Urgent warning about predatory fees which could drain 401(k) retirement accounts to $0

A major warning has been issued about predatory fees that could drain retirement accounts to nothing. 

Savers who use Safe Harbor IRA providers are at risk of losing their life's savings because of hidden fees and poor returns, a shocking new study has found. 

Safe Harbor IRAs were designed to manage 401(k) accounts that have been abandoned or forgotten about, usually when an employee moves jobs.  

Low interest rates on accounts as well as 'excessive' fees could massively reduce the retirement pots of those managed by these accounts, online retirement provider PensionBee found. 

Workers and pensioners may not even be aware that their account is with a poorly performing Safe Harbor provider.  

This is because employers can 'force' out accounts that have less than a $7,000 balance and place it in a Safe Harbor IRA without the former employee's consent.

The number of these accounts is expected to rapidly increase in the coming years as workers tend move jobs much more frequently, holding on average 12 jobs during their lifetime.

If employees contribute to their workplace savings scheme but move on to another company within a short period of time they may wrack up several small, dormant 401(k) accounts. 

Safe Harbor IRA providers usually charge monthly fees between $1 and $5 which slowly deplete the value of the account over time. 

Traditional workplace schemes usually charge an annual average fee of 0.85 percent. 

One Safe Harbor IRA analyzed by PensionBee charged a $5.67 monthly fee as well as an annual fee of 0.5 percent of the total asset.

On a $3,500 account, that would deduct $85.54 from the account annually, equivalent to 2.4 percent. 

That account would be depleted to $0 in approximately 40 years, or even faster if any withdrawals or market losses occur, PensionBee warned.

Furthermore, many Safe Harbor IRA providers pay a nominal interest rate, often less than 1 percent, despite the fact that average rates are currently around 4 percent. 

Experts from PensionBee advice consumers to remain vigilant about their own savings by regularly tracking old 401(k)s and choosing the best provider possible.

The organization also recommends employers do not simply pass on former employee pensions to these providers without doing their research. 

Doing so could cause serious reputational damage and even open them up to liability down the line.  

'Life often gets in the way of retirement planning and everyday savers could find their workplace savings forced into poorly performing accounts,' Romi Savova, Chief Executive Officer of PensionBee, said.

'After saving responsibly into their workplace 401(k), employees expect to be able to build up their nest eggs over time. 

'Imagine the horror of finding your nest egg whittled down to nothing by rip off fees and low returns.

'Safe Harbor IRAs are a fundamental component of today's modern workforce, and employers should ensure they are selecting the right provider to avoid reputational issues down the line,' he added. 

While 401(k) accounts are a valuable vehicle for workers to build up a nest egg for retirement, some experts warn against putting all your savings in your workplace plan. 

Financial planner Georgia Lord said tax laws change constantly, so it is crucial to diversify your retirement accounts to give you flexibility when it comes to accessing your savings later in life.

This will also help you to avoid being caught out with a higher tax bill.