Roll-Over 401(k) Error Costing Clients Billions of Dollars

SP FINANCE SOLUTIONS

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It's important to remember that when you change or lose jobs, you need to transfer your 401(k) from your old company's account to a new IRA (personal) account. However, it's essential to also choose new investments for the transferred funds to complete the process. Many people overlook this final step, leaving the money in the IRA account as cash, which means it won't generate any interest.

According to a study by the Vanguard Group, around one-third of people who transferred their 401(k) funds into an IRA at Vanguard in 2015 still had it as cash after eight years. IRAs with a lot of cash miss out on over $172 billion in potential annual returns, according to estimates from Vanguard.

This mistake is quite common and can be costly, especially for employees used to having their 401(k) automatically invested in their old company's chosen plans. They risk missing out on potential returns over many years.

A recent client at SP Finance Solutions is a typical example of someone who was unaware that their money in the IRA remained stagnant for years and wasn't earning any interest. It took them a long time to realize that the money was in cash form.

If you're preparing for retirement, changing jobs, or have lost your job, it's crucial to know what steps to take next to ensure that the money saved in your 401(k), 403(b), etc., continues to generate returns.

Your IRA should provide lifetime income for both spouses and double your income if you become seriously ill during retirement. If you have any questions or would like SP Finance Services to help review whether your IRA is truly invested in indexes, we are happy to review it free of charge.