5 ways financial advisors can maximize client 401(k)s

By Stewart Bowling, Courtney Hoff Dockerty

November 28, 2023 2:48 PM

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Saving for retirement should be straightforward, but it's never that easy. Among challenges future retirees and their financial advisors face: legislative changes under SECURE 2.0 that will impact contributions, employees leaving 401(k) assets behind when switching jobs and retirement plan "leakage" when investors cash out instead of rolling over their 401(k)s.

Below you'll find five stories on 401(k) issues along with ways in which financial advisors can help their clients maximize savings and returns.

New retirement plan catch-up rules require further tweaks

Legislative changes made to Roth contributions in SECURE 2.0 may "unintentionally result in the elimination of catch-up contributions" for high-income employees looking to boost their retirement savings.

As a result, industry stakeholders, such as Charles Schwab and Fidelity Investments, and the retirement community at large, which also see many challenges in implementing the changes in short order, are urging Congress for a delay.

"It's clear that Congress intends to pass a law," said Paul Richman, chief government and political affairs officer of the Insured Retirement Institute. "They acknowledge making an error in the statutory language, and they've committed to fixing the bill to make sure it's implemented correctly."

Read more:

401(k) catch-up questions leave high earners in limbo

Sisyphus rolls a snowball uphill, created with Generative AI technology

No assets left behind is the goal for advisors

Changing jobs every few years has become a common feature of one's career. What's also common is forgetting to roll over one's retirement savings. Estimates show that around $1.35 trillion in assets remain idle in 24.3 million 'lost' 401(k)s.

"As American workers are very mobile and are moving around from employer to employer, they're leaving behind balances in 401(k) plans," said Dave Stinnett, head of strategic retirement consulting at Vanguard. "It's important that those balances find a way to follow the worker and get consolidated."

Financial Planning spoke to a range of advisors to find out how to get the ball, and assets, rolling.

Read more:

4 tips for rolling over all of your client's old 401(k)s

Auto-enrollment gets young Americans into the saving habit

Unpredictable and sometimes down markets lately haven't stopped young people from saving for retirement. And some encouragement from the government in the shape of the 2006 Pensions Protection Act, which allowed firms to automatically default or auto-enroll employees into their retirement plans, has also helped.

"Left to make the decision, most people will just do the default," said Andre Jean-Pierre of Aces Advisors. "So when they made the default decision to actually save, I believe they changed a lot of lives with that."

The move is starting to pay dividend now, particularly with Generation Z, which is already saving twice as much as it did in 2006 when the law was first passed.

Read more:

Generation 401(k): Why Gen Z workers are saving more for retirement

The danger of retirement plan leakage draining 401(k) plans

The temptation of gaining an instant cash infusion rather than receiving the benefits of tax-deferred compound growth is leading to billions of dollars "leaking" away from 401(k) accounts when employees switch jobs.

"While the industry has made great strides in helping more Americans save for retirement, we know that retirement plan leakage can inhibit an individual's ability to achieve a financially secure retirement," said Jane Greenfield, a principal and head of consultant success at Vanguard.

It's a problem that can have large ramifications. "Once you blow out your 401(k), you can't unwind this," said Jim Eutsler of HCM Wealth Advisors. Rather than cash out, "We guide [clients] that if you have other sources, that's probably the path to consider."

Read more:

Cashing out 401(k) accounts: the new retirement crisis

The how-to on going between 401(k)s and 403(b)

Moving to a new job is exciting and full of possibility. And if you have an existing 401(k) account, rolling over your savings into a new 401(k) plan offers new investment opportunities, too.

However, if your new employer is a nonprofit, such as a charity or public school, you may be faced with a new choice: the lesser known 403(b) plan.

What differentiates a 401(k) from a 403(b)? Is rolling over from one to the other right for you? Here are the thoughts of five advisors on what to consider.

Read more:

Ask an advisor: Can I roll my 401(k) into a 403(b)?