Finally, you may not be able to save as much as you’d like for retirement with one account. All retirement accounts have annual contribution limits, and exceeding these can result in costly penalties. If you have only one retirement account, you have to stop saving once you hit this cap, even if you have more money you want to set aside.
The drawbacks of too many retirement accounts
Hopefully it’s now clear that having one retirement account can be too restrictive, but having too many retirement accounts can make managing your savings much more challenging.
The obvious issue is that it becomes difficult to know what you have when your money is spread across a half dozen or more retirement accounts. When setting up a new one, you might forget what you have invested in some of your other accounts. This could lead to you exposing yourself to too much risk in a certain area.
Some people even forget about some of their retirement savings altogether when they have too many retirement accounts. This happens sometimes if people leave their old 401(k) where it is when they quit their job instead of rolling it over into their new 401(k) or an IRA. If this happens enough times, it can become difficult to keep track of where all your savings are, especially if your 401(k) plan administrator changes after you’ve left the company.