When you have multiple retirement accounts, tracking how much you have and where it is going can be difficult. You can usually combine them. However, there may be restrictions. It is possible to combine at least some accounts to simplify retirement planning. You will, for example, have fewer accounts that must be withdrawn by the time you turn 70 1/2. You should also pay fewer fees overall if you have fewer accounts.

What Is Your Account Type?

Accounts that work similarly can be easily combined without tax penalties. The seven first items in this list are funded with pretax money. When you withdraw money for retirement, it will be subject to tax. Roth accounts can be funded with post-tax money.

Types Of Retirement Accounts

• IRA
• 401(k)
• 457 Plan
• 403(b)
• Pension plan
• SIMPLE IRA
• Keogh
• Roth IRA
• SEP-IRA
• Roth 401(k)

IRA Rollovers

You can combine accounts from several types, as long as they are within the seven categories. The "IRA rollover" is the process of combining accounts to create an IRA. The Roth 401(k) and Roth IRA work similarly. Both are funded with after-tax money. Withdrawing money won't trigger tax if you follow the IRS's guidelines. Your Roth 401k can be rolled into your Roth IRA if you have a Roth IRA and a Roth 401k at retirement. You might be able to receive a lump sum distribution from your pension plan (number eight on this list). You can then roll the entire amount into an IRA.

Roth Conversions

In a "Roth Conversion" process, the IRS allows you to roll over any of the seven types of accounts into a Roth IRA. The Roth conversion will include the converted amount as taxable income in your tax return for that year. This could mean you could end up owing large amounts to the IRS.

You should consider whether a Roth conversion is right for you before you do it. When you start taking the funds, are you expecting to be in a higher income bracket? Are you willing to give the entire account to a beneficiary tax-free? A financial planner may be a good option.

How Can You Avoid Tax Penalties?

When you merge accounts, you must make sure that the assets are moved over via a rollover. It is a transfer of funds made directly from one account to another. Consider moving money from an old 401(k) plan to an individual retirement account (IRA). The next thing you need to do is either complete some paperwork or an online form that tells your previous plan to send the check payment straight to the new custodian.

If your retirement account (IRA) is held at Charles Schwab and your name is Jane Smith, the check that is sent to you by your 401(k) provider will read "Charles Schwab For the Benefit of Jane Smith." This is a positive development. This indicates that the rollover was performed successfully, and you have avoided a tax penalty of 20%. If you take prompt action, you may still avoid a tax penalty even if the custodian mails you a check.

This check can be deposited into an IRA within 60 days. This is important to remember: The federal income tax will take 20% of the check. The amount taken out for income tax must be deposited. You can request the IRS to return that money when you file your next tax return. You may be subject to a 10% penalty for early withdrawal if you fail to deposit the entire amount, which includes the check and the income tax amount.

You Can't Move a Current Plan

You cannot move your retirement account if you work for a company with a retirement account. Many company-sponsored plans permit you to transfer outside retirement accounts into your existing plan. To see if you can transfer 401ks from former employers or existing IRAs to your current workplace plan, check with your 401k plan provider. Consider the fees and investment options available before you make such a move. It may be wiser to leave the funds alone or move them to an IRA with more investment options.

Spouses Can't Combine Accounts

While they are both still alive, spouses cannot combine retirement accounts. One person can only have a retirement account. You or your spouse can transfer your IRA to the surviving spouse after you die. Unless they sign a waiver allowing you to name another person, your spouse must be named the beneficiary of your IRA. This rule does not apply to a 401k account.