How Many Accounts Should You Have?

While we were discussing an update to our discount broker guide (which we’re scheduling for the January 2019 AAII Journal), the topic of account transfer fees came up. These are fees charged by one brokerage firm for closing an account and/or moving the securities to another firm. The amount of the fee, and whether it is levied, varies by firm. You may be able to avoid fees by leaving a little money in the account or offset the fee through incentives offered by the new firm you are moving your account to.

The topic leads to another question: how many accounts should you have? It’s a question with no single answer. Rather, the correct answer depends on your financial circumstances, the types of accounts you have and your ability to manage multiple accounts.

It’s not very hard for a married couple to have many accounts. Individual retirement accounts (IRAs) are held in the individual account owner names. If the couple has both traditional and Roth IRAs, that’s four off the bat; one of each type of account for each spouse. Add in a joint checking account, we’re already at five. Toss in savings, a brokerage account and a 401(k) account for each spouse and suddenly there are nine accounts to manage (excluding any credit cards).

None of this even considers the possibility of other accounts existing. There could be additional 401(k) accounts from former employers, a credit union account, trust accounts, inherited IRAs and dividend reinvestment plans. If you’ve never done a full count, the number of accounts you have may surprise you.

Roth IRA accounts may have multiplied like rabbits over the years. Under the old tax laws, Roth IRA conversions could be undone within a certain period. (The Tax Cuts and Jobs Act banned recharacterizations as of the start of 2018.) With conversions, it made sense to open separate Roth IRA accounts to make the accounting of recharacterizations easier. Since this option no longer exists, now may be a good time to consider consolidating those accounts, especially if they are held with the same broker. (Check to confirm whether or not consolidating them will invoke a fee.)

If you have 401(k) plans or similar types of workplace retirement plans from former employers that you’ve never closed, you may want to revisit them. If it’s a good plan, there could be an argument for keeping the account; otherwise, consider closing it. If the balance is under $5,000, the old employer may transfer it for you. A proposed rule by the U.S. Labor Department would allow the automatic transfer of former employees’ 401(k) accounts if the balance is $5,000 or less and a new account is identified. The rule would apply to one clearinghouse initially, but it may be expanded to other clearinghouses once enacted.

If your retirement plan balance is far larger, you may hear from your 401(k) provider about keeping your account within the same fund family. Rollovers of workplace retirement accounts have long been targets for various investment firms. Consider your options before acting. If the account is a Roth 401(k), convert it to a Roth IRA. Roth IRAs have no mandatory distributions, whereas Roth 401(k) accounts are subject to the required minimum distribution (RMD) rules.

Even if you don’t need to make any transactions, it’s a good idea to interact with all of your accounts once per year. Doing so tells the financial institution that the account has not been abandoned. Activity may count as simply logging in, though some firms may require more. One way to be sure the firm sees you raising your hand is to simply call up and ask to review your contact and beneficiary information on each account—a good routine step to take anyway.

Finally, make sure your family is aware of what accounts you have. You don’t have to share the balances, but either provide them with a list or clearly explain where they can find the list. Should something unfortunate happen to you, the list of accounts will make it easier for those you trust to step in and make the decisions you’d like them to make.