Why and How to Consolidate Multiple Retirement Accounts | The Motley Fool

Make it a point to understand which, if any, of your accounts charge a transfer fee or withdrawal penalty.

The average job tenure in the U.S. is four years, meaning you've probably had more than a few jobs in your life and may even have several retirement accounts. If you've ever considered consolidating two or more retirement accounts into one, here's what you need to know.

Here's how to know it's time to consolidate:

A required minimum distribution (RMD) is the amount of money the government says you must withdraw from certain retirement accounts when you reach age 73 (or 75, if you were born in 1960 or later). By combining two or more retirement accounts into one, you only have to figure out how much your RMD is for that single account.

It's easy to lose sight of your overall financial situation when money is spread out in different accounts. Consolidating means viewing all your retirement funds in one place.

The process of consolidating accounts involves identifying which plans offer the best investment options and the lowest-cost funds. After all, if you're moving it all to a single account, you want that account to be the best available to you.

There are several steps to take before consolidating your retirement accounts. They include:

Consolidating retirement accounts means rolling them into a new account. Let's say you have a 401(k) from one workplace, a SIMPLE IRA from another, and a traditional IRA that you opened yourself. After studying your options, you decide to roll over your 401(k) and SIMPLE IRA into a traditional IRA.

There are two ways to carry out a rollover: direct or indirect. A direct rollover means the current plan administrator sends the funds to the new account. This is generally the best way to ensure the entire balance is deposited there.

With an indirect rollover, the plan administrator must automatically withhold 20% of the total, and you only get it back if you complete the rollover within 60 days. Further, if you don't roll the money over within 60 days, you'll incur both taxes and an IRS distribution penalty of 10%.

Here's how to consolidate:

If you believe consolidating your retirement accounts will help simplify your retirement, you're probably right.