The hidden costs and disadvantages of having a “forgotten” 401(k) plan.

Let’s face it, changing jobs and transferring retirement savings from an old employer’s 401(k) plan can be stressful. But leaving money in a forgotten 401(k) plan from a former employer can have significant hidden costs and disadvantages that many individuals overlook. These forgotten accounts, which now total an estimated $1.65 trillion across 29.2 million accounts in the United States, can potentially cost savers hundreds of thousands of dollars in lost retirement savings over time.

One of the primary issues with forgotten 401(k) accounts is the potential for higher fees. While 401(k) plans often benefit from institutional pricing, forgotten accounts may not receive the same level of attention or negotiation for lower fees. Over time, even small differences in fees can compound to substantial amounts.

Another significant disadvantage is the risk of suboptimal investment allocations. Forgotten accounts may not be properly rebalanced or adjusted over time, leading to an investment mix that no longer aligns with the investor’s goals or risk tolerance. This misalignment can result in missed growth opportunities or exposure to unnecessary risk.

The difficulty of tracking multiple accounts across different former employers is another drawback. This fragmentation makes it challenging to maintain a cohesive investment strategy and can lead to ineƯicient asset allocation. In some cases, individuals may completely lose track of an old 401(k), especially after changing jobs multiple times. Furthermore, forgotten 401(k)s may not benefit from the latest investment options or investment alternatives that qualified advisors can offer. This can mean missing out on potentially better-performing funds or advantageous strategy provisions.

While leaving money in a former employer’s 401(k) plan may seem convenient, the hidden costs and disadvantages can be substantial. Actively managing retirement savings, considering options like consolidation or rollovers, and staying informed about fees and investment allocations are crucial steps in maximizing long-term retirement savings.

Do you have a forgotten 401(k) plan? At KinneyMunro Wealth Advisors we can help you determine a strategy that fits within your overall wealth management strategy.

Call us at KinneyMunro Wealth Advisors. We can help.

This material is provided for educational purposes only. The information contained herein is not intended and should not be construed as individualized advice or recommendation of any kind. Asset allocation is an investment strategy designed to help manage risk, but it cannot ensure a profit or protect against loss in a declining market.

Sources documents for data:
https://www.hicapitalize.com/resources/the-true-cost-of-forgotten-401ks/
https://www.benefitspro.com/2023/08/03/the-true-cost-of-forgotten-401k-accounts-1-65-trillion/?slreturn=2024081484023
https://www.asppa-net.org/news/%E2%80%98-true-cost-forgotten-401k-accounts%E2%80%99
https://www.employeefiduciary.com/blog/hidden-401k-fees-should-be-illegal
https://smartasset.com/investing/hidden-401k-rollover-costs