Federal Workers Not Feeling the Love

Changing jobs can be a life-changing event. And in the midst of that, you may not read all the fine print when rolling a 401(k) into an individual retirement account (IRA). A new study found, as the Washington Post put it, "money management firms frequently offer workers misleading and self-serving information about how to handle their retirement savings when they change jobs." The Washington Post reported on this Government Accountability Office (GAO) report released on April 3rd.

"Departing workers are often encouraged to roll their accounts into IRAs run by the firms that already manage their retirement money, even when it would be best for these workers to keep the money in a 401(k), the GAO investigation concluded. Having workers move their money into IRAs typically allows money management companies to harvest bigger management fees," the Post reported regarding the report.

When workers leave a company, they generally have four choices for handling their 401(k)s: (1) leave the money in their former employer’s plan, (2) move it to their new employer’s plan, (3) put it in an IRA, or (4) withdraw it and use it for current expenses the report notes. The latter option makes them liable for a tax penalty if the worker is younger than 59 1/2.