By Michael Iskra, Founder, POM Unlimited, Beverly Hills, CA
If you contribute to a 401(k), your employer deducts the money from your paycheck, the plan provider routes it into the fund you selected, and the fund buys the market at whatever price prevails that day. Nothing in that chain evaluates the price. The fund is allocated by formula because that’s the entirety of its job.
That’s not a criticism of your 401(k). Automatic saving has built more wealth for American families than almost any other financial innovation, and I tell my own clients to keep contributing. The problem is what people believe is happening inside the account.
Every Option on the Menu Is Indifferent to You
They assume a professional is making decisions about their money. But the plan menu tells a different story: target date funds, index funds, and even many managed account services typically follow preset allocations, buying the same basket of investments at the same weights regardless of price. Every option on the menu is indifferent to price, indifferent to valuation, and indifferent to you.
That indifference shapes the value on your statement. Your contribution buys at the last traded price and pushes it higher. The next contribution buys at the new price and pushes it higher still. Millions of accounts run that loop every payday, so a growing share of the market’s price level reflects automatic flows rather than anyone’s analysis of what the companies are worth. And the mechanics run in reverse. When an entire generation retires and withdrawals overtake contributions, the selling will be just as automatic as the buying was, with no one assigned to catch the price on the way down.
When the Account Becomes a Tax Problem
The indifference also compounds into an outcome nobody chose. After twenty-five or thirty years on autopilot, a qualified account doesn’t arrive at retirement as a nest egg. It arrives as a tax problem. The IRS taxes every withdrawn dollar as ordinary income, required minimum distributions force money out on the government’s schedule rather than yours, and if the account has grown to seven or eight figures, it now sits as the largest liability on your personal balance sheet inside a structure no one was ever assigned to think about.
The Pieces Are Handled. The Whole Isn’t.
Your CPA books the contribution on your return and moves to the next form. Your financial advisor may weigh in, but the account sits at your employer’s plan provider, outside anything he manages. Your estate attorney never touches it until a beneficiary designation contradicts the plan he drafted. Each of them is doing their job. None of them owns what the account becomes at the end.
That’s the gap I see across every part of a business owner’s financial life. The pieces are professionally handled while the whole is handled by no one, and the account you fund most consistently, with the least judgment applied to it, is the clearest example.
Who Is Actually Looking at This Money?
So the question is who is looking at this money the way you’d look at any other major asset. If the honest answer is no one, the buying is automatic but the endgame is an accident. At a certain age and a certain balance, a portion of that money deserves an actual decision instead of the default the plan hands you. That isn’t market timing. It’s the recognition that indifference was fine when the account was small and stops being fine when it becomes the biggest line on your balance sheet.
How POM Unlimited Helps
If your qualified accounts have grown past the point where autopilot makes sense, schedule a consultation and we’ll look at what they’re actually on track to become, while the choices are still yours to make.
Related Insights
- Why a large IRA you’ll never spend is the most tax-inefficient asset in your estate
The same balance is hit by income tax, estate tax, and the SECURE Act 10-year rule on the same dollars. - How estate tax lands on a large tax-deferred balance at death
A qualified account is also an estate asset, taxed as income in respect of a decedent with no step-up in basis.
This article is for general informational purposes and does not constitute tax, legal, or investment advice. Retirement account rules, required minimum distribution ages, contribution limits, and tax rates are subject to legislative change. Consult a qualified tax professional and review your specific situation before making any changes.