As of May 2023, nearly $1.65 trillion is estimated to exist in forgotten 401(k) accounts, representing 25% of all 401(k) plan assets. Understandably, moving your retirement savings may not be your first priority when you switch jobs. However, not doing anything about the funds could negatively affect your retirement plan, leading to years of forgone gains.
You have four options with what you can do with 401(k) assets from a previous employer:
Option 1: Roll the Funds into an IRA
An individual retirement account (IRA) is a retirement account for a single individual – as opposed to 401(k)s, 403(b)s, 457s, etc., which are sponsored by an employer and hold assets for multiple employees. IRAs are easy to open at any financial institution (i.e., Charles Schwab, Fidelity, Vanguard, E*Trade, Merrill Lynch, etc.). They allow you the flexibility to invest in a much broader array of investment choices (rather than select mutual funds available through the employer plan) and could potentially save you money on fees.
Transferring funds from your previous employer’s plan to an IRA is simple. You can contact your previous employer’s human resources department or call the financial institution where your funds are held and ask what the protocol is to roll over the funds to an IRA.
NOTE: make sure to roll pre-tax funds into a Traditional IRA and Roth funds into a Roth IRA.
Option 2: Combine the Funds into Your Current Employer’s Retirement Plan
Combining the funds from your previous employer’s retirement plan into your current employer’s plan is also a great option to ensure your retirement assets follow you to the new employer. This allows you to add the money to your current 401(k) so that your retirement funds stay organized and aggregated. However, there may be better options than this if your new 401(k) plan has limited investment choices.
If you want to consolidate old 401(k)s into your current plan, you will need to talk with the plan administrator about whether they will allow you to do so. In addition, some plan administrators will do a direct transfer, while others will require that you receive a check to then deposit with the current 401(k) plan.
Option 3: Cash It Out
While this is not always the most advisable choice and should generally be avoided, it is an option. If you need the money or there is a small balance in your 401(k) from a previous employer, you can elect to have the funds distributed to you. This would mean paying taxes on this amount, including a 10% early withdrawal penalty. The early withdrawal penalty will be waived if you are over 59 ½ or are over 55 and meet other criteria.
Option 4: Do Nothing and Leave It Where It Is
If none of the other three options appeal to you, you can conveniently keep it where it is. If the 401(k) from the previous employer is invested well with various inexpensive investment options, this could be a good route for certain people. However, it is easy to forget about these funds down the road, or you may have a tough time tracking them down if you have not worked for the company for a number of years. Also, depending on the number of assets you leave and the rules of the particular 401(k) plan, there are certain implications for what will happen to your funds (more on this below). As a general rule, it is a good idea for your retirement funds to follow you from employer to employer – whether you combine the old 401(k) funds into a new one or roll them into an IRA. This helps keep you organized and ensures that you have no missing funds.
Finding Lost 401(k) Funds
Tracking down 401(k) funds from a previous employer where you have not worked for some time can be tricky. A new law called the SECURE Act 2.0 will establish a database through the Department of Labor whereby you can search for lost retirement savings accounts. However, this is still in development, and it could be a couple of years before it is made available to the public.
Based on the amount of assets you left in the plan, some things may have happened to your money. If you left less than $1,000 in the old 401(k), there is a good chance the plan administrator cut a check for the total amount and mailed it to your address of record (which may or may not be your current residence). If there was more than $5,000 in your account, it is likely that your money remained in the workplace retirement plan. If the balance was between $1,000 and $5,000, plan administrators can move your funds into a specialty IRA in your name, leaving it to you to track it down.
If you are having trouble tracking down your money in an old 401(k), here are some ways you can proceed:
Check your emails and records for statements. If you have funds in a previous employer’s 401(k) plan, you are likely receiving periodic statements. This will include the name of the plan, the balance, and contact information for the plan administrator.
Contact your former employer. You can reach out to your former employer’s human resources department, and they will point you in the direction of the plan administrator.
Use available databases. Certain free websites can help you track down 401(k) funds if the old plan administrator cannot tell you where the funds went. The National Registry of Unclaimed Retirement Benefits aggregates account balances from participating companies that have been left unclaimed by former participants. Not every company is registered with this site, so you may have to continue your search if you do not see anything on this website. The Department of Labor’s Employee Benefits Security Administration also has an Abandoned Plan Search tool to find funds in a terminated plan. If you were covered under a traditional pension, the Pension Benefit Guaranty Corporation also has a search tool to find unclaimed pensions from a disbanded plan.
Use a paid service. There are also services out there that, for a small fee, will help you find your old accounts. Some of these include Beagle and Capitalize.
Search for unclaimed property. In some instances, financial institutions will turn over assets to the state. To check and see if this happened to you, you can search your state’s unclaimed property website or use Missing Money to do a multistate search.
Do not let these funds be forgotten! The easiest thing to do is to consolidate your 401(k) assets as you move jobs to keep yourself organized.
If you have retirement assets from a previous employer and are trying to figure out what to do with them, reach out to us! You can schedule a complimentary, no-obligation call with us here.
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About the Author
Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and virtually nationwide with the financial decision-making process to organize, grow, and protect your assets.
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