Are You Forgetting Your 401(k)? Here’s What You Need to Know
In today’s fast-paced job market, many Americans are hopping from one position to another more frequently than ever before. This trend, often referred to as "job hopping," can have significant consequences on your retirement savings. At Extreme Investor Network, we believe that being proactive about your financial future is essential, especially when it comes to managing your 401(k) plans.
The Rising Tide of Forgotten 401(k) Plans
Recent studies reveal that as of 2023, there are approximately 29.2 million abandoned 401(k) accounts collectively holding around $1.65 trillion in assets. This figure marks a 20% increase from just two years ago, according to Capitalize, a fintech firm specializing in retirement plans. Staggeringly, nearly 50% of employees leave their 401(k) funds behind when transitioning between jobs.
But leaving that money behind could be detrimental. A survey conducted by the U.S. Government Accountability Office found that 41% of workers are unaware that they are paying fees on their 401(k) plans, which can include administrative costs and investment management fees.
Hidden Fees on Forgotten Accounts
For those who don’t roll over their 401(k) to a new employer or an IRA, maintaining those old accounts can result in unexpected charges. Romi Savova, CEO of PensionBee, highlights that former employees could incur an extra monthly fee—averaging around $4.55—to keep their forgotten accounts active. Over time, these seemingly minor expenses can snowball into nearly $18,000 lost in retirement funds due to compound growth that never occurs.
As Gil Baumgarten, founder and CEO of Segment Wealth Management, aptly puts it, "Lost 401(k)s can be problematic, but rolling into an IRA could come with other costs." The decision isn’t just about ignoring old accounts; it’s crucial to understand the long-term implications.
Your Options for Managing Old 401(k) Plans
When transitioning jobs, you typically have several options regarding your old 401(k) funds:
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Keep it with the Former Employer: While this option may seem easy, it can lead to the scenario we just outlined—extended fees and lost growth.
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Transfer to a New Employer’s Plan: This is often the preferred choice as it consolidates your savings but be sure to understand any fees associated with the new account.
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Roll Over to an IRA: While this is a common route, it’s essential to recognize that IRAs sometimes come with higher investment fees than 401(k) plans. The Pew Charitable Trusts estimate that employees rolling their money into IRAs could incur a staggering $45.5 billion in excess fees over a 25-year retirement period.
- Cash Out: This is generally the least advantageous move due to tax penalties, yet 33% of workers still opt for this route, according to Vanguard.
How to Rediscover Your Forgotten 401(k)
Leaving behind retirement savings in a former employer’s plan might be the easiest option, but it comes with increasing risks of losing track of those accounts. Recent data indicates that about 25% of all 401(k) plan assets are now classified as lost or forgotten—up from 20% just two years prior.
However, thanks to Secure 2.0, following the latest regulations from the Department of Labor, there’s hope for those searching for old plans. They have launched a retirement savings lost and found database, allowing workers to more easily reconnect with their funds.
Using your Social Security number can also help you track down forgotten accounts through the National Registry of Unclaimed Retirement Benefits.
Keeping Your Retirement Savings Intact
In 2022, large 401(k) plan administrators launched the Portability Services Network, which aims to ease the burden of managing small-balance 401(k)s. This initiative allows for the automatic transfer of accounts with balances up to $7,000 to your new employer’s retirement plan when switching jobs.
The goal here is straightforward—keeping your retirement savings consolidated and avoiding the risk of losing track of your accounts during job transitions.
At Extreme Investor Network, we emphasize informed financial decisions and actively encourage our readers to take control of their retirement savings. Remember, staying proactive about your retirement accounts today can lead to a financially secure future tomorrow.
Take the first step today—review your 401(k) accounts and ensure your retirement savings are working for you!