Why You Should Consider Consolidating Multiple Retirement Accounts Into a Single Self-Directed IRA

Estimated reading time: 3 minutes(Last Updated On: April 13, 2021)

Over time, many of us accumulate a number of different financial accounts. For example, we might start a new 401(k) or other employer-sponsored retirement plan each time we change jobs. Or we might open a new IRA in order to receive the benefit of a promotional offer that our broker is sponsoring.

Unfortunately there are a number of downsides to maintaining multiple retirement accounts. In most cases, you can benefit from consolidating multiple retirement accounts into a single self-directed IRA.

Investment Options.

Let’s consider two possible scenarios; one in which you have five different IRAs with a $50,000 balance in each, versus a situation where you have a single self-directed IRA with a $250,000 balance. Your nest egg in each of these situations is identical, but your investment options going forward are not.

Given that a self-directed IRA custodian such as Quest Trust Company will not limit your investment choices in the same way that a traditional custodian would, you can use those funds to purchase real estate or to invest in private companies. You can even issue mortgages to real estate buyers or investors.

Those types of investments often require a higher account balance compared to what you would need to purchase stocks or bonds. Simply put, you’ll have more investment choices if you consolidate your multiple retirement accounts into a single self-directed IRA.

Furthermore, if some of your retirement accounts are 401(k)s that you have left at prior employers, rolling these over into your self-directed IRA can open up a new world of investment opportunity. Most employer-sponsored plans are severely limited in terms of available investment options.

Ease of Administration.

Don’t overlook the fact that having to manage multiple IRAs can present you with a significant administrative burden. Even with just four or five separate accounts, you’re going to have to spend a lot of time managing all the paperwork and statements that those various accounts produce. In addition, when it comes time to retire it can be even more of an administrative burden to execute a withdrawal strategy over multiple accounts.

Ease of Contribution Strategies.

If you maintain multiple IRAs, it can be a challenge to decide how to make contributions such that you grow all of your accounts. Remember that the IRS annual contribution limit regarding IRAs is an overall amount, not a per-account maximum. This means that if you’re looking to contribute $6,000 this year, and you have four or five separate IRAs, you need to figure out a plan for how to divide up that contribution amount. In contrast, having a single self-directed IRA simply means that you make the maximum contribution to that one account.

Finally, having a single IRA also makes sense because it allows you a greater level of insight into your investment risk and portfolio makeup. This insight can help you build the largest possible nest egg for your retirement.

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