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Why You Should Clean Up Those Old 401(k)s [Video]

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Personal Finance

Accumulating the savings you’ll need in retirement is tough enough. Don’t make it tougher by leaving behind a trail of abandoned 401(k) accounts when you change jobs.

If you have one of these orphan 401(k)s, you’re not alone. One study estimates about $1.65 trillion is sitting in abandoned accounts, representing the savings of 30 million workers.

The problem is most acute for people who leave behind small accounts. Employers are permitted to transfer orphan accounts that hold less than $7,000 into IRAs that may earn low returns in money market funds and charge high fees—and most do so to trim plan administration costs. Over time, these accounts can simply waste away.

Increased job switching has accelerated the issue. The current tight labor market makes it easy for people to shift jobs more frequently as employers compete for talent, and the average American worker will have 12 jobs throughout her lifetime, about 4.1 years each.

The antidote to diminishing returns on these retirement accounts is adopting good 401(k) hygiene. …

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