Did you leave something behind when you changed jobs in the past?
It’s surprisingly common for Americans to leave behind and then forget retirement accounts from previous employers. In fact, there are 31 million lost traditional and Roth 401(k) accounts holding more than $2 trillion in assets, according to a study by financial-tech company Capitalize and the Center for Retirement Research. The average balance per account? $66,691. “That’s your hard-earned retirement savings stranded,” says 401(k) expert Brian Anderson. “Fortunately, federal legislation in recent years has made finding and claiming forgotten accounts easier.”
We asked Anderson to explain how you can locate your orphaned 401(k) accounts…
Why People Lose Track of 401(k) Accounts
The number of lost retirement accounts has soared in the past decade as job hopping has become the new normal. By the time a person is in his/her mid 50s, he will have held an average of 12 jobs. “People get caught up in a new job and intend to deal with their old 401(k) accounts later,” says Anderson. “But they may let it slide, especially if the rollover process is confusing.”
What’s more, employers have started automatically enrolling workers into company 401(k) plans, creating lots of small retirement accounts that job-hopping workers can lose track of. And many companies close, change names or merge. If you moved and haven’t updated your contact information, these former employers will send a notice about your unclaimed retirement benefits to your last known mailing address—but they are not required to take any further steps to find you.
Step-by-Step Guide: How to Find Your Old 401(k) Accounts
The good news is all this forgotten money doesn’t just vanish or get forfeited. Your old 401(k) assets are heavily protected by federal law. Even if your old company goes bankrupt or dissolves, employers cannot use your retirement savings to pay off debts. You can likely find a lost 401(k) account in one of three places…
Your former employer’s plan. “This is the best-case scenario,” says Anderson. “If you left the 401(k) invested in stock funds for many years, you’ve probably earned a nice windfall.”
Unclaimed-property divisions in the states where you were employed. Under federal law, employers are allowed to automatically “cash out” small 401(k) account balances (ones with less than $1,000) without your consent. If a check that is mailed to you isn’t cashed within a year, your investments are sold and the money goes to that state’s unclaimed-property division. “This is a worst-case scenario,” says Anderson. “Even if you never saw the check or it was sent to an old address, it still counts as a taxable distribution and you may potentially owe early-withdrawal penalties if you are under 59½.” And, of course, your cash earns no interest while it’s held by the state.
“Safe harbor” IRA that your old employer created on your behalf. If the balance in your old 401(k) was between $1,000 and $7,000 when you left the employer…and you were given advance notice…federal law allows the company to liquidate your investments and roll over the money to a specialized IRA. “The safe harbor IRA is in your name,” says Anderson, “but it’s typically invested in a money-market account that pays minimal interest.” If a company goes out of business and dissolves its 401(k) plan, old 401(k) balances over $7,000 may either stay with the plan administrator or go into a safe harbor IRA. Note: Your 401(k) account retains its tax status when it’s rolled over, so a traditional 401(k) is transferred to a traditional IRA…a Roth 401(k) to a Roth IRA.
To locate your old 401(k) account, you may need to try several approaches…
Contact your former employer
Ask the former employer’s human-resources or benefits department to locate your account…and ask how can you access and review it. They should be able to connect you with the outside financial-services firm (such as Fidelity Investments, Vanguard or Charles Schwab) that administers the 401(k) plan.
Reach out directly to the 401(k) plan administrator
If you can’t get this information from your former employer—perhaps the company was acquired or merged with another company—look for any old 401(k) statements to find the name of your plan administrator. The administrator should be able to tell you who is now your account’s custodian. If your old company no longer exists, you can head to the Department of Labor’s EFAST database and look up the company’s Form 5500, which includes contact information for the original plan administrator.
Search state unclaimed-property databases
If your plan has lost track of your 401(k) assets, they may have been turned over to your state. The National Association of Unclaimed Property Administrators (NAUPA) sponsors MissingMoney.com, a legitimate, free national database where you can search for forgotten funds and claim them across multiple states at once. You should also try unclaimed databases run by your own individual state—you can find the link to your state at Unclaimed.org/search.
Use federal resources
Start with the Department of Labor’s Retirement Savings Lost and Found Database. Managed by the Employee Benefits Security Administration (EBSA), this centralized registry helps workers and beneficiaries find forgotten 401(k), 403(b) and pension accounts left with former private-sector and union employers.
If your previous employer or 401(k) plan manager is no longer operating, try EBSA’s Abandoned Plan Program, which helps distribute funds for bankrupt or closed companies.
Finally, did you earn a retirement pension benefit from a private-sector employer? If so, your employer may have transferred those benefits to the Pension Benefit Guaranty Corporation.
Check the National Registry of Unclaimed Retirement Benefits (NRURB)
It is run by a private company, not a government agency. PenChecks Trust, an independent processor of retirement benefit distributions, runs a free registry that is updated regularly. It contains information about assets left behind in many different types of former employer retirement accounts, not just 401(k)s.
Beware: “There are many 401(k) finder services that charge a fee to find your money or claim that you have money they can locate,” says Anderson. “I don’t recommend them. They are unnecessary since they use the same resources you can tap for free, and it’s possible you could get scammed.”
What to Do After You Find Your Old 401(k) Account
Once you locate dormant retirement accounts, you have to decide where you want to keep those funds going forward. “Chances are, your old 401(k) was invested when you had a different version of your future retirement,” says Anderson. “So you’ll need to review the account details, investment choices and fees, as well as how your account now aligns with your current goals and financial plans.” You typically have four options…
Option #1: Roll over the old 401(k) into a new or existing IRA
“This is the right move for a lot of workers,” says Anderson. You get to choose the financial institution and invest in a much broader choice of investments than your employer’s plan…you save on administrative fees…and consolidating retirement accounts simplifies your life and makes them easier to manage. Drawbacks: Federal law generally offers more protection against creditors for money in 401(k) plans than in IRAs. Also, you can’t take a loan from an IRA or withdraw money penalty-free before age 59½ as you can with some 401(k) plans.
Option #2: Roll the old 401(k) into your current employer’s 401(k) plan if you like the new plan’s rules and investment options.
“Not all plans allow this type of 401(k) account consolidation,” says Anderson, “so check with your new company’s HR department or plan administrator.” Note: This is not an option if your old 401(k) plan assets are invested in a safe harbor IRA.
Option #3: Cash out
According to Vanguard data, one-third of workers cash out their old 401(k)s instead of rolling them over. This is the least desirable option because you could potentially face early-withdrawal penalties as well as increase your taxable income for the year in which the money was withdrawn. Plus, you miss out on any tax-deferred growth.
Option #4: Leave the old 401(k) where it is
If you have more than $7,000 in assets, many former employers allow you to remain in their 401(k) plans after you part ways.
Risks of Leaving Old 401(k) Accounts Unattended
While holding on to an old 401(k) can save you the hassle of having to move it elsewhere or reinvest the money, there are obstacles that can make this choice problematic, including…
High fees
Check to see if you are on the hook for current fees that you may not have paid as an employee.
Lost growth
You have limited investment options, many of which may be subpar. If your money is in a safe harbor IRA, you may be earning next to nothing in interest. High maintenance fees can eat up hundreds, even thousands, of dollars over time.
Lack of flexibility
“You won’t be able to add money to the account, and you won’t be eligible for a 401(k) loan if you need one,” says Anderson.
