With rising costs and the future of Social Security in doubt saving for retirement is more important than ever. But the task can seem overwhelming, so here are a few tips that may help.
Many Americans begin retirement savings with their first job in a 401(k) plan. While this can be good for someone starting out, the investment options may be limited and come with certain restrictions. You may not be able to save as much as you’d like for retirement with just one account. All retirement accounts have annual contribution limits, and you may have more money that you want to set aside after that cap has been reached.
Having one retirement account can be too restrictive but having too many accounts can make managing your savings much more challenging. It can become difficult to know what you have when your money is spread across several retirement accounts. Workers often forget about 401(k) plans left at old employers, leaving them with too many unnecessary accounts. When setting up a new account, you might forget what you have invested somewhere else, exposing yourself to too much risk in a certain area.
There really is not a set rule for how many retirement accounts you should have. It really comes down to having the right plan. For example, if your current retirement accounts are tax-deferred — meaning the contributions reduce your taxable income this year but you owe taxes on the withdrawals later — you might consider adding a Roth IRA to your portfolio if you want some savings that you can access tax-free in retirement.
So, in conclusion add a retirement account if you believe it will offer some benefit, like better tax savings or investment options, that your existing accounts don’t. And consolidate retirement accounts if they don’t offer any unique benefits so you can more easily manage your funds in one place.