(NewsNation) — Millions of U.S. workers leave behind retirement funds and investment gains when they change jobs.
Through a transfer sometimes called an involuntary rollover, employers can sweep a former worker’s smaller 401(k) — between $1,000 and $7,000 — into a cash-only IRA when they leave.
When employees contribute to a 401(k), their money is invested into an account that is then managed by an investment company, such as Fidelity Investments, Charles Schwab or Vanguard.
Those same funds, swept into so-called safe harbor IRAs, are held in a money-market fund or bank account until the owner chooses an alternative. That means a hefty sum of cash could sit, earning little to no interest over time.
Andy Wang, host of the “Inspired Money” podcast and managing partner at Runnymede Capital Management, told NewsNation mismanaging that rollover could make a “huge difference over the years.”
Many employees don’t realize they’re missing out on funds and investment opportunities, Wang said.
“What happens is that people get busy with life, especially when changing jobs. And what happens is that people lose track,” Wang said. “They forget about an old 401(k). They forget to manage it. They forget where it is, they lose track, and then they end up having to search for it.”
A report from PensionBee described safe harbor IRAs as a short-term bridge that has “become a long-term trap.”
“Accounts stagnate in cash-like investments, fees consume small balances, and wealth that should grow instead erodes,” according to the report.
Safe harbor IRAs currently hold around $28 billion, according to the Employee Benefit Research Institute. The group estimates that figure will rise to $43 billion by 2030.
Wang emphasized that not all employers opt in to transfer smaller 401(k) balances, so it’s important to check on retirement accounts at least once a year.
“It’s plan-specific,” he said. “So, when you change jobs, it’s important to ask whether you can keep your money in the 401(k) plan, you know, your old company, or whether it could possibly be swept into one of these IRAs.”
If you think you’ve lost track of an old 401(k) or have lost funds out there, Wang recommends looking at the Department of Labor’s EFAST database and your state’s National Association of Unclaimed Property Administrators database.