate some transaction fees or custodial fees.
Another important consideration comes into play when taking withdrawals. Are all of your pre-tax, Roth, and taxable accounts combined to make it easier to figure out if a distribution is taxable or not? If you are retired, taking withdrawals for living expenses and figuring out how much tax to withhold is an annual event (and something we at Whitford Financial Planning can help you figure out!). Having your accounts spread out all over the place only makes this task more challenging. Speaking of taxes, wouldn’t it be nice to have less documents to gather for tax preparation each year, as well as a smaller number of statements and emails? There are many reasons to consolidate, but perhaps the most important is simplifying and organizing your life. Who wants to have to keep track of any more than is necessary?