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Beware of Retirement Sprawl

How consolidating accounts may help your retirement savings.

As we move through our career, we often accumulate a number of different retirement accounts: A traditional IRA here, a rollover IRA there, and two or three scattered 401(k) accounts left in the plans of former employers.

As the accounts add up, it can become difficult to get a clear picture of your overall retirement preparedness.

Consolidating your retirement accounts into one central account can help you make sure your retirement assets are invested appropriately for your overall goals, better track the performance of your holdings and, in some cases, discover more investment choices and potentially incur lower fees. However, consolidating retirement accounts into one account may not be right for everyone. Before taking any action, you should carefully compare your potential options in order to reach an informed decision about what makes the most sense for you.

Streamlining the account structure of your retirement savings may offer many potential benefits, including:

A comprehensive investment strategy

Your investment objectives and risk tolerance can change over time. This may make it difficult to maintain a retirement investment strategy that accurately reflects your current goals, timing and risk tolerance when your retirement assets are spread over multiple accounts. Consolidating your accounts may help allow you to make sure your investment choices match your current goals and objectives.

Potentially greater investment flexibility

Employer-sponsored retirement programs such as 401(k) plans and some IRAs may offer a limited number of investment choices. Some IRAs may offer more investment options or expanded diversification than a workplace plan. Whether a particular retirement account's options are attractive will depend, in part, on how satisfied you are with the options offered under your existing retirement accounts.

Simplified tracking

It's generally easier to monitor your progress and investment results when all your retirement assets are in one place. By consolidating your accounts, you will receive one statement instead of several.

Monitoring costs

Reducing the number of accounts may impact account fees and other investment charges. Generally speaking, both employer-sponsored qualified plans and IRAs have plan or account fees and investment-related expenses. However, in some cases, employer-sponsored qualified plans may offer lower cost institutional funds and may pay for some or all of a plan's administrative expenses. Generally, fees associated with an IRA will likely be higher than those associated with an employer plan.

Penalty tax-free withdrawals. Generally, IRA owners can take distributions penalty tax-free once they reach age 59½. Qualified plan participants between the ages of 55 and 59½, once separated from service, may be able to take penalty tax-free withdrawals from the qualified plan.

Helping simplify your required minimum distribution (RMD) obligation. Upon reaching age 70½, owners of a traditional IRA must begin taking required minimum distributions (RMDs) or face stiff IRS excise tax penalties. Having fewer retirement accounts to manage can mean having fewer RMD requirements to follow.

There are some situations where you may not want to consolidate. For example, while many qualified plans allow for loans, you cannot take a loan from an IRA. Thus, once you roll over a qualified plan into an IRA, the ability to take a loan is no longer available. However, once you leave the company sponsoring the employer plan, you may not be able to take a loan out anyway, since few qualified plans allow loans to be taken out by former employees.

Important Things to Consider

Typically, as a retirement plan participant who may be receiving an eligible rollover distribution from the plan, you have the following four options (and you may be able to engage in a combination of these options depending on your employment status, age and the availability of the particular option):

1. Cash out the benefits and take a lump sum distribution from the current plan subject to mandatory 20% federal income tax withholding, as well as income taxes and the 10% early withdrawal penalty tax,

OR continue tax deferred growth potential by doing one of the following:

2. Leave the assets in your former employer's plan (if permitted),

3. Roll over the retirement assets into your new employer's qualified plan, if one is available and rollovers are permitted, or

4. Roll over the retirement assets into a traditional IRA.

Each option offers advantages and disadvantages, depending on your particular facts and circumstances (including your financial needs and your particular goals and objectives). Some of the factors you should consider when making a rollover decision include (among other things) the differences in: (1) investment options, (2) fees and expenses, (3) services, (4) penalty tax-free withdrawals, (5) creditor protection in bankruptcy and from legal judgments, (6) Required Minimum Distributions or "RMDs", (7) the tax treatment of employer stock if you hold such in your current plan, and (8) borrowing privileges.

With so many options to consider, a Financial Advisor with an understanding of your full financial picture, time horizon and goals can help you assess the options and whether or not consolidating your retirement savings accounts is the right choice for you.


Article by Morgan Stanley and provided courtesy of Morgan Stanley Financial Advisor.

Article by Morgan Stanley and provided courtesy of Morgan Stanley Financial Advisor.

Susan S. Craig is a Financial Advisor in Tampa Office of Morgan Stanley Smith Barney LLC ("Morgan Stanley"). She can be reached by email at [email protected] or by telephone 813-227-2182. Her website is:

This article has been prepared for informational purposes only. The information and data in the article has been obtained from sources outside of Morgan Stanley. Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of the information or data from sources outside of Morgan Stanley. It does not provide individually tailored investment advice and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this article may not be suitable for all investors. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. By law, some IRAs may not be consolidated.

Clients should consult their personal legal and tax advisor. Consolidating accounts into a single IRA may not be right for everyone. There may be a number of options available to you. Each option offers advantages and disadvantages, depending on your particular facts and circumstances (including your financial needs and particular goals and objectives). The decision of what option to select is a complicated one and must take into consideration your total financial picture. To reach an informed decision, you should carefully consider the alternatives, the related tax and legal implications, fees and expenses, and the differences in services, and discuss the matter with your own independent legal and tax advisors.

Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC ("Morgan Stanley"), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not "fiduciaries" (under the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in writing by Morgan Stanley and/or as described at Individuals are encouraged to consult their tax and legal advisors regarding any potential tax and related consequences of any investments made under an IRA. This article does not address state and local income taxes. The state and local income tax treatment of your retirement account, as well as the contributions to it and the distributions from it may vary based on your state of residence. You should consult with and rely on your own independent tax advisor with respect to such.

Susan S. Craig may only transact business, follow-up with individualized responses, or render personalized investment advice for compensation, in states where she is registered or excluded or exempted from registration,

©2019 Morgan Stanley Smith Barney LLC. Member SIPC. CRC 2396860 03/2019


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