Is your head in the sand?

Forced IRA Rollovers: Are You a Foolish Ex-Employee?

How many jobs have you had in the last 5, 10, 20 or so years?

  • Did you have a vested 401k or 403b with each job? (A 403b is a retirement account with a non-profit employer.)
  • Did you roll over ALL your 401k/403b accounts from ALL your former employers into a rollover IRA account (or accounts) that you control or manage?
  • Alternatively, did you roll your ex-employer’s 401k/403b monies into your new employer’s 401k plan?

If you answered “yes” to these questions, then you are smart and attentive. And I congratulate you!

If you didn’t answer “yes” or don’t know the answer, then you are foolish! I know, it sounds a bit harsh, but you need to hear it straight out. It is one of the most foolish things you could do to destroy your own retirement and sadly, many people do it. Even worse, they don’t realize it until it’s too late. They are literally throwing away their own money!

The Problem

Incredibly, over the last ten years 25 million 401k accounts worth billions have been unwittingly or complacently left in dormant status by ex-employees. Each year on average 600,000 employees change jobs and create dormant 401k accounts at their former employers. Unfortunately, these accounts could become “forced IRA accounts” (FIRAs) and progressively decrease in value. As the number of job changes increases with a better economy, the number of FIRAs will likely also increase.

The Impact

The law requires (forces) employers to create FIRAs for ex-employees who leave their 401k/403b monies with the former employer. FIRAs have high set-up and annual fees. Worse still, by law they are invested in the safest and most conservative investment choices, namely money market funds that pay minimal returns. The result is a depletion of the account’s value over time, and the employee/investor ends up with nothing to add to his or her retirement from these “orphan” accounts. You might want to check the balance in any 401k/403b accounts that you have left with your former employers – the accounts might be losing money each year due to high fees and limited investment choices.

Even a small amount can mean a lot. A $1,000 IRA rollover properly invested (allocated) with an 8% average return can accumulate to be worth over $10,000 in 30 years. Think how important an extra $10,000 will be to your life when you retire. As an example, you can read about my own IRA rollover “real-life experience” (click here to access “The Power of Persistence” story).

A Simple Solution

Forbes Magazine reports that Congress is considering a number of laws to address this problem. Quite frankly, we don’t need any more laws. What we need is more education to wake-up all the “foolish” (there I go again) ex-employees that don’t realize or forget to roll over all their 401k/403b accounts into a Rollover IRA account(s). You can manage your Rollover IRA accounts with help from many reliable independent sources that provide sound IRA investing advice. Start with the free retirement information on our blog, including our free proprietary “My Optimal Asset Allocation Analyzer (MOAAA)” and our free TSOA Freedom Portfolio models for retirement accounts.

Any bank, insurance company, or brokerage firm is most willing to help anyone leaving a job to roll over a 401k/403b account no matter how small the balance. This makes the market very competitive. These institutions charge low or no fees to set up and maintain a Rollover IRA. Many can expedite all the paperwork for you online. Check out Fidelity, Schwab, TD Ameritrade, or others. It only takes a few easy steps.

Do It Now!

If you haven’t created a Rollover IRA and transferred ALL your 401k/403b accounts from ALL your former employers yet – DO IT NOW!!!

Be smart, not complacent or foolish!

With concern for your financial health,

Jim Tso

Note: While you may have the option of rolling over the 401k/403b balances from your former employer into your new employer’s 401k/403b plans, I believe rolling them over into a self-managed IRA Rollover account has more advantages and provides better investment choices. Plus it’s just as easy to manage. I will blog on this subject in the future.

For more detailed information about FIRAs and their negative impacts, see this Forbes article (click here to access it).


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Jim Tso wants to “give back” and share his 35+ years of successful personal money management experience to help others to achieve their financial goals. Jim created this InvestBetterSpendSmarter blog (IBSS) to provide you with free investing, planning, savings, retirement, and inspirational tips derived from his unique, innovative, and proven approaches to money management. He welcomes and appreciates your feedback.

Jim would also appreciate it if you would kindly share our IBSS website and blogs with your family, friends, and business associates. Thank you!

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