There is an extremely high likelihood that you’ve done – or ARE DOING – one of these three things.
#3: NOT PAYING ATTENTION
I look under the hood of about 140 401k’s every single year. On average, about 10ish% have a portion – or all – of their 401k sitting in cash.
It can happen because the fund you were in is no longer available so they cash you out.
It also happens when you don’t have your “future investments” set up and your contributions are going to cash.
There are a bunch of ways this can happen and there’s only one singular, failsafe way to guard against it.
Log into your 401k regularly and review your investments. (If you’re a C student, do it quarterly. If you like A’s, do it monthly).
#2: LEAVING IT BEHIND
You leave your company and leave your 401k behind. What’s the harm?
– There’s a lost & found for old 401k’s, but you have to know it’s lost first. As of 2021, there were ~25 million forgotten 401k accounts, according to estimates by Capitalize, a financial services company specializing in 401k’s.
– You’re paying hidden 401k fees for no reason whatsoever. On the low-end, big 401k plans charge you “only” 0.50%. For smaller companies with smaller plans, it can go up to 2%. The average is 1% according to the Center for American Progress.
– 401k investment options kinda suck. Even if the 401k administer doesn’t offer pay-to-play mutual funds, the good funds you can access to are few and far between.
#1: ROLLING IT OVER TO YOUR NEW 401K
NO! NO! NO!
You actually made the effort to roll it over. Good on you! It won’t go into the 401k lost and found.
But unfortunately you (unknowingly) kept all the other bad stuff from your old 401k – pointless 401k fees and lousy investment choices.
Worse yet, you can’t get it back out until you leave your new job!
THE RIGHT ANSWER
Rolling your old 401k into a Rollover IRA is almost* always the right move.
– You keep it out of the 401k lost and found.
– You get rid of pointless admin fees – at least 0.50%
– You can invest in whatever you want, more or less
– You can even automate the investing, so it’s never just sitting in cash.
You worked hard to save this money, but your job isn’t done once it’s in your 401k.
It’s kind of like throwing away all your junk food, stocking your fridge with veggies and lean meats, and then ordering DoorDash every night.
A+ for intention
F for execution
