Participants Not Up to Speed on Distribution Options
“There can be huge consequences from making the wrong decision, ranging from taxes and penalties to higher fees and risky or poor performing investments," says Ric Edelman, with Edelman Financial Engines.
Many retirement plan participants are unaware of the various distribution options available to them when they leave a job, Edelman Financial Engines learned in a survey.
Forty-two percent of those between the ages of 35 and 65 who left a job where they had money in a 401(k) plan were unaware that they could have left the money in the plan. Twenty-eight percent didn’t know that some retirement distribution choices trigger tax liabilities and penalties, and 51% didn’t know that it is possible to move money from an individual retirement account (IRA) to their 401(k).
Sixty-nine percent of participants have not consulted with a retirement adviser about their various distribution options. Among those who took a distribution before retiring, 26% did so without any help from an adviser or without consulting any resource.
“There is a lot of confusion and a general lack of awareness among employees about their 401(k) distribution options when they retire or change jobs,” says Ric Edelman, co-founder and chairman of financial education and client experience at Edelman Financial Engines. “There can be huge consequences from making the wrong decision, ranging from taxes and penalties to higher fees and risky or poor performing investments.”
Edelman’s findings are based on a survey of 1,071 individuals between the ages of 25 and 65 conducted in February and March using the Qualtrics Insight Platform with a panel sourced from Lucid Marketplace.