Many people believe that since their 401k is sponsored by their employer that there is no chance of fraud. Sadly, U.S. investors lose millions of dollars each year because of such naivety. There are ways to prevent 401k fraud and the first step is to be knowledgeable about 401k scams to which other investors have fallen victim. Here are 5 of the most common 401k investment scams to watch out for:
1. The Fake Investment Scam
Many investors choose to roll their 401k plans into self-directed IRAs once they retire or change jobs. Oftentimes, investors will fill out forms online in an attempt to research various markets and find the best investments for their accounts.
Sometimes, con artists purchase contact information for such investors for cold-calling purposes. If they are able to convince the investor that their “investment” (usually touted as a guaranteed, no risk, high-potential mutual fund) is the best way to go then the investor will complete their 401k rollover and sign an invoice created by the “broker” who is actually a scammer.
Once the funds have been deposited into the new IRA, the signed invoice authorizes the IRA custodian to send funds to the scammer. IRA providers are not account managers and do not give investment advice so research responsibilities lie squarely on the shoulders of the investor. Once the invoice has been signed and the funds have been transferred to the scammer, the investor finds out that there was never a real investment to be bought.
2. Gold 401k Scam
Precious metals are popular retirement account investments. As with the fake investment scam, the gold 401k scam involves a 401k rollover. Once the investor has opened and funded a Precious Metal IRA, the scammer sends an invoice for purchasing precious metals at an attractive price.
Once the invoice has been signed and returned, the funds are transferred to the scammer. The gold and silver never existed, so the con artist walks away with all of the investor’s money while the investor is forced back to square one with no retirement savings.
3. The 401k Loan Scam
It is almost never advisable to take a loan from your 401k, but it is a fairly common transaction that can be executed safely. That safety disappears, however, when one leaves a job and attempts to take a loan from an inactive 401k that has been rolled into an IRA.
The typical 401k loan scam works like thus:
- Investor rolls inactive 401k into self-directed IRA
- While looking for a way to take a loan from this account, the investor happens upon a scammer
- Scammer convinces investor to “invest” in shares of a start-up owned by the scammer
- 60%-70% of the funds are sent to the investor in cash, and the remaining money pays the “loaner’s” fees
- Investor attempts to sell the “shares” only to find out that they are worthless
- Scammer disappears while investor remains on hook to Uncle Sam for missing money
This ugly scenario plays out each and every day within our country, and is just one more reason to avoid taking loans from retirement accounts if at all possible.
4. 401k Rollover Stonewall
One of the most crucial variables we must deal with as investors is timing. The economy, as well as individual investments, works in cycles, making the timing of our moves of the utmost importance.
Unfortunately, some 401k administrators lack a sense of urgency when it comes to facilitating 401k rollover paperwork. According to 401k Rollover most 401k rollovers can be completed within 2-3 weeks. Obstinate administrators and bad company policies, however, have forced some investors to wait up to three months for their 401k rollover to be completed.
Delays could be caused by lost paperwork or incompetence, or they could be the result of malicious stonewalling. If a plan administrator sees too many investors leaving then it could be in the best interests of the plan to slow the outflow. This would serve to discourage investors from leaving and it could also make more money for the administrator due to the interest collected on accounts sitting in cash.
To prevent or stop 401k rollover stonewalling you can document all interactions with the administrator. Make sure you have correctly filled out all pertinent paperwork, preferably with the free assistance of a 401kRollover.com specialist. Be polite but firm, and remind the administrator that you will do whatever is necessary, including contacting your state’s attorney general and the Better Business Bureau, to complete your rollover.
5. The Excessive 401k Fees Scam
These days, some scams are legal and regulated. This is the case with many 401k administrators’ fee structures. The going rate for 401k administrative fees is between 0.05% and 0.09%, although some plans have eliminated such fees entirely. Some 401k investors, however, have complained about fees reaching as high as 1.5% – meaning you pay $150 annually for every $10,000 in the account. This is a blatant form of highway robbery that you can stop by moving your 401k elsewhere.
Wherever there is an honest person trying to earn an honest dollar, there are scammers lurking to steal that dollar, or worse. Criminals are constantly innovating new ways to rob hard-working investors of their hard-earned money, and the worst part is that sometimes the “criminals” are technically operating in a legal manner.
You can protect yourself from 401k fraud by being knowledgeable and using common sense. If something sounds too good to be true then it most like is. You can further protect yourself by keeping your ear to the ground in relation to 401k investing by subscribing to the free 401kRollover.com blog. Not only will you receive regular updates about retirement account investing and our economy, but you will be in direct contact with commission-free experts in the field of retirement accounts. When you are ready to flex your financial muscle call 401kRollover.com toll-free at (800) 767-1423 or visit 401k Rollover now for your obligation-free consultation.