This common money move costs retirement savers $45.5 billion in investment fees, earnings over 25 years

cnbc.com:

IRA rollovers — transfers from 401(k) plans to individual retirement accounts — are a common financial move when workers switch jobs or retire. But rollover IRAs can cost Americans billions of dollars in extra fees over decades, according to a study issued Thursday by The Pew Charitable Trusts, a nonprofit research organization.

The dynamic is due to the lower annual fees for mutual funds generally available to 401(k) savers relative to costs incurred by IRA investors.

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«Even small disparities in fees can lead to big reductions in savings,» according to John Scott, who directs Pew's retirement savings project.

Investors rolled $516.7 billion from workplace plans into traditional IRAs in 2018, the latest year for which data is available. That's nearly 28 times more money than as contributed to traditional IRAs that year.

A Pew survey from 2021 found that 46% of recent retirees rolled at least some of their workplace retirement funds to an IRA, and 16% of near retirees plan to do so.

A rollover may not be optional, either: About 15% of 401(k) plans don't allow workers to retain funds in the plan when they retire, according to a survey conducted by the Plan Sponsor Council of America, a trade group.

The typical «hybrid» fund in a 401(k) plan is 0.19 percentage points cheaper than the same fund available to IRA investors, according to the Pew study. (A hybrid fund holds both stocks and bonds.)

That fee differential, which may seem negligible, amounts to big bucks over many years.

Using those figures, Pew estimates that