‘You want this money to grow’: You could have cash in a forgotten 401(k) that’s losing value by the day — recover it now

Over half of all workers are currently taking advantage of a workplace retirement plan, according to Bureau of Labor Statistics data. These accounts are a vital tool for retirement planning, which makes investing into them a no-brainer for many employees.

But what happens to those retirement funds when you leave your job?

If you assumed they’re still hanging out in the same type of account you left them in, you might be in for a rude surprise. Depending on the size of your account, your money might have been transferred to a Safe Harbor IRA instead.

These accounts often don’t come with the same perks as a 401(k), resulting in your wealth atrophying instead of building.

Here’s why many workers are losing retirement funds without even knowing it — and what you can do to protect your wealth.

Safe Harbor IRAs stick small 401(k)s with low interest and high fees

When you start working at a new company that offers benefits, you’ll likely have a member of the company go over your benefit options with you, including any 401(k) or retirement plans.

But the same education isn’t there when you leave the job. According to PensionBee, only 20% of people say that their employer went over what would happen to their retirement plans at exit time. Only 10% of employees received written instructions on their retirement plans at exit.

That means your former company might not tell you if they move your 401(k) into a different type of account entirely. If you have a 401(k) with a previous company that’s worth less than $7,000, your old company is allowed to transfer it over to an Automatic Rollover IRA, also called a Safe Harbor IRA.

Approximately a third of 401(ks) are worth less than $7,000 according to EBRI, so that adds up to a lot of transferred accounts. PensionBee estimates that there will be $43 billion sitting in Safe Harbor IRAs by 2030.

This is a problem because Safe Harbor IRAs are frequently low-interest accounts, giving rates around 0.5% to 2.0% — often lower than inflation. Those are paired with monthly flat fees that can outpace the interest the account earns, especially on low balances.