As part of my work with clients, I routinely assess ways to simplify their financial record keeping and plans for retirement income. One area is looking for opportunities to consolidate retirement accounts from prior employers. This spring, I had the opportunity to take my own advice and documented the experience in a Spring Housekeeping Series.
Employer plan sponsors periodically change the funds available to participants.
The reason for this may include offering target date funds which adjust the mix of stocks, bonds and corresponding risk and return as an individual moves closer to retirement. Or, limiting the number of choices available to participants to simplify their decision making process for retirement. In some instances, these fund changes work well for participants. However, they may have unintended consequences and create an additional burden for the participant.
As a participant in the University of Illinois voluntary State of IL 457 plan as well as the University of Illinois 403b for the past 15 years, I used those accounts to complement and build upon the savings in my primary retirement vehicle which is the SURS Retirement Savings Plan (formerly known as the self managed plan). I left the University of Illinois System during August 2020 after managing the Treasury Operations for two decades.
Because I view the SURS RSP as my core retirement holding, I made some portfolio tilts in my 403b plan invested with Fidelity toward healthcare, pharmaceuticals, and the pacific basin region. I felt these sectors may have better growth potential than the overall market. Unfortunately, at the end of 2021 the plan sponsors decided to eliminate more than a hundred fund options and dump all of my money into index funds. This eliminated the work I had done researching and selecting those funds. If I desired my portfolio tilts away from a growth heavy market weighted index, I would need to move my funds elsewhere.
At the beginning of 2022, I was notified by the State of IL 457 plan that they too were changing their fund lineup. Rather than wading through the new fund documents including holdings, performance and fees, I decided it was time to simplify my retirement savings and rollover my 457 account and my 403b account into a single IRA that I have with Charles Schwab. I have had this IRA for many years and was able to combine three accounts into a single account.
Benefits of Consolidation
I created a new asset allocation for my Schwab IRA account and will manage the account using low cost exchange traded funds in line with my retirement goals and timeline. I do not have to worry about the plan sponsors changing the fund lineup without my permission or at inopportune times.
An added benefit of consolidating to a single IRA is that I can easily evaluate each year whether to do Roth conversions from the Charles Schwab IRA to my Charles Schwab Roth IRA. I like the idea of pre-paying some of my federal tax liability with cash flow while I’m still working before retirement.
Finally, when I do reach age 72, managing my required minimum distributions will be a lot easier with a single IRA account.
Final thought.
If you have recently left the University of Illinois or another employer and have multiple retirement accounts with more than $2 million saved, schedule a discovery call with the Peak Wealth Planning team to see how we can help simplify your retirement planning.
Peak Wealth Planning specializes in helping high-net worth individuals and families plan for the future.
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About the Author
Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind.
Peak Wealth Planning offers personalized concierge services to meet your wealth management needs, including financial planning, investment management, ESOP diversification, retirement income, insurance, and estate planning. As a fee-based financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states.
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