Here’s What to Do with the Money Left Behind in Old 401(k) Accounts
First off, don’t lose track of it! You’d be surprised how many people forget about their old 401(k)s.
Recently, a Capitalize Research study revealed that Americans have left behind over $1 trillion untouched in their old 401(k)s. This implies that millions of employees are struggling to manage their retirement savings as they move from job to job, leading to the accumulation of money in these abandoned accounts.
The 401(k), a tax-advantaged savings plan, has helped revolutionize the American workforce since its enactment in 1978. However, millions of dollars are left unclaimed as people change jobs, relocate and subsequently forget about their old 401(k)s. When you lose track of a 401(k) at an old employer, your savings in that account stagnate, leaving an opportunity toward building a secure financial future squandered.
Even if you are contributing to a new plan with your current employer, leaving money behind in an old 401(k) account and forgetting about it harms your overall financial well-being, prevents you from building a cohesive financial plan and does not allow all your money to work for you and your goals in the best possible way.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The Cons of Leaving Your 401(k) Behind
Risk of Losing Track of Old 401(k)s
Rolling over an old 401(k) or managing your savings during a job transition can be stressful and chaotic. Some people end up leaving behind an old account with the intention to revisit it later, only to forget about it or lose track of it as they are faced with other aspects of their job transition. This will make it difficult to put your savings to good use in a way that promotes your financial stability in the future.
As of now, if you have less than $5,000 in any old accounts, your previous employers will likely either cut you a check for the remaining balance or move the money into an IRA. It’s up to you to find it, though. (For more on how to do that, keep reading.)
Missing Out on Investment Opportunities
Do you know when you forget your old 401(k) accounts, you miss out on a chance for a solid investment plan? You were wise enough to set up a retirement plan to secure your financial freedom for the future. But, when you leave behind any amount of savings, it leads to loss of earning capacity.
Leaving behind money in an old retirement account also means that your savings dollars may not be invested in the most beneficial way possible for you. Staying on top of old accounts or rolling them over into your current plan can help you ensure you are investing every dollar with purpose, efficiency and your unique goals in mind.
How to Find an Old 401(k) Account
One of the easiest ways to begin locating your lost account is by contacting your previous employer or previous plan administrator first. They will have firsthand knowledge and records of your plan. Be sure to have your Social Security number and employment dates ready to be shared, and provide any previous 401(k) statements or other relevant documents if you have them.
If you can no longer trace the account with your former employer, run a search on the National Registry of Unclaimed Retirement Benefits. This site enables employers to connect former employees with their retirement contributions. You also have the option of searching for any filing on the U.S. Department of Labor's Abandoned Plan Database.
What to do With Your Leftover 401(k) Funds
Moving from one job to another and dealing with the surprises of life can be overwhelming, right? It is easy to forget or lose track of your previous 401(k) plan as you start focusing on your current retirement savings account and settle into your new job.
To maintain ease of access to your savings and make the most of your leftover 401(k)s, there are several options to choose from when deciding what to do with your old 401(k)s.
First, you can leave the money in the old 401(k) if you are sure you will not forget about it. The advantage of this option is your account maintaining a tax-deferred status. The downside is, if you have less than $5,000 your past employer can send a check to you (possibly triggering a tax bill) or to an IRA, which can attract some fees.
Rolling over your past 401(k) accounts into an individual retirement account ensures that you maintain good record-keeping of the funds, as they are all saved in one place. Even better, you will accrue more benefits, such as having more control over factors, such as account fees and access to a broader range of investments.
You can also choose to roll over your old 401(k) into your current employer's plan, as long as the plan allows it. This ensures you protect your savings in a tax-deferred account and have access to profitable investment options. Just ensure you understand the rules set in the new plan.
Ultimately, what you decide to do with your old 401(k) funds is a personal decision that requires you to critically weigh both the risks and benefits associated with the choices available in handling old funds. Make the best decision for your future by ensuring your funds are always in an account that offers favorable terms that optimize your investment returns.
In March 2010, Andrew Rosen joined Diversified, bringing with him nine years of financial industry experience. As a financial planner, Andrew forges lifelong relationships with clients, coaching them through all stages of life. He has obtained his Series 6, 7 and 63, along with property/casualty and health/life insurance licenses.
-
How To Find the Best Japanese Stocks
Japan's stock market is soaring which has many investors wondering how to find the best Japanese stocks. We take a closer look here.
By Kyle Woodley Published
-
Can Money Buy You Happiness? Yes, It Can. However…
Having a higher income doesn't mean you also have enough of the other things that make you feel truly happy and wealthy (relationships, hobbies, time).
By Richard P. Himmer, PhD Published
-
Can Money Buy You Happiness? Yes, It Can. However…
Having a higher income doesn't mean you also have enough of the other things that make you feel truly happy and wealthy (relationships, hobbies, time).
By Richard P. Himmer, PhD Published
-
Roth Conversions: Convert Everything at Once or as You Go?
Two hypothetical examples of Roth conversions made at different times (all at once vs as you age) show a stark difference in what could be left for your beneficiaries.
By Mike Decker, NSSA® Published
-
Four Unseen Icebergs That Could Sink Your Retirement Plan
Don’t be like the captain of the ‘Titanic’ and ignore warnings to be prepared for risks that lie ahead when planning for your retirement.
By Daniel Sullivan Published
-
Want to Retire Abroad? Five Things to Know About Your Money
To prevent your retirement dream from becoming a nightmare, you should carefully consider the logistical and financial hurdles of retiring outside the U.S.
By Pam Krueger Published
-
For Longevity Protection, Consider a QLAC
A qualifying longevity annuity contract, or QLAC, can help you define a better retirement for yourself by providing guaranteed lifetime income.
By Jerry Golden, Investment Adviser Representative Published
-
Digital Estate Planning Guide: Get Your Digital Assets in Order
A digital estate plan lets your loved ones know what should happen to your email and social media accounts, photos and more after you’re gone.
By Justin Stivers, Esq. Published
-
10 Good Reasons to Revisit Your Will
Life changes often, so taking a good look at your will every three to five years can ensure everything from beneficiaries to changes in the law are up to date.
By Stefan Greenberg, CFP®, CFS, CLTC Published
-
What to Do When You Have More Retirement Income Than You Need
These three options can help you allocate extra income in ways that don’t push you into a higher tax bracket or trigger extra taxes.
By Stephen B. Dunbar III, JD, CLU Published