If you’re tired of the same old New Year’s resolutions, take up a fresh challenge and streamline your financial life. You’ll reap rewards if you do business with fewer banks, brokers, fund companies, and credit-card issuers. It will be easier to track your investments, and you might save money because financial firms often offer sweet deals to their biggest customers.

Streamlining isn’t as easy as grabbing scissors and cutting up most of your credit cards, however. Make the wrong move and you could hurt your credit score or incur tax penalties. Here is how to make a smooth transition to a less-cluttered financial life.


Do business with one bank

At many banks, the more money you have on deposit, the greater the benefits. You might get higher interest rates on deposits, and perks like free checking and online bill paying. At Chase banks in northern New Jersey, for example, you can get a free, interest-paying checking account if you keep a minimum checking-account balance of $1,500 or a $5,000 combined average balance in deposit accounts, investments, and any outstanding balances on consumer loans, credit cards, and mortgages. If your balances fall below those amounts, however, you must pay a $10 monthly fee. You can check out the deals that banks in your area offer at www.bankrate.com.

When consolidating your accounts, be sure to stay within the Federal Deposit Insurance Corp. limits so that your funds are protected in the event the bank fails. But you can keep a surprising amount of money in one bank and still qualify for coverage. The basic coverage is $100,000 per depositor in an insured institution. However, the FDIC provides separate coverage for deposit accounts that you hold in different categories of ownership. Deposits in checking, NOW, savings and money-market accounts, and in certificates of deposit are covered. There’s no coverage for money that you invest in stocks, bonds, mutual funds, life insurance, or annuities, even if you bought them at an insured bank.

Single accounts that you own and hold title to in your name only are an ownership category subject to the $100,000 limits. Retirement accounts, like IRAs and Keoghs, aren’t included in that category. The FDIC insures all qualifying retirement accounts that you keep at the same insured bank up to $250,000.

Joint accounts owned by two or more people make up another ownership category. If both owners have equal rights to withdraw money from the account, the FDIC insures each person’s share of all joint accounts at the same insured bank for up to $100,000.

For payable-on-death accounts, the FDIC insures the interests of each beneficiary named for up to $100,000 for each owner. Let’s say that you have a $100,000 account payable to your wife and she has a $100,000 account payable to you. In addition, together you have a $600,000 account payable to your three children. You and your wife each have $400,000 of coverage ($100,000 for each beneficiary), so all the money is protected.

The rules regarding revocable living trusts are more complicated. To find out more, call the FDIC toll-free at 877-275-3342 or go to www.fdic.gov. The FDIC’s online Electronic Deposit Insurance Esti­mator (www2.fdic.gov/edie) can help you calculate your level of coverage.


Consolidate taxable investments

Big customers get breaks on custodial fees, trading costs, and sales commissions. Figure out how you usually invest, then look for a brokerage house or mutual-fund company that caters to the needs of investors like you.

If you usually buy and hold, for example, choose a company that waives account maintenance fees and offers mutual-fund shares with low investment expenses to its best customers. For example, Vanguard charges a $20 annual account service fee for each Vanguard fund in which you have a balance under $10,000. But it will waive those fees for customers who invest at least $100,000 in Vanguard funds. Vanguard clients can also qualify to purchase so-called Admiral shares, which, the company says, can reduce expenses over regular shares by 18 to 50 percent. You qualify if you’ve had money in a Vanguard fund for at least 10 years and maintain a minimum balance in the fund of $50,000, or if you have $100,000 or more in a Vanguard fund that offers Admiral shares.

If you make frequent trades, choose a broker with low commissions. Firstrade Securities (www.firstrade.com), TradeKing (www.tradeking.com), and Charles Schwab (www.schwab.com) ranked high when we rated 19 online brokers in May 2007.

If you buy mutual funds that carry front-end sales charges, make sure your adviser credits your account for any break points, or discounts for larger investments, that might be available. Mutual funds don’t have to offer break points, and those that do set them at their discretion. In a typical deal, you might pay a 5 percent sales charge if you invest less than $25,000 in a fund. If you kick in at least $25,000 but less than $50,000, you’d pay a 4.25 percent front-end load. You can use the Financial Industry Regulatory Authority’s search engine (tools1.finra.org/nbst) to find out if a fund features break points.


Round up your retirement plans

By putting all your retirement accounts in one place, you’ll gain benefits similar to those you get when you consolidate your taxable investments. Be mindful of rollover regulations, however, or you can face a hefty tax bill. Moreover, while you can combine a rollover from a 401(k) plan and annual contributions in one IRA, generally you must keep traditional and Roth IRA money in separate accounts.

If you have $5,000 or more in your 401(k) when you depart a job, you can leave it in your former employer’s plan, but you don’t have to. “Employers don’t really encourage you to leave your 401(k) behind, and they can charge you higher fees to administer it than they do current employees,” says Alan Vorchheimer, a principal at Buck Consultants in New York.

You can instead roll your old 401(k) into a new one, assuming your new employer offers that option. Another choice is to roll it into an Individual Retirement Account so that you can choose investments from a broader menu of stocks, bonds, and mutual funds. But if you roll your 401(k) into an IRA and then make contributions to that account, you might not be able to later roll it over into another employer-sponsored retirement plan.

Don’t fall into a tax trap when you roll 401(k) assets over to an IRA. If you mess up, you’ll have to surrender some of your retirement savings to Uncle Sam. To do it right, perform a direct rollover. Ask your former employer to transfer your distribution to the company that will serve as custodian for your IRA. On the check, your ex-employer should note your name and IRA account number. When you file your tax return for the year, report the rollover you made using Form 5498.

If your former employer makes the check for your distribution payable to you, the government requires that 20 percent of your original taxable account balance be withheld for federal income taxes. Thus, you won’t be able to roll the full amount that was in your account into an IRA unless you come up with cash equal to the 20 percent withheld. You’ve got 60 days to deposit your money in an IRA. It gets ugly if you can’t cough up the cash and have to roll over just 80 percent of the assets in your old 401(k). The Internal Revenue Service includes the 20 percent withheld in your taxable income, and, if you’re younger than 59½, will hit you with a 10 percent tax on it as an early withdrawal from a tax-deferred retirement plan.

Thanks to a change in the law last year, if you are a designated beneficiary and inherit an employer-sponsored retirement plan from someone other than a spouse, you now have the option of rolling it over into an inherited IRA. That will allow the funds to continue to grow, tax-deferred, while you take distributions based on your life expectancy. But this money can’t be co-mingled with other IRAs you own.


Get rid of excess credit cards

You can survive with just one, or at most two, major credit cards in your wallet. If you pay off your balance each month, for instance, you’re a good candidate for a no-fee rewards card that gives you cash back, air miles, or points good for merchandise based on a percentage of how much you charge each year. If you choose a card issued by American Express or Discover, however, you may also want a MasterCard or Visa, which more merchants accept.

If you carry a balance, select a card with a low, fixed interest rate. In some cases, you might also need a second card. Say you take advantage of a deal to transfer your balance to a card with a zero-percent interest rate for one year. You get that rate only on the balance you transfer, not on new purchases. So you should have a second credit card that you use for new spending.

Dump store cards unless they offer benefits that are meaningful to you. “Interest rates on store cards are usually sky high—around 20 percent,” explains Curtis Arnold, founder of Cardratings.com in North Little Rock, Ark. “But some have perks like free shipping for online purchases, free basic alterations on clothing purchases, and special promotions and savings days for card holders. So if you still shop at a store, it may be worthwhile to keep the card, assuming you can pay off your balance in full every month.”

But before you start cutting up cards, be aware that if you close too many accounts at once, you’ll increase your debt-to-credit ratio and ding your credit score. For example, if you have $10,000 of potential credit and a $2,000 balance, you’re using 20 percent of your available credit. If you cut up a card with a $5,000 limit, you’ll have a $2,000 balance and only $5,000 of available credit, pushing your ratio up to 40 percent. This caution applies even if you pay off your balances in full each month. That’s because you can’t control when card issuers make their reports to credit bureaus. The bank that issued your Visa card, for instance, might make its report on the day before you pay off a four-figure balance.

You might also damage your credit score if you close an account that you’ve held for many years. That’s because the longer your credit history, the higher your credit score.

This doesn’t mean that you’re forever stuck with credit cards that you no longer want or need, however. “It’s fine to cut up cards,” explains Craig Watts, public relations senior manager for myFICO.com, a credit-scoring company in San Rafael, Calif. “Your credit score will recover in a couple of months. But be cautious about doing this right before applying for a major loan. You don’t want to do anything to torpedo your chances of getting the interest rate you want.”