Chances are good, that as a member of Generation X, you have at least two 401k accounts. It makes sense, you’ve probably had multiple jobs — the national average is 7.4 jobs over a 40-year career1 — and you were working hard at saving along the way. And besides, there is no automatic process in place for you to move those funds, so what were you supposed to do?
The problem is that two or more 401k accounts are too many because you probably continue to pay management and maintenance fees on that old account. Worse, it isn’t growing because neither you nor your old employer is making new contributions. As such, the account is being eaten away by fees. Such accounts are referred to as stranded or inactive 401k accounts by industry and government.
Every 401k account, including those that are stranded, is typically charged an annual record-keeping fee of $70 plus an average of 1.27% of assets (that’s the median according to research from the Investment CompanyInstitute2). By rolling over to an IRA, the annual fee can be eliminated, and the asset-based fee may be reduced to as little as 0.15%. For someone with $50,000 in a 401k plan, this is a savings of about $660 in the first year. Given that fees compound over time this can result in savings of over $83,200 after 30 years3.
This money instead could be working to earn you more in retirement savings if it were either added to your current 401k or used to open an IRA.
The above is just an example of what an inactive 401k account could look like. You might not need to roll it over; sometimes, old employers have given you access to investments you can’t get anywhere else. Simply put, you won’t know for sure until you take a few minutes and visit FeeX.com and test drive our 401k Rollover Center. It’s free!
Nothing in this article should be construed as investment advice, or a solicitation or offer, or recommendation, to buy or sell any security. Investing in mutual funds, exchange traded funds, and other securities carries risk of all or part of the amount invested. Past performance is no guarantee of future results. FeeX assumes no responsibility for the tax consequences to any investor of any transaction, investors should confer with their personal advisor or tax professional regarding their particular circumstances.
1. Employee Tenure Trends, 1983 – 2014, Employee Benefit Research Institute
3. Based on FeeX calculations, assuming a 6% average annual return before fees.