Consider consolidating retirement accounts

Ah, spring. That time of year when a reader's fancy turns to thoughts of sunny skies, blooming flowers and . . . retirement.

Well, maybe that last part doesn't fit. But it is a fact that most of the letters and e-mails I've received lately have focused on saving for the future.

For example, Norma recently sent a bunch of questions about her 401(k) and 457 plans. (A 457 is a deferred compensation plan commonly offered through government organizations.)

"I have a 401(k) and 457 with the state," Norma wrote. "I will turn 70 this year. Do I add these 401(k), 457 and my (individual retirement accounts) together and take the amount from all of them, or do I have to do it individually?

"Is it best to consolidate the 401(k) and 457 together, or is it best to take those out and combine with an IRA? . . . Could I start putting my withdrawals from the IRAs into a Roth account?"

Well, Norma, you certainly have a lot to ponder there. To sort it out, I contacted Roger Smedley and Sharla Jessop of Salt Lake-based Smedley Financial Services.

Roger and Sharla say that, as with most investment choices, there are advantages and disadvantages to the moves you are considering.

Roger says one disadvantage is that consolidating means you would lose protection from creditors on your 401(k) and 457 plans. Also, if you keep those plans with your employer, you would not have to pay annual fees to manage them, like you might for an IRA.

Finally, keeping the accounts separate may make it easier when it comes to deciding who will inherit what, because you could make different children the beneficiaries for different accounts.

But despite those disadvantages, both Roger and Sharla recommend consolidation.

"The first thing is, if you consolidate, it really makes it easier to track all of your investments," Roger says. "They're all in one place."

Sharla agrees. "It just makes life a lot simpler," she says.

Roger also points out that, in the tax year that you turn 70 1/2, the law requires you to start taking distributions from one of your accounts. If you have several, some account custodians may not know you already are taking distributions from a different account. Sharla says those other custodians probably would begin advising you to start taking distributions from the accounts they manage, and that can be "extremely confusing."

A further advantage to consolidation, Roger says, is that you can reduce trading costs and fees.

"The main advantage, I think, is there's more flexibility and more investment choices (with an IRA)," Roger says. "Investments can be self-directed."