Out of sight out of mind — that’s how employees have been taught to view their retirement savings accounts. Which isn’t a problem, until it’s so out of mind that it’s completely forgotten, costing you hundreds of thousands of dollars. An estimated 2.8 million 401k accounts get left behind annually. These “forgotten” accounts are a product of employees forgetting to consolidate their savings once they move jobs — employees open a new 401(k) with their employer and leave funds from their old one behind.
When the 401(k) was first introduced, the concept of staying at your job for decades was fairly common. Therefore, the modern-day labor market didn’t account for a workforce made up of ambitious workers unafraid to switch careers. The problem? This modern workforce is still being taught antiquated values — of saving and forgetting — and the repercussions are widespread. And as more and more employees gear up to leave their jobs in a post-pandemic hiring frenzy, the issue is likely to get worse.
Leaving behind a forgotten 401(k) account has the potential to cost an individual almost $700,000 in foregone retirement savings over a lifetime, according to Capitalize.
As the number of people looking to quit or change jobs continues to grow due to the impact of Covid-19, the risk of 401k's getting left and hurting an employee's retirement savings has never been greater. Employer's are not able to help with this problem, because once money has been put aside for an employee, legally that account and the money it contains has to go untouched until the employee themselves reclaims it. So it's critical that you keep this on their radar if you're planning to go through the process of changing jobs.
Certain employers have regulations like a force out, which allows employers and their custodians to let go of 401(k) accounts left behind by former employees, making the process of tracking it down more taxing for employees. To avoid these challenges as you approach retirement, it’s prudent to roll over existing accounts when you switch jobs. As of now, employees have three options for their 401k when they switch jobs:
Roll over the 401(k) into an IRA - This is the preferred option for many reasons you can read more about HERE
Roll over the old 401(k) into a new 401(k) account (if permitted by the new employer)
Withdraw the old 401(k) assets - this is the least favorable option as it can drastically stunt the growth of your retirement savings.
When it comes to maximizing your retirement savings, making the right call with your old 401k when you switch jobs is critical. If you are one of the many people who has recently changed jobs or considering a job change, whether due to Covid-19 or something else, and you're not sure what to do with your old 401k, we can help you evaluate your options and make sure you make the right decision for your retirement plan. To learn more about how you can get a plan in place to protect your retirement and family's financial future, schedule a call with our team today!
Mike Bink, AAMS®, CCFS®
Mike is the founder & president of Equivest Financial Advisors. He is a husband, father of 3, and a fiduciary advisor who is passionate about helping his clients take control of their retirement and reach their financial goals. Learn more about Mike.