Over the years, the government has introduced many different tax advantaged accounts in an effort to encourage everyone to save for retirement. Many of us start a 401(k) once we land our first job. Fast forward a few years and we already have at least one Roth IRA, traditional IRA, 401(k), and a taxable investment account.
The problem only gets worst from there. We want to see if that new broker is better, so we sign up for another account. We see a promotion offer for free trades. One more. Then we get married and the family retirement accounts likely double. Twice the funds (and fun).
For some people, this is no problem. They seem to like day trading more than their day jobs anyway. But if just thinking about all those different logins makes you sweat, don’t fret. Retirement accounts can be a hassle to manage, but with some simple steps, you can more easily stay on top of it. Here are five ways to reduce the clutter.
1. Have fewer accounts. Too many people have multiple Roth IRAs at different brokerage firms or 401(k)’s from every one of their previous employers. Wherever you want your assets to be, have a maximum of one account of each specific type.
2. Use the same company. If you and your spouse both have multiple retirement accounts, at least have them all under the same company. By setting it up this way, you can see all accounts under one login for more visibility and better management.
3. Scrutinize investments. Diversity is important in your overall portfolio, but you can over diversify too. Owning funds that invest in different sectors and asset classes is good. But investing in similar funds under different accounts requires more work than necessary. Do your homework and pick a good fund. Don't buy six different S&P 500 index funds even though you have six different investment accounts.
4. Look at the big picture. It's easier if you look at all your accounts as a whole. There's no rule that says you can't have your whole Roth IRA balance in one fund or stock if it doesn't violate your overall diversification strategy. As long as the entire retirement portfolio is diversified, even buying one fund in each of your accounts may make sense.
5. Stop micromanaging. This is, after all, your retirement portfolio. Day trading may be exciting, but your retirement account should be based on a strategy for long term appreciation. Stop checking your balance multiple times a day and your mind, as well as your life, will get to relax.
David Ning runs MoneyNing, a personal finance site aimed at helping others change their habits for a better financial future. He suggests that everyone to sign up for an online savings account to get more out of our hard earned money.