Stepping into a Fresh Job? Steer Clear of This Action That Could Potentially Drain Your Retirement Funds
Neglecting retirement savings upon job transitions or premature withdrawals can incur substantial fees, potentially costing up to $18,000 over a career, according to a recent study. Experts caution that leaving 401(k) funds with a former employer often leads to such losses.
When workers switch jobs, there are four options for handling their 401(k) accounts: transferring them to a new employer's plan, rolling them into an IRA, leaving them with the old employer, or cashing them out. Disregarding the accounts can result in a significant drain on retirement savings.
A pension provider, PensionBee, analyzed an example 401(k) account and found that account fees on a neglected account could amount to $4.55 per month. While employers may cover some or all of their employees' fee burden, the responsibility shifts to the worker when they change jobs and fail to roll over the account, often with little notice.
Over a 33-year career with regular job changes, these fees can accumulate to thousands of dollars, eroding the overall balance and hindering potential growth.
"High fees can shrink savings, sometimes depleting them to zero," warned Romi Savova, CEO of PensionBee.
Currently, more than 29 million 401(k) accounts worth over $1.65 trillion are left unused, according to recent estimates by fintech firm Capitalize. To address this issue, the federal government created a 'Retirement Savings Lost and Found Database' to assist individuals in finding their old pension plans and 401(k)s.
To minimize fee losses, experts recommend consolidating retirement accounts to avoid losing savings. "Most people benefit from consolidating retirement accounts to regain control and ensure they don't leave their savings behind, where they could be lost or drained by fees," said Savova.
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- Frequent job transitions can result in neglected 401(k) accounts, which may incur high fees over time, potentially draining wealth-management savings.
- To minimize fee losses and maintain control over retirement savings, it's advisable to consolidate multiple 401(k) accounts into a single one, such as an IRA or a new employer's plan.
- Career development, personal-finance management, and careful consideration of retirement account handling are crucial aspects of any comprehensive business strategy or career progression.
