Delaying Your 401(k) Rollover Could Cost You $76K, Study Finds
Written by
Gabrielle Olya
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Molly Sullivan
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Even though much of the financial world is now digitized, rolling over your 401(k) still often involves a more complicated process that can’t be done online. Many plans require you to transfer funds via mail, which can lead to delays in getting your funds invested into your new account.
While you might not think too much about the consequences of this lag time, it can lead to thousands of dollars in lost retirement savings, according to a new study conducted by PensionBee. Here’s a look at how much you stand to lose due to delays in a 401(k) rollover.
Rollover Delays Could Lead To $76,000 in Lost Returns
Putting off rolling over your funds and mail delays that are out of your control can have serious financial consequences, especially when you take a long-term view. According to the PensionBee study, even brief two- to eight-week market absences during rollovers can cost savers tens of thousands of dollars, particularly during periods of market volatility.
The study found that for savers with a $100,000 401(k) balance, an eight-week processing delay could mean $76,000 in lost returns over 30 years. A $50,000 balance could experience a $38,442 loss due to an eight-week processing delay, and a $10,000 balance could experience a $7,688 loss.
Even shorter-term delays can lead to significant losses — a two-week rollover delay could compound to a $37,512 loss over 30 years if you’re starting with a $100,000 balance.
Why You Should Roll Over Your 401(k) ASAP
As these figures show, delaying your 401(k) rollover can have significant financial consequences. But the risks of delaying a rollover go beyond lost returns.
“Everyone thinks they’d never forget a retirement account, but there are 30 million unclaimed accounts that tell us otherwise,” said Romi Savova, founder and CEO of PensionBee. “For job-changers, each position can become another account left behind. The average person switches jobs 12 times, so the sheer volume of personal admin can be very difficult to manage.”
Forgetting to roll over old accounts can make you subject to fees that can eat away at your savings.
“People are often unaware that there are fees associated with retirement accounts,” Savova said. “While your employer may cover some or all of your fee burden while you’re employed, that responsibility can shift entirely onto former employees, often with minimal notice.”
If you have a 401(k) account with a balance of $7,000 or less, these fees can eliminate your entire savings.
“Employers can automatically force out small balances into poorly performing Safe Harbor IRAs, which can deplete balances entirely,” Savova said. “These bad defaults are marked by high fees and low returns, often below 2%. If you don’t act fast and have an account under $1,000, your employer may cash it out automatically, leaving you to foot the associated fees and tax penalties.”
How To Make the Rollover Process as Quick as Possible
Rolling over a 401(k) can be a complicated task, but it’s important to tackle it sooner rather than later.
“While the system needs to change, consumers can immediately take several steps to minimize downsides,” Savova said. “First, take an active role in the process. Rolling over a 401(k) is a multistep process, and delays at any point can be costly. When it comes to retirement, time in the market is more important than timing the market — even a few weeks or months out can mean thousands lost over a lifetime.”
If you’re rolling a 401(k) balance from a former employer into a new 401(k), you may not have a lot of choices, but if you choose to roll into an IRA, make sure you are choosing your provider wisely. If possible, find a provider that offers digital-first solutions with automated tracking.
“The best providers will offer digital rollover solutions, avoiding checks in the mail, and excellent customer support when speaking with your old provider is inevitable,” Savova said. “Customer-focused providers handle the paperwork burden, proactively follow up with your previous plan administrator and keep you updated throughout the process.”
Also, pay attention to more than just fees when choosing a provider.
“While high fees over 1% should generally be avoided, also consider the customer support model and technological capabilities,” Savova said. “The right provider becomes a partner in your retirement journey, not just a place to store your money.”
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