As you experience major life changes, such as changing jobs, you’re likely to end up having retirement assets with different investment companies. That may make managing your money more difficult. You can simplify your financial life by consolidating your assets in one place, but depending on your age, employment status, and type of retirement products, you may be better off keeping some of your assets where they are.
Keep in mind these pros and cons:
Cut Costs: Some investment companies may charge you fees to keep accounts open. By pulling your assets together, you may reduce or even eliminate such fees. Also, some companies charge higher annual management expenses than others. Consolidating in low-cost investments can help you apply extra dollars toward your savings goals. For example, if you invest $10,000 over 30 years, earning 6% annually, with annual expenses of 1.5%, you end up with $36,497. But if you’re in a low-cost investment, where the annual expenses are 0.5%, you end up with $49,416 — a difference of nearly $13,000.*
Improve your investment mix: When your assets are scattered among various accounts, you’ll likely spend a lot of time determining how well different asset classes are allocated or diversified. Having your assets in one place makes it easier to:
Better coordinate retirement income: It can sometimes be difficult to establish an income strategy if you must withdraw money from multiple providers, particularly when you’re nearing age 70½ and need to make required minimum withdrawals. Consolidation can make income planning much easier.
Save time: You can more easily track your entire portfolio with one company. You’ll receive fewer statements, which means that evaluating and managing your financial life becomes simpler. It also becomes easier to use one website to quickly size up your investment progress and make any needed adjustments. The result is that you can accomplish more with less effort.
Watch out for withdrawal penalties. Be sure you understand all of the costs involved when consolidating. For example, some IRAs, tax-deferred plan contracts and mutual funds have withdrawal penalties and back-end loads that may deplete your assets.
Avoid Moving Pre-1987 403(b) Funds. If you have pre-1987 403(b) assets, you’re likely better off not moving your money. Since pre-1987 403(b) accumulations are “grandfathered” under retirement plan laws, you’re not required to begin taking withdrawals until age 75, compared with the standard requirement of taking distributions after age 70 ½. If, however, you move any grandfathered money into an IRA, the regular IRA withdrawal rules would then apply. The longer you’re able to defer taking distribution, the more opportunity you have to increase tax-deferred earnings.
Rollovers and transfers may be subject to differences in features, costs, and surrender charges. Indirect transfers may be subject to taxation and penalties. Consult your tax advisor regarding your situation.
* Example assumes expenses withdrawn from the account at year-end, based on year-end assets. Please keep in mind that when comparing products, expenses are not always the determining factor. Features and benefits are equally important.
** The expense ratio on all mutual fund products and variable annuity accounts managed by TIAA-CREF is generally less than half the mutual fund industry average. Source: Morningstar Direct (6/30/12), based on Morningstar expense comparisons by category.
Asset allocation won’t guarantee a profit or ensure against a loss, but may help reduce volatility in your portfolio. Diversification cannot eliminate the risk of investment losses.
You should consider the investment objectives, risks, charges and expenses carefully before investing. Please call 877 518-9161 or visit www.tiaa-cref.org/prospectuses for a prospectus that contains this and other information. Please read the prospectus carefully before investing.
TIAA-CREF Individual & Institutional Services, LLC (IIS) and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products. Brokerage Services are provided by TIAA-CREF Brokerage Services, a division of IIS. The foregoing companies do not provide tax or legal advice. Be sure to consult with your personal tax and legal advisors concerning your personal situation.
There are benefits to an IRA rollover.