No, it’s not investing too little or being too safe; though that could be bad for your bottom line too. One of the worst things people do with their 401(k) is leave it behind. Yes, in 2010, there were more than 15 million 401(k)s left behind. Orphaned with no foster parents. Blame it on forgetfulness, disregard, or just inactivity.
The average American worker will have had seven jobs over the course of their careers. You may be gaining experience but may very well be losing your savings. According to a survey by ING Direct (now Capital One), 50% of Americans who’ve invested money in a retirement plan left an account at a previous employer.
And not just teeny tiny amounts, almost 25% left approximately $10-$15K in these accounts. Another 11% couldn’t even remember how much money they had left behind! And it’s not just about leaving it behind, a lot of people made choices in their 20s which are out of sync with their current lifestyle.
So what to do with these accounts? Do not cash them out each time you leave an employer. If you cash them out when you leave your job, you’ll face taxes and a 10% penalty if you’re younger than 55. Considering this, it would be better to move your 401(k) into your current employer’s plan or roll it over into an IRA of your own.
If you like the plan you have, the choice is yours to leave it where it is, but you’ll have to pay a fee for each additional account opened, should you start a 401(k) are your new job. And what if your former employer is not around forever? Companies go bankrupt all the time and if yours does it may become very difficult to retrieve your money.
Each state has different laws regarding abandoned financial accounts. In many cases, IRAs and brokerage accounts ignored for three years can be taken over by the state. But for the most part money held in 401(k) accounts is protected by Employee Retirement Income Security Act and isn’t subject to such laws.
Therefore, it’s imperative to keep track of all of your retirement accounts. No matter what you decide, totally ignoring your accounts is one of the worst things you can do.