Consolidating Your Investments: A Guide to Making the Right Move
401(k)s, IRAs, and taxable accounts have a tendency to accumulate over time. As people change jobs, try new investments, and experiment with different advisors, it’s essential to periodically evaluate the pros and cons of consolidation. This practice can provide access to tax-smart tools, lower fees, and automated investing options. In this guide, we will break down key considerations to help you make informed decisions about consolidating your investments.
Three considerations for making a move
Performance
When considering a move, it’s crucial to look beyond just returns. While returns are significant, taxes and fees can significantly impact your investments. Tax-savvy advisors utilize strategies like asset location and tax loss harvesting to maximize returns and minimize taxes. Consolidating your accounts with a provider that offers these benefits can enhance your overall performance.
Taxes
By strategically managing taxes through asset location and tax loss harvesting, you can optimize your investment returns. ETFs are a tax-efficient option compared to mutual funds, and it’s essential to consider the potential tax implications and costs of your current investments.
Fees
Understanding and minimizing investment fees is key to maximizing your savings. Advisor fees and fund fees play a significant role in your overall costs, and by choosing a provider with low fees, you can potentially save thousands of dollars over time.
Returns
Comparing returns can be complex, but focusing on similar allocations and diversification levels can provide a basis for evaluation. It’s essential to consider the overall performance of your investments across different providers and portfolios.
Personalization
Investing in assets that align with your interests and values can enhance your investment experience. Betterment offers a range of portfolios tailored to diverse preferences, allowing for customization based on your target date and changing circumstances.
Goal Alignment
Consolidating your retirement accounts can simplify asset location and allocation, ensuring that your investments align with your financial goals. By centralizing accounts under one provider, you can establish a cohesive strategy for achieving your desired asset allocation.
Special Considerations for Tax-Advantaged Accounts
When contemplating the transfer of tax-advantaged accounts like 401(k)s and IRAs, account compatibility and tax implications must be carefully considered. Roth, Traditional IRAs, and 401(k)s have specific rules regarding transfers, and understanding these guidelines is crucial to make informed decisions.
Special Considerations for Taxable Accounts
Transferring taxable accounts may involve tax implications, especially when certain assets need to be sold before the transfer. Working with a new provider and a tax advisor can help estimate potential tax liabilities and facilitate a smooth transfer process.
A sneak peek of how we make moving easier
At Betterment, we prioritize making the transfer process as seamless as possible for our clients. Whether you’re initiating a transfer in the app or seeking assistance from our Licensed Concierge team, we are committed to helping you navigate the complexities of consolidating your investments.