Any reason to keep IRAs separate?

Question

Whenever I have rolled over a 401k from a previous employer, I have used a separate IRA for each rollover. Now, I would like to consolidate all these different accounts into one single account for the sake of convenience.

Are there any reasons why I would want to keep them separate (e.g. for tracking the source of the original funds)?

Answer 1

I don't know about keeping different rollover IRAs separate. But I know that there is a reason to keep rollover IRAs separate from other traditional IRAs -- if you want to roll them back into a 401(k) in the future, some 401(k)s only allow funds that were rolled over from a 401(k) originally.

Answer 2

Can't see why would you need to track the sources of the original funds. Can't think of a reason not to consolidate, if at all it will only make the management of your IRA more convenient, and may be even cheaper (if the fees depend on the account value...).

Answer 3

Once upon a time, money rolled over from a 401k or 403b plan into an IRA could not be rolled into another 401k or 403b unless the IRA account was properly titled as a Rollover IRA (instead of Traditional IRA - Roth IRAs were still in the future) and the money kept separate (not commingled) with contributions to Traditional IRAs. Much of that has fallen by the way side as the rules have become more relaxed. Also the desire to roll over money into a 401k plan at one's new job has decreased too -- far too many employer-sponsored retirement plans have large management fees and the investments are rarely the best available: one can generally do better keeping ex-401k money outside a new 401k, though of course new contributions from salary earned at the new employer perforce must be put into the employer's 401k.

While consolidating one's IRA accounts at one brokerage or one fund family certainly saves on the paperwork, it is worth keeping in mind that putting all one's eggs in one basket might not be the best idea, especially for those concerned that an employee might, like Matilda, take me money and run Venezuela. Another issue is that while one may have diversified investments at the brokerage or fund family, the entire IRA must have the same set of beneficiaries: one cannot leave the money invested in GM stock (or Fund A) to one person and the money invested in Ford stock (or Fund B) to another if one so desires. Thinking far ahead into the future, if one is interested in making charitable bequests, it is the best strategy tax-wise to make these bequests from tax-deferred monies rather than from post-tax money. Since IRAs pass outside the will, one can keep separate IRA accounts with different companies, with, say, the Vanguard IRA having primary beneficiary United Way and the Fidelity IRA having primary beneficiary the American Cancer Society, etc. to achieve the appropriate charitable bequests.