Over the last couple of months I have been working on adding some additional sources of passive income; however, before I embarked on that mission I needed to simplify things.
Through a job change last year as well as a brokerage merger, I felt that I had too many different accounts and it was adding overhead to my monthly financial reporting. However, the real impetus to consolidate things began with the desire to utilize my Health Savings Account as an additional investment vehicle.
Let’s take a look at what I have consolidated.
Health Savings Account
While with my prior employer, I had a Health Savings Account but had never taken advantage of the investment options. There were two primary reasons why I avoided the investments:
- Poor investment options
- Monthly fees to invest
The HSA was administered by Health Equity and while I felt that their interface and servicing of medical bills was quite nice, the ability to invest was diminished with subpar investment choices that had much higher expense ratios than I care to pay. In addition, they charged a monthly fee just for the right to invest–so a fee double whammy!
With my new job, I transitioned to their health plan at the beginning of this year. I did not do it sooner because my old employer had covered our health insurance premiums for the remainder of 2018 as part of my severance.
My new HSA is administered by Payflex and the investment options are much more appealing.
First, there are no fees to invest. As long as I maintain $1,000 in my HSA, the rest of my funds can be invested at no additional cost. The $1,000 minimum is fairly standard in my experience, but the lack of fees was a welcome change.
In addition, the investment options include a number of low-cost index funds. As many know, high expense ratios and/or management fees are silent killers and can really erode your returns over time. Therefore I was extremely happy to see that the new options included a fund that is already part of my portfolio–the Vanguard S&P 500 Index fund.
The above investment was made after transferring my old account into the new Payflex account. My strategy is to maintain $1,500 in the HSA and invest everything else. We do occasionally use the HSA to pay a medical bill, so I have setup every deposit to be split between the HSA and investment. When the balance of the HSA exceeds $1,500 I will transfer money manually into my investment.
On the downside, my new employer does not contribute as much to the HSA as my old employer. However, due to the lack of fees and better investment options I am perfectly comfortable with that trade-off.
Retirement Accounts
Similar to the HSA, due to my job change I now had two different 401(k) accounts as well.
Fortunately, those were both with Fidelity so it was not much additional effort to leave everything status quo. However, my old employers plan had funds that were managed by Northern Trust and carried expense ratios higher than the index funds that I prefer. In addition, they did not distribute dividends or capital gains.
To reduce those expenses, I sold my positions in the old plan and transferred the funds into my new plan.
The new plan offers Fidelity index funds that carry low-cost fund options and those certainly made a nice contribution to my dividend income report last month.
Beyond the 401(k) accounts, I also have a combination of IRAs that are held at Vanguard. I have contemplated whether or not I should transfer the Traditional IRA to my new 401(k) as that would then open up the possibility of doing a backdoor Roth IRA contribution, however for right now I have opted to leave the Vanguard accounts alone.
Brokerage Accounts
Last year when I initiated my dividend portfolio, I opted to use Fidelity as I liked the user experience more than the other broker that I was using at the time.
That other broker was TD Ameritrade, which I now had as a result of their acquisition of Scottrade.
The Scottrade user experience was nothing to write home about, but I was used to it after having had an account there for many years. When that transitioned to TD Ameritrade, I never fully adjusted to their interface and was not a fan. I know a lot of people love them but it didn’t click for me.
Therefore I transferred the holdings from TD Ameritrade over to my Fidelity account and simplified my brokerage accounts.
Then, as I was doing my taxes this year, I realized that I still had an old account over at E*Trade and it was holding shares of Bank of America. I had all but forgotten about this account until tax time served as my reminder of its existence.
I quickly initiated the transfer of these shares over to my Fidelity account as well, and that certainly felt like a nice little bonus. However, given how much I enjoy tracking my investments and finances, I am definitely embarrassed by the fact that I had forgotten about this account.
Summary
It is not uncommon to accumulate investment accounts over time as jobs change, mergers occur, or other life events change our situation.
For many people, we don’t like to seek out change and it is easier to maintain the status quo. However, that can lead to losing track of things (as I certainly did) or paying more for things than you should (as I was also doing with some of those expense ratios).
While I may not have completely streamlined all of my accounts, I definitely feel as though I have simplified things and I am now taking advantage of the best options available to me.
I’ve also introduced an additional source of future dividends with the new HSA account that will continue to grow with monthly contributions. The bonus of the forgotten BAC shares doesn’t hurt either!
When is the last time you evaluated all of your accounts?
Are you due for any consolidation?
I am assume the E-Trade and TD Ameritrade accounts were taxable. What cost did you occur to transfer the stocks? Did you get these waved? I consider this type of divended investing but worry about move account providers later and costs involved.
There was a combination of taxable accounts and one IRA @ TD Ameritrade. With the Bank of America shares, as I had not been thinking about dividends at the time, I never opted to have the dividends reinvested. Therefore I had a whole number of shares to transfer and that was done in-kind so no tax impact.
With the TD Ameritrade transfer, the dividend stock that I held there was Apple and the fractional shares were sold. So while there was a tax impact, it was on less than one share and essentially insignificant in the grand scheme of things.
When you transfer accounts from one provider to another, in many cases it can be done without selling anything other than fractional shares. As long as the new provider offers the same investments, which with individual stocks should be the case, you can do an in-kind transfer and all holdings are maintained.
Beyond that, there was an account transfer / closure fee of $50 or thereabouts and those were paid out of any cash that was in the account. You may be able to call and have those waived, but I did not attempt to do so.
Divvy D –
That is just straight awesome. Simplifying your platform and investments. Less sign ons, less sites and less time to spend. Simplification at it’s finest. Nice job and I envy you!!!!
-Lanny
Right on Lanny; I think the one that I was most excited about was the HSA consolidation as it now opens up investments with no admin fees plus funds with low expense ratios.
My wife and I have 16 accounts in our retirement, but there are a lot of things that can’t be combined. ROTH’s, IRA’s, inherited IRA’s and inherited ROTH’s can’t be combined in that some are in her name and some in my name. Taxable money has to be separate from non-taxable. Emergency funds and regular living expense money earn more if you split out the part you might need right now, from the amount that it is OK if it takes three or four days to get it. Inherited IRA’s and ROTH’s cannot be combined with any other account because of the RMD’s required. But what I’ve found for us is that by linking it all to an aggregator like Personal Capital or Vanguards you can check it all any time you want with a single sign on and keep an eye on any rebalancing you might need to do as easily as if it were in a single account. Plus I like having some diversity in where my money is so that if one company has an issue it isn’t likely to prevent me from accessing my other accounts. But it would be a nightmare if there weren’t some good aggregation programs on the web for free.
Steve, you’re absolutely right that the number of accounts can be difficult or impossible to consolidate beyond a certain point. The focus that I had right now was reducing the number of platforms, as I do still have a good 10-12 accounts. I have done some consolidation within that where possible (e.g. moving my Simple IRA into the Traditional IRA). I do still have multiple platforms as well for brokerage / retirement, online savings, etc.
I haven’t tried the aggregator from Vanguard, but did use the one from Fidelity for awhile. They were still working out some kinks though, so I removed everything for the time being. With Personal Capital, I had an issue where my Chase account regularly getting locked and as soon as I removed that account from PC the issue stopped.
Hi, DivvyDad. I’ve consolidated accounts over time, but nothing recently.
When I’ve left a job, I’ve always rolled over that employer’s 401(k) to a single IRA at a brokerage. At times, I’ve also moved accounts in search of lower fees and better investment options.
Having investment accounts at a couple of different places can provide a benefit though, as it allows you to evaluate different platforms and offerings, which you are doing.
Sounds like you are in a happier place thanks to the consolidation you’ve done, so I’d say it was well worth the effort.
Hi ED, you’re correct about the benefit of evaluating the different platforms. I know some people love TDA, but it just didn’t click for me and I prefer Fidelity. The E*Trade platform was never bad, but I was never very active when using that account. One that I’ve never tried but have contemplated is Schwab.
Simplify and consolidate. I like it. I am going through the same thing now looking to consolidate my account, wife, child, retirement, etc. all under one roof. As you said it’s not uncommon for us to accumulate different accounts over the years. But sometimes it just gets too out of hand. I’m all for KISS and now we’re all at Schwab with free trades because of our time at Scottrade. Here is the link https://www.schwab.com/public/schwab/nn/tradeoffer.html
Thanks Keith, how are you liking Schwab so far? I was at Scottrade for years and have contemplated opening an account there to take advantage of the free trades. I’ve held off because I still have about 200 free trades at Fidelity, and it because it then takes me in reverse of KISS. However, my free trades expire at Fidelity so at that point it might be something to consider.
Love Schwab so far. Great platform and customer service. If I call I actually speak to my rep. Not some call center. I typically get emails responded to within 24 hours. It has been great. Schwab is mi KISS.
Very nice, appreciate the feedback Keith!