LISA: I'm Lisa Birnbach for howdini.com and we're going to talk about how to consolidate your retirement accounts with Carolyn Bigda, a reporter for Money magazine. Hi Carolyn.
LISA: Why is it important to consolidate your retirement accounts in the first place?
CAROLYN: Well a lot of people tend to switch jobs throughout their career and they may leave behind a 401K and they may also during that time open up a few IRAs. Well you may just have a few small sums of money in each of those pots. And brokerages tend to charge a fee, an annual fee if you have $5000 or less in each of those funds. So for one reason you want to consolidate them to eliminate those fees. Secondly, it's a lot easier to keep track of your whole portfolio if you got it in one or two places instead of scattered all over the place. And then also it's probably better to, over the long term, you have many more investment options if you choose the brokerage firm that you invest with instead of sticking with your employer's 401K. You may have a limited number of funds to pick from.
LISA: A lot of employees may think that they're limited by their employer. May think that they leave the money when they leave their job and they think they have to follow some kind of guideline. Is that a myth?
CAROLYN: You don't have to leave your money with your employer when you leave that job. You have the right to go to any brokerage company or fund company that you want. They have applications that make it really easy. You apply online and what they do is they essentially transfer that money from your employer to the new account that you want. The important thing here to remember is not to have that money distributed to you because there are tax implications.
CAROLYN: So if you get the money and have to pay tax on that, plus a 10% fee--so what you want to do is apply online with these fund companies and have the money transferred directly from one account to the next.
LISA: And it would seem that your money would grow faster that way anyway won't it?
CAROLYN: When you have the freedom to select the funds that you want from whichever brokerage or fund company that you go to, you can pick funds that maybe have lower fees or a better performance history or managers that you like better so that your money could benefit over the long term from being consolidated into one or two accounts.
LISA: So is there a wide range of what could happen if you have a hundred thousand dollars, let's say in a 401K? Is there a wide range of how fast or how much that can grow depending on the fund?
CAROLYN: Definitely. It all depends on the investment style of that fund. It depends on how much of it might be invested in stocks or if you're putting that into bonds. Then what kind of return you're getting over the years. A bit factor also is the fees that you're going to be paying over the years because those will over time take a bite out of your return. So you want to have the freedom to pick funds that are satisfying to you, those you think are suited to your investment plan.
LISA: Carolyn, do you think that if somebody is not confident about their ability to make those determinations they should hire a financial advisor?
CAROLYN: Sure if you need a little help, there are fee only financial planners who will sit down with you for an hour or two and they will go over your investment plan, they'll go over your portfolio and they will help you make decisions about which funds are best for you and your goals.
LISA: Thank you so much Carolyn Bigda from Money magazine. And I'm Lisa Birnbach for howdini.com.