Once you’ve established your IRAs, you might wonder if there’s any benefit to having all of your IRAs at the same provider. It’s entirely possible that “spreading your money out” could provide some benefit – which we’ll discuss below – but these benefits often have to do more with perks and other incentives than they do with the safety of your money.
At the same time, holding your IRAs at different providers can add some unwanted administrative complexity to your financial plan.
Here, we’ll look at the benefits and drawbacks of holding your IRAs at one or more providers.
Pros of account diversification
Imagine you’ve established an IRA at a few different institutions – this is perfectly fine so long as you have a reason for it.
The upside to doing this:
- Greater access to certain investments. If you have your IRAs at one provider, you’ll reap the benefits listed above, but you may lose out on access to certain investments if your provider doesn’t offer them. One scenario that immediately comes to mind surrounds crypto and crypto IRAs; if you hold your money at one of the big-name brokers, you won’t be able to hold any sort of cryptocurrency – at least directly. This is a deal-breaker for some people; if you want to hold crypto in your IRA, you’ll need to hold a separate IRA open at one of the many crypto IRA providers.
- Ability to maintain different service relationships. People that want a typical “set-it-and-forget-it” IRA can find one for essentially zero cost at any number of online institutions. Others may want a section of their money professionally managed by an advisor, which is really a separate concept entirely. You may choose to spread out your IRA money for this purpose, which is, of course, your decision to make.
- You may become eligible for certain non-investment features. Certain brokerages have bank features attached to them: for instance, if you work with Charles Schwab, your balances can help you get lower rates with their lending partner, RocketMortgage. Holding your IRAs at a provider that doesn’t offer banking features will mean you won’t reap the same benefits you could if you had your IRAs spread across providers.
- Perceived greater security. In all likelihood, this has a remote probability – so it’s important not to overweight this point. But if you have all of your IRAs at the same provider, you’ll also be fully exposed should that particular provider have a security breach or be the victim of a cyber attack. Having your accounts spread out can help alleviate this concern, but the evidence suggests your money is safe from theft whether it’s spread across providers or not.
- You just want options. Sometimes, having additional accounts may help an investor feel less “boxed in” with any one provider. This is more of a psychological upside, but it does exist for some people. Additionally, having more relationships can qualify you for certain perks – and often, they’re different at each institution – which can be worth moving money around for. For example, some providers (like Fidelity) will offer free tax software if you have enough money in their custody.
Cons of account diversification
Spreading your money out across providers does come with downsides, as will any financial planning decision.
Some of the more visible cons include:
- Administrative complexity. Every year around tax time, you’ll receive an onslaught of tax documents – when they all come from the same provider, they’re much easier to track. Further, as you get older and life becomes more complex, knowing you only have to work through one provider to get the information you need can make things psychologically easier to manage. While it may seem small, only needing to remember one login ID and one password is a plus.
- Financial planning complexity. When you have accounts scattered across providers, it can be incredibly difficult to see “the big picture” within your investment portfolio. For example, when you have accounts at a single provider, your total balance reflects the aggregate of all of your accounts, not just a single one or a few. It’s also far easier to make use of the many financial planning tools offered on any of the major brokerage sites, as the tools will accurately reflect your total IRA holdings.
- Failure to meet balance thresholds. At some providers, meeting a minimum balance requirement entitles you to benefits and other perks. At Vanguard, for example, you’ll be eligible for $0 account service fees once you’ve hit a balance of $50,000. At higher balance levels, you gain increased access to personalized financial advice and even estate planning guidance. These perks vary from brokerage to brokerage, and typically increase as your combined balance increases.
- “Diversification” must be meaningful to be impactful. When experts speak about diversification, they’re really referring to the investments within your IRAs, and not the location of your IRAs themselves. Strategically holding IRAs open at different providers to access certain investments or perks can make sense if you’re deliberate about it, but maintaining accounts at different institutions for reasons of diversification may not be necessary.
- More is not always better. When it comes to sound financial planning, the only time where “more” matters is when we’re talking about your account balance. More accounts, more passwords, and more documents to track tends to make financial planning much more tedious than it needs to be. Try to adopt a “less is more” approach when it comes to your financial life and focus more on getting the basics right around planning and investing.