3 Reasons Why the Money in Your 401(k)/IRA Doesn’t Belong to You

If you get regular account statements, you probably know the approximate current value of your 401(k) and/or IRAs, so please write that total down now.

Do you think all that money belongs to you?

It doesn’t… and what people find most surprising is how little of your account value actually does belong to you.

3 Reasons the Money in Your 401(k) Doesn’t Belong to You…

Reason #1: You May Not Be Fully Vested


Most people don’t think about this much, but until you are fully vested with your company, if you lose your job or switch companies, you usually won’t get some or all of your employer’s match, and you’ll forfeit some or all of the returns you’ve had on the match. Learn more about 401(k) vesting schedules here.

Nearly half of all companies use a “graded” vesting schedule – these plans slowly vest (give you “ownership” of more of your match) with every year of service until you hit 100%, which usually takes 5 or 6 years.

For example, let’s assume your employer contributed $100 to your match, the returns were $10, and you’re 20% vested. If you lose your job or switch jobs, you only get to keep 20% of the match and return – in this case you’d get only $22 instead of the $110 you thought you had.

And here’s an interesting fact: You’re typically not 100% vested for 5 or 6 years, but according to the Bureau of Labor Statistics, the average time people stay on the job is only 4.2 years!

Oh, and 22% of 401(k)s have “cliff” vesting schedules, which require you to stay with an employer for a minimum number of years or you don’t get to keep ANY of the match!

Reason #2: Deferred Taxes Can Devour One-Third – or More – of Your Account Value

According to Boston College’s Center for Retirement Research, “It’s a very big deal when people realize they only have two-thirds or three-quarters of what they thought they had [in their tax-deferred retirement account].”

And that is based on today’s tax rates. But with Congress continuing to spend like a drunken sailor and ever-increasing numbers of aging boomers increasing the strain on Social Security and Medicare, what direction do you think tax rates are going to go over the long term?

If they go up, as most people expect, Uncle Sam could easily take 50% of your retirement withdrawals. (And this doesn’t even take into account the “free stuff for everyone” movement that’s been gaining popularity.)

Read: The Ticking Tax Time Bomb of Conventional Retirement Plans

Reason #3: The Numbers on Your 401(k) and IRA Statements Are Only “Paper” Wealth

This means that unlike “real” wealth, the value of your accounts could fall by 50% or more in the next market crash, just as has happened in the last two market crashes we’ve experienced in the past 20 years.

Have you “accounted” for that possibility, which becomes more likely with each passing day, since we are (still) in the longest-running bull market in history (and they never last forever)?

The Solution is to Hold at Least a Portion of Your Retirement Savings Outside of a 401(k) or IRA

And the Bank On Yourself safe wealth-building strategy provides an antidote to all three of these problems:

Don’t Let Your Retirement Dreams Turn into a Retirement Nightmare

The biggest regret most people have is that they didn’t get started with Bank On Yourself sooner. Take the next step toward economic sanity and control of your retirement savings by requesting a Free Analysis here today.

You’ll get a referral to one of only 200 advisors in the U.S. and Canada who have passed the rigorous training to be a Bank On Yourself Authorized Advisor. They can also answer any questions you may have.

Request your Analysis TODAY, so you can enjoy more financial peace of mind in the New Year:

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