Question: I have been working a long time and now I have a number of retirement accounts. Do you advise against that?

T. Unger

Answer:

Dear T. Unger,

Your situation has become quite common as more and more American workers change jobs, become independent contactors (freelancers, consultants), start their own businesses or work for both profit and not-for-profit entities.

In other words, it's not unusual for workers to have several 401(k)or 403(b) accounts, an IRA-SEP, a Keogh and/or both the Roth and traditional IRA.

There are pros and cons to consolidating such accounts. I suggest that after you read this column you consult with your accountant about your particular situation.

The basic disadvantages of many accounts

Here are the problems involved when you own a number of accounts:

• They take time to manage -- either your time or that of a professional manager whom you have to pay for his/her work.
  
  
• Often the investments in various accounts wind up being duplicates. When this is the case, they do not offer the traditional protection of diversification.
  
  
• Whether you or someone else tracks multiple accounts, you're inevitably involved with very time-consuming paperwork.
  
  
• Several accounts always makes tax computation and tax returns much more difficult.
  
  
• Unless you have all your accounts with one firm, you inevitably wind up paying more in custodial or administrative fees.

The advantages of owning multiple retirement accounts

• If you wish to leave IRA assets to more than one beneficiary it obviously makes sense to have more than one account.
  
  
• If you want to donate IRA assets to a charity, you will want to have a separate account for this purpose.
  
  
• If you plan on drawing on some but not all of your IRA money before you turn 59 1/2, several accounts makes sense. You can make early withdrawals from an IRA without triggering the 10% early withdrawal penalty as long as the withdrawals are substantially equal periodic payments and you make them for at least five years.
  
  But...the withdrawals must be based on all of the assets you own in that particular IRA. If those assets produce more income than you need, you should split the IRA into two or more smaller IRAs and then make your periodic withdrawals from just one of the accounts.

For More Information

Visit the Retirement Focus channel at BUYandHOLD, for specific information about retirement accounts.