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Key Takeaways
- Forgetting about your retirement plans or cashing them out early when you switch jobs can lead to significant fees.
- Leaving your 401(k) with your former employer could cost you up to $18,000 throughout your career, according to a recent study.
- Experts say you should consolidate your retirement accounts where possible to avoid losing some of your retirement savings to these fees.
Commuters outside the Smithsonian National Mall Metro Station in Washington, D.C. on May 1. Photo: Graeme Sloan / Bloomberg via Getty Images
Switching jobs could cost you retirement money if you’re not careful.
When people switch jobs, they can take four actions with their 401(k) retirement accounts: roll them over into a new employer’s plan, roll them over into an IRA, leave funds with their old employer, or cash them out. Forgetting about the account can cost you around $18,000 of retirement savings, according to a recent analysis.
Retirement provider PensionBee found that account fees on an example 401(k) account left with an old employer cost $4.55 per month.1 Employers can cover some or all of their employees’ fee burden. However, the analysis found that when a workers get a new job and doesn’t roll over the 401(k) account, that responsibility can shift entirely onto them, often with minimal notice.
While the fees themselves don’t sound like a lot, for someone who has worked for 33 years and has a job shift about every three years, the costs can add up to thousands of dollars. The monthly fee reduces the overall balance of the account, and the employee misses out on the growth that could have occurred had that money stayed invested.
“High fees may shrink rather than grow savings, in some cases, depleting them to $0,” said Romi Savova, CEO of pension provider PensionBee.
According to the most recent estimate by fintech firm Capitalize, more than 29 million 401(k) accounts worth more than $1.65 trillion were sitting forgotten as of May 2023.2 In fact, it’s become such an issue that the federal government created a ‘Retirement Savings Lost and Found Database’ to help people find their old pension plans and 401(k)s.
Savova recommends consolidating your accounts if you have multiple to avoid losing retirement savings.
“Most people benefit from consolidating retirement accounts to obtain control and to make sure they don’t leave their savings behind, where they could be lost or extinguished by fees,” she said.
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- Business Wire. “Analysis: The Hidden Cost of Leaving Your 401k Behind: How $4.55 Per Month Can Cost You Nearly $18,000”
- Capitalize. “The True Cost of Forgotten 401(k) Accounts (2023).”