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Investor’s Guild
Investor’s Guild

Retirement part 3: Roll with it?

Retirement part 3: Roll with it?

Wednesday, March 6, 2024 by Stephanie Guild, CFASteph is a Wall Street alum and head of investment strategy for Robinhood.
Daniel Grizelj/Getty Images
Daniel Grizelj/Getty Images

If you haven’t already picked up on it, people saving for retirement is important to me—driven by a sense of injustice. Recent studies have shown nearly half of Americans 55 and older have no retirement savings and 3 out of 4 workers are likely to outlive what they do have. There are loads of reasons for this—from the increasing cost of living to the decline in pensions and lack of access to other retirement plans like 401ks. But I am hopeful our generation can do better in self-care for our future.

This is the final of three posts dedicated to the topic (previous here and here) during what I call retirement season. This last one is focused on caring for the retirement savings you do have. 

What do I mean?

  1. Know where your retirement savings are—from the past and present.

  2. Make sure they're invested, know what the investments are—and what it costs.

  3. Make changes to improve it.

(1) 401ks are sponsored by employers. So leaving a job where you contributed to one means there are funds still there after you depart. There are a number of options on what to do with them after that. You can: 

  1. move it to your next employer’s 401k 

  2. roll it over to an IRA account

  3. leave it there 

  4. Cash it out and take the funds

Often, in the busyness of life, option C can become the default. The assets stay there and in time, can be forgotten about. In fact, according to Capitalize, there’s approximately $1.65 trillion in assets from forgotten or left-behind 401(k) accounts (25% of the total). There’s a caveat to the choice above here though. After an employee leaves, some employers may force money deemed “smaller” out of their plan. If your vested balance is less than $1,000, they may send you a check, which if deposited within 60 days to an IRA, will not be taxable. If it’s less than $7,000, your employer is allowed to put the money in an IRA of their choosing on your behalf.  

This matters because not tending to it could mean it’s not optimized (and/or not your choice). Which brings me to the next point.

(2) Putting money into a 401k, or any retirement account, doesn’t necessarily mean it's invested. Making sure it is, is the first step to optimizing it—especially if it stays there after you leave your employer. If it is invested, knowing what it’s invested in and how much it costs is the next thing to understand. Is it in a fund that invests in a mix of stocks and bonds? What is that mix? Generally speaking, it shouldn’t start to be more bonds than stocks until you are close to needing the funds. 

And finally, how much does it cost? This applies to any investments (like fund expense ratios) and any plan administration fees applied by the provider. This can be found in a 401k plan’s summary plan description or annual report (they have to be provided). 

According to the Investment Company Institute (ICI), the median participant incurred a total cost of 0.67% of their assets in a 401k plan. To put this in context, most index ETFs charge an expense ratio in the range of 0.05% to 0.10%. Often, if you are no longer employed by the company who provided the 401k, the administrative costs to leave it there increase, so look out for that.

(3) If you get through 1 and 2 above and decide there may be a better and/or less expensive alternative to place your old 401k funds, there are some options and info to know. Rolling it over to an IRA or moving it to the 401k at your next job may reduce the cost of holding the savings. Both can be done as non-taxable events—and making sure they are in the best place for you will empower you to optimize how you save.

How do you do it? It’s not as easy as swiping up on your phone. But if you do a little prep, it can make you feel proud for adulting.  For example, rolling it over to an IRA requires setting up or having the account first. Once you have that, and the info on it (like the account number), set aside some time to contact the old 401k provider (your old HR contact would have this if you don’t already), because you will likely be on hold at some point. Once connected, you can ask for a direct or indirect rollover. In both, a check is issued that must be deposited into the IRA within 60 days. The direct rollover often goes directly to the IRA and thus, is simpler, while the indirect rollover has a few additional downsides and considerations.

Already feel like it’s a lot? It’s understandable but it will feel worth it as you see your savings potentially grow over time.

So please, do the work necessary to ensure your savings aren’t left behind.  Resources:  https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions


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