Doing This With Your 401(k) Could Cost You $18,000
Your old 401(k) accounts may be slowly bleeding money, because the power of compounding can work against you, too.
Workplace 401(k) plans play a major role in helping Americans prepare for retirement, with around one-fifth of all retirement assets held in 401(k) accounts as of 2022.
There's good reason so many Americans turn to 401(k)s to save for their future, including the convenience of contributing to a workplace plan, the potential to earn a company match, and the tax breaks that 401(k) plans offer.
Unfortunately, because 401(k) plans are tied to employment, there is also a significant potential risk many Americans are unaware of — and it could cost them if they don't take steps to avoid the damage.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Americans risk losing thousands in 401(k) funds if they don't act
New research from PensionBee revealed the potential problem 401(k) holders are facing. The issue arises from the fact that most Americans no longer stay at one company for their entire career, but instead change jobs often — and this can result in new fees on their 401(k) plans.
As PensionBee explained, companies often cover retirement plan fees for workers while they are employed, but stop paying those fees when they stop working. PensionBee likened this to situations when employees remain on company health plans under COBRA but their employers stop paying premiums.
However, while employees receive clear notification about added health costs they'll owe under COBRA, the 401(k) fee changes happen with "minimal transparency" and continue for the duration of the time the employee has the account open — often without workers knowing they're now being charged new costs to maintain the 401(k) account.
Providers managing 401(k)s can also force out employees with low plan balances, issuing employees checks for accounts under $1,000 or transferring accounts with between $1,000 and $5,000 into an IRA with the participant's name on it. Unfortunately, this could lead to early withdrawal penalties or added fees, depending on the IRA chosen.
How much could this cost you?
PensionBee examined the financial consequences of the added fees that can occur when a 401(k) is left behind, and the numbers are startling.
A typical employee who works for 33 years, changes jobs every three years, and earns a 5% investment return stands to lose $17,905 in fees over their career if they are charged just $4.55 per month in 401(k) account maintenance fees with each job switch. Those who earn higher returns or who pay higher fees could face even larger losses.
That $4.55 monthly fee may not seem like much — it's about the price of a good cup of coffee — but it can diminish your 401(k) balances over time.
The table below shows the lifetime costs of these fees for a typical employee over a 33-year period.
The effects of a small fee are outsized because every account that incurs a fee reduces the principal balance, causing the accountholder to lose not just the money taken out, but also the compound growth they would have earned on the funds lost to fees.
Unfortunately, many Americans are unaware that they're losing this money. A study from the Government Accountability Office revealed that 41% of 401(k) account holders are unaware that they pay any 401(k) fees at all. And 40% don't fully understand the expenses associated with their workplace retirement plans.
How to protect your retirement security
The good news is, you don't have to lose thousands to 401(k) fees when you make a career change.
You have other options for your retirement plan, including rolling over your old 401(k) to your new employer's plan, or rolling the funds into an IRA of your choosing when you change jobs. Rolling over your funds can also help you to avoid forgetting about your account, which a surprising number of Americans do.
You should also pay careful attention to the fees you're paying in any 401(k) plan you are participating in, whether the plan is held by a current or former employer. This includes:
- Plan administration fees
- Investment fees
- Individual service fees
- Sales fees (commissions for buying and selling assets)
- Management fees or investment/advisory fees
- Other fees for recordkeeping, providing statements, or investment advice
Your 401(k)'s summary plan description (SPD) and annual report should include information about the charges you have to pay each year. With the Department of Labor warning that even a 1% difference in fees can reduce your balance by close to 30% over your career, you can't afford to ignore this issue.
When you find yourself with added 401(k) charges after leaving a job, take action quickly — and, when it comes to your current plan, if it has high fees, consider contributing only enough to earn your full employer match before shifting additional funds earmarked for retirement to an IRA. You'll have more choices for brokerage firms and investment options and can better control your costs if you take this approach.
You work too hard for your money to lose it to fees — so do the research you need, especially when changing jobs. If you make sure you understand how your account expenses will change, you won't put your retirement security at risk while making financial firms richer.
Read More
-
Turning 65 in 2026? Here Is Exactly How to Sign Up for MedicareWhether you’re months away from your 65th birthday or plan to work past retirement age, here are the steps to secure your Medicare coverage and avoid costly mistakes.
-
A Free Tax Filing Option Has Disappeared for 2026: Here's What That Means for YouTax Filing Tax season officially opens on January 26. But you'll have one less way to submit your tax return for free. Here's what you need to know.
-
Georgia Income Tax Elimination: What the 2026 Tax Cuts Mean for YouState Tax Georgia lawmakers aim to axe the state income tax by 2032. We break down the $16 billion fiscal shift, the fate of the state surplus, and which tax breaks are on the chopping block.
-
Turning 65 in 2026? Here Is Exactly How to Sign Up for Medicare
Whether you’re months away from your 65th birthday or plan to work past retirement age, here are the steps to secure your Medicare coverage and avoid costly mistakes.
-
I'm 61 and Want a Divorce, but I Worry About My Finances. Should We Live Separately but Stay Married?We asked Certified Divorce Financial Analysts for advice.
-
Is a Caregiving Strategy — for Yourself and Others — Missing From Your Retirement Plan?Millions of people over 65 care for grandkids, adult kids or aging parents and will also need care themselves. Building a caregiving strategy is crucial.
-
6 Financially Savvy Power Moves for Women in 2026 (Prepare to Be in Charge!)Don't let the day-to-day get in the way of long-term financial planning. Here's how to get organized — including a reminder to dream big about your future.
-
How to Use Your Health Savings Account in RetirementStrategic saving and investing of HSA funds during your working years can unlock the full potential of these accounts to cover healthcare costs and more in retirement.
-
I'm a Real Estate Expert: 2026 Marks a Seismic Shift in Tax Rules, and Investors Could Reap Millions in RewardsThree major tax strategies will align in 2026, creating unique opportunities for real estate investors to significantly grow their wealth. Here's how it works.
-
When Can Tax Planning Be an Act of Love? This Family Found OutHow can you give stock worth millions to a loved one without giving them a huge capital gains tax bill? This family's financial adviser provided the answer.
-
Who Said That? Match the US President to the QuotationWho better to give advice on aging, retirement and finances than a U.S. president? Our short quiz will determine whether you're a history buff or buffoon.
