We’re back again with the third installment in our series on saving for retirement. First, we explored why habit formation is so important when it comes to long-term savings and investments. Second, we tackled why there is no one-size-fits-all solution. And today, we get into how streamlining your retirement portfolio with an individual retirement account (IRA) can potentially help you reach your goals. Retirement planning can be a complex process with many moving parts. On top of identifying and keeping up with your goals and strategy, there’s the matter of maintaining your accounts – each with its own contribution schedules, rules, and potential fees. Plus, depending on where you are in your career, and how many jobs you’ve had, you may be juggling multiple different accounts, such as plans sponsored by current and former employers (401(k)s), or an Individual Retirement Account (IRA) or two. That can make tracking and managing your retirement savings challenging. IRAs and 401(k)s are both great for retirement saving, and they both offer tax advantages. (They are tax-deferred accounts, meaning you pay taxes on withdrawals – but not on contributions.) A 401(k) plan has higher contribution limits ($23,500 in 2025) and sometimes comes with a free contribution match from your employer (not all employers offer retirement benefits). Meanwhile, an IRA (with a lower, $7,000 contribution limit) offers much more flexibility when it comes to picking your investments and is accessible to anyone who has earned income. Streamlining your savings and investments by reducing the number of accounts you have may make managing your finances more efficient, make it easier to keep track of your money, and give you greater insight into progress toward your goals. And there’s a special maneuver for it: the IRA rollover.

Racking Up 401(k)s

Keeping tabs on a multitude of retirement accounts can be tricky. So do you just leave old investments where they are? Of course, it’s easier to just keep your money in an existing 401(k) – it requires no action or additional decision making. But there are potential drawbacks, too.

•   Fees: There may be a financial burden in the form of fees charged on investments in your old 401(k)s. This may be harder to track across multiple plans, while having fewer accounts could potentially help minimize this burden. (This doesn’t mean fees will categorically be lower when investing through an IRA.)

•   Knowing your investments: Over time, you may also lose track of old accounts or the specific investments in them. If you made the selections years ago, they may not correspond with your current preferences and risk tolerance. That’s key – because a traditional rule of thumb suggests to invest more aggressively early on in your savings journey, before gradually dialing it back to more conservative investments as you approach retirement. You can only do that if you’ve got a handle on the particulars of your portfolio.

•   Admin: Then there’s the more administrative burden of selecting beneficiaries on multiple plans, and having several different accounts, starting with an array of logins and passwords.

Americans had some $1.65 trillion of assets sitting in stale 401(k)s as of May 2023, according to rollover services firm Capitalize. Of course, this money isn’t lost. But it may be stuck in an account that no longer serves your financial goals. Consolidating multiple old accounts into one could potentially make it easier to manage the money and ensure that it’s aligned with your preferences. Rolling an old 401(k) into an IRA rollover can be an efficient way to do that. This transfer of money from one qualified tax-sheltered account to another doesn’t incur any costs. That means you won’t have to pay a withdrawal penalty or any taxes on the rollover itself while combining all of your old 401(k) savings in a single account. Nifty, right? Even though it’s pretty straightforward, it may be seen as a big obstacle or a lot of work. SoFi has teamed up with Capitalize to make the transition fast and easy and offers a 1% match for any rollovers and contributions to a SoFi IRA. Read more about the rules surrounding rollovers here.

How an IRA Rollover Can Serve You and Your Savings

Rolling your 401(k) into an IRA may provide greater visibility into your investments because you can build your own portfolio. And remember, while you may have collected a free contribution match from your employer during your tenure, this match would have ceased after you’ve left the company. Many 401(k)s offer a more limited selection of portfolios or investments. In contrast, an IRA gives you much more freedom, including your choice of stocks, bonds, mutual funds, and real estate. This may be especially appealing if you want your investments to reflect your values, like environmental, social or governance (ESG) issues, or focus on specific sectors or technologies. If you think an IRA rollover may be right for you, check out how SoFi may be able to help you. A rollover is not your only option when it comes to managing old 401(k)s. You can always leave your old plan as is and withdraw your money when you’re 59½, or explore rolling it into your current employer’s plan. Consider the ramifications and your individual financial situation before you make a decision, and speak to a financial advisor if you need guidance.

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image credit: Bernie Pesko

photo credit: iStock

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