Lynn O'Shaughnessy

It's only human nature to postpone unpleasant chores. Some are easier to put off than others. While there are obvious consequences to not emptying a diaper pail, there may appear to be no downside to leaving your 401(k) alone when it's time to clean out your workplace cubicle and move on.

But for most people who choose this path, the consequences are far more hazardous than smelling stinky diapers. When you choose to strand your money in an old 401(k), you are limiting your loved ones' future inheritance options and you can also be jeopardizing your own investment returns.

If your money remains parked in your 401(k), 403(b) or 457 plan, its value will plummet if certain family members ultimately inherit what's left. Suppose, for instance, that a father leaves his 401(k) to his daughter. If the daughter is financially savvy (or has read my two previous columns on the virtues of inherited IRAs), she'll want to stretch this retirement account over her own lifetime.

She'd do this by leaving the money nestled in its tax cocoon and withdrawing only the amount that the Internal Revenue Service would require each year based on her life expectancy.

This may sound like a great idea, and choosing this route is OK with the IRS. As a practical matter, however, nearly all workplaces would politely tell the daughter to take a hike. Companies don't want the hassle of indefinitely handling the 401(k) of a dead worker, even if he earned a bunch of employee-of-the-month plaques.

An employer, who doesn't give a hoot about stretching IRAs, would be free to cut a check to the daughter. The daughter would pay income taxes on the windfall and the tax protection on the remaining cash would be shredded into confetti.

You may have noticed that I used a child and not a spouse for my example. Husbands and wives do enjoy an option that will prevent the workplace plan from splattering. Only a widow or widower can transfer the money from a deceased spouse's workplace plan into an IRA, where the money can remain protected from taxes.

If you need another compelling reason to roll your 401(k) cash into an IRA, here it is: By doing this, you may dramatically enhance your investment returns. You see, many - if not most - 401(k) and other workplace plans are stuffed with mediocre investments that pass along outrageous fees. Working stiffs, however, assume that their workplace accounts are free, so it's rare to find an indignant employee who rails at paying for caviar and receiving kibble instead.

Workers, by the way, aren't aware of being gouged because expenses are withdrawn from workplace accounts automatically. If people started receiving bills for their pathetic funds, maybe we could expect some revolts.

Lynn O'Shaughnessy

Lynn O'Shaughnessy is the author of Retirement Bible.

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