Dawg didn’t MPC’s survey show that an average financial assets were less than retirement account balances for certain age brackets?
Survey data is unreliable
Even for simple things like - did you enjoy your meal at Applebees? The average person doesn’t know anything about anything
Somewhat related story on how small IRAs are being devoured by admin fees after plan sponsors roll over account balances from 401(k) plans. Some excerpts from the recent NY Times article:
** As of June, job changers had left behind nearly 30 million 401(k)s or similar retirement accounts worth an estimated $1.65 trillion, according to Capitalize, a technology company that offers an online platform to help transfer 401(k) accounts. But in the aftermath of the pandemic, people who have left small 401(k)s with their former employer can find those accounts seriously diminished — or even completely drained — when plan sponsors roll that money over to individual retirement accounts with high fees and low-yielding investments.
Since 2001, this kind of transfer could happen to any 401(k) or similar workplace account with a balance between $1,001 and $5,000. But starting Jan. 1, provisions in the retirement act will raise the balance for an automatic rollover to $7,000 — an adjustment that will expose an estimated 800,000 additional workers with low-balance accounts to involuntary rollovers. About 8.1 million of these forced I.R.A.s already exist.
The law governing retirement accounts allows the sponsoring employers to have the plan administrators move inactive, small-balance 401(k)s and similar defined contribution accounts out of their plans in order to escape the cost of record keeping and sending notifications to ex-employees who may not have left a forwarding address.
However, the fiduciary responsibility to prudently handle the money remains with the employer. To play it safe, the money is rolled into I.R.A.s and invested in low-yielding money-market vehicles, certificates of deposit or other cash equivalents. While that’s done with good intentions, there is a hitch: The low returns of those new ultrasafe I.R.A.s don’t generate enough cash to offset fees of as much as $115 per year, which could deplete a worker’s $1,000 account balance to $0 within 30 years in some cases but in as little as nine years in one plan, a 2014 report from the Government Accountability Office found.**
The average bottom income quintile spent $837 on entertainment in the year 2000 per household. That’s about $1520 now. Only a quarter of it was on pets, which I think might almost be a human need if someone doesn’t have a family. (I don’t think they’re including food, which is a separate category). But for the other 3/4s, about $1140, I don’t begrudge maybe about $200 a year, enough for one streaming service, but other than that, I don’t think you can call yourself scraping by if you’re spending that much each year.
https://www.bls.gov/cex/anthology/csxanth10.pdf
Average alcohol expenditure per year for the bottom quintile was $194 per year per household.
They need to make it easier to rollover a 401(k) into your new employer’s plan or into your IRA
It’s always such a pain in the ass that I totally understand why many people don’t even bother with it.
With regular brokerage accounts I just type my login and password into some portal and my assets appear in a few weeks time. No notary, no phone calls, no mailing checks, no human interaction, no effort. This is the level of convenience Americans need
I have only rolled to my own IRA plans. It has usually taken longer than was reasonable but other than waiting for the transfer to happen I did not have much trouble.
I did have some issues transferring out of Alto IRA and generally would not recommend using them.
And it’s not just the US that has this problem with small amounts in various retirement savings vehicles (although the numbers are bigger in the US): in other countries with similar retirement savings vehicles, people have dribs and drabs that they don’t consolidate and invest efficiently.
It comes down to the individual to take the best action but it doesn’t always happen. Have had this discussion with my daughters in the UK and Canada about getting around to dealing with their bits and pieces from various past employers’ plans but it doesn’t happen.
I consolidated all of my bits and pieces, mostly because i was afraid i would otherwise lose track of them. But it was a pita.
all my former employers had the decency to merge/buy eachother and so i had 3 balances consolidated along the way!
I have a few bits & pieces… some money from the state teachers retirement fund (I think it’s up to around $2,000 now) that’s invested in private equity and earning a great return. Plus if I ever need medical insurance I think I can get it through them as long as I have a non-zero balance with them.
One past employer is a 401k provider and has low fees. I didn’t want to merge my most recent employer’s money (which is marital) with my IRA (which is non-marital) until the divorce is final, but I will. Everything else at Vanguard. When the divorce is final I’ll have my money in 6 or 8 accounts with 3 providers, but one - the state teachers - is comically tiny. Most of the rest was consolidated into Vanguard IRAs a long time ago.
I consolidated all of my big pieces in the last couple years. I’m committed to consolidating 2 little pieces in 2024.
Definitely feels good not only to have it all in once place, but also very easy to manage and monitor
I compressed it down to various stuff from my current employer plus one fidelity IRA.
I would expect the folks on GoActuary to have looked after their various bits of retirement savings fairly well. However we are not a representative sample of the general population. Most folks are less financially diligent.
I had it down to the current IRA and the current 401(k). And it would have been down to one 401(k), except when we purchased our current house we needed money for the downpayment and our available option was to roll the prior 401(k) into an IRA and take money out knowing we’d have the money paid back within 60 days [settlement of mom’s dad’s estate] so we did that.
Then Dad died, and I picked up a brokerage account and an inherited IRA. Eventually the inherited IRA will go away, but that’s a tax timing issue we have to figure out over the next 10 years.
It has been quite a few years since I did US pension work so I have a question.
It appears the IRA is not fully taxable in the year of death? That is, you do not file a final tax return for the deceased in the year of death as the tax liability can be stretched out? If so, I wish we had similar rules in Canada. Second to die insurance is advisable here to mitigate huge tax liabilities in the year of death.
A traditional IRA passes to the heirs and is taxable to them as they withdraw it, but they have to withdraw all of it within 10 years.
My google told me that as well. The 10 yr is new in 2023
Wow, that is a nice tax deferral.
If I predecease my wife, my RRSP (Canadian IRA-equivalent) may be transferred to her on a tax-deferred basis but it is totally taken into income when the second of us dies. My RRSP is my biggest retirement asset so the Canadian taxation will be prohibitive on early death. Maybe should have bought second to die life insurance on my wife and me 20 years ago but I didn’t. Now hoping we both live to be at least 90 when the RRSP should be much smaller.
It used to be that we could withdraw the proceeds of an inherited IRA over our remaining lifetime.
A spouse inheriting an IRA can roll proceeds into their own IRA and others are subject to the 10-year rule.
An IRA being passed on to others is not immediately taxable; you take it out over however long (was 5 years, now is 10) and distributions from it are treated as ordinary income. I think it also used to be that you had to take something out every year, but that’s not the case right now. We’re trying to figure that out, because I think we underwtithheld since one kid will have to file taxes and so they’re not a dependent we can claim [deleted; this isn’t worth an extended discussion]; distributions out of the IRA would compound the problem a bit, though in theory we could take out what we need to cover the tax liability without bumping into the next tax bracket. That’s a February problem to figure out, though.
The deceased still has a final tax return that must get prepared, but one of my sisters has to deal with that. The IRAs passed on to others aren’t considered income in that respect.
Kids can owe taxes and still be dependents. It’s quite common for dependent children with investment income to owe taxes, in fact.
I don’t know your child’s particulars so perhaps (s)he truly doesn’t qualify as your dependent but the reason wouldn’t / couldn’t be be due to the child needing to file a tax return.