The 401K Rollover Mistakes That Cost Railroaders Billions

Welcome to another edition of the Highball Advisors Railroad Retirement Whiteboard! I’m John McNamara from Highball Advisors, and today we’re going to talk about a common mistake that’s costing railroaders billions of dollars. If you're leaving the railroad and planning to move your 401(k) to an IRA, this is a must-watch, as avoiding this mistake could save you a significant amount of money.

The Basics of a 401(k) Rollover

Your 401(k) is your company’s tax-deferred retirement savings plan. When you leave your job, you might want to roll it over into an IRA for several reasons:

1. More Investment Options: While most 401(k) plans offer around 20-25 investment options, an IRA can give you access to thousands more.
2. Consolidation: If you have multiple 401(k) accounts, rolling them into one IRA can simplify your finances.
3. Professional Management: Financial advisors typically manage IRAs, not 401(k)s, so rolling over gives you access to professional help if needed.

The Big Mistake: Letting Your Money Sit in Cash

Here’s where things often go wrong. When you roll over your 401(k) to an IRA, your 401(k) administrator will sell your investments, converting everything to cash. They’ll then send that cash to your new IRA account.

Now, your IRA is sitting there with a lump sum of cash, and this is where many people make a costly mistake—they don’t reinvest it right away. According to a study by Vanguard:

• One-third of people leave their cash in the IRA for seven years—that’s seven years of missing out on potential market gains.
• Half leave it in cash for a full year. While it might seem safer, you’re potentially missing out on significant growth.
• 68% don’t even know how their money is invested. This is alarming because it’s your retirement nest egg—what you’ve worked so hard to build. You need to know how it’s being managed.

Why It’s Important to Reinvest Quickly

Time in the market is critical. Studies have shown that the longer your money is invested, the better your returns over time. Yes, markets go up and down, but historically, they’ve performed well for long-term investors. Letting your money sit in cash means missing out on potential growth, which can have a huge impact on your retirement savings.

Take Action

Understanding this process and acting quickly to reinvest your funds is essential. Don’t let your hard-earned savings sit idle. Get that money working for you as soon as possible.

I hope this video has been helpful and encourages you to take action. If you’re nearing railroad retirement, consider signing up for my Boarding for Railroad Retirement process. We’ll cover important topics like this one to help you prepare for a secure future.

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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved from Highball Advisors, and all rights are reserved.