Many workers inadvertently leave behind their retirement plan accounts when switching to new jobs, and eventually forget about them completely. You may be pleased to know, a recently established federal basis should make the process of finding a lost retirement account simpler.
At the end of May 2021, there were more than 24.3 million 401(k) plan accounts that had been forgotten. All these accounts had a combined value of approximately $1.35 trillion. In May of 2023, it was over 29 million accounts, and they were worth more than $1.6 trillion combined! In 2021, these lost accounts accounted for twenty percent of the total assets held by 401(k) plans. Around twenty-five percent in the year 2023.*
The federal Secure 2.0 Act, which was signed into law in late 2022, may, thankfully, bring about a change in this situation. The Labor Department’s Employee Benefits Security Administration (EBSA) was given the directive to establish a “lost and found” of sorts for lost retirement savings.
Is It Worth It?
There is a plan in place to launch the project by the 29th of December. This newly created database may give you the opportunity to discover 401(k) accounts from previous jobs that you have forgotten about. It is important to keep in mind that it’s still your responsibility to check the database and carry out the necessary steps in order to transfer the funds into a new account. This includes making decisions regarding what to do with the funds, selecting a new administrator for them, choosing investments, etc. The process of transferring your lost funds is still a challenging one. Is the time and effort necessary? We think so. You could have tens or hundreds of thousands of dollars sitting in that lost retirement account! Getting help from a financial advisor could also help make the process of transfer easier.
What You Need to Know
When an employee leaves their place of employment, plans with a value of less than $1,000 are typically automatically cashed out. Other accounts, on the other hand, may have been left unattended, and are consequently being subject to administrative fees. If you have a lost retirement account, you have a few different options to choose from.
Because it would be more convenient for you, you could simply leave your account with your previous employer. Your previous employer can’t make you move your account if it is valued at $5,000 or more. The next choice you have is to “rollover” the funds to your new workplace.
Keep in mind, however, that the money should be transferred directly to the new retirement account at your new workplace. If transferred to you first, the IRS may consider the money an early withdrawal. As a result, they’d subject you to a withholding tax of 20%. The transfer of your previous funds into your new account not only makes it easier to keep track of your money, but it also comes with additional advantages. For example, the possibility of obtaining a loan from the plan being offered by your current employer. This is something that would not be an option if you had left the money with your previous employer.
401k to IRA Transfer
There is also the possibility of transferring the funds into an individual retirement account, also known as an IRA. While moving money into an IRA might give you more control and flexibility, there are a few drawbacks to consider. Keep in mind that IRAs are not protected from creditors in the same way that 401(k)s and other plans are. In summary, you should give some thought to which choice is the most suitable for your retirement strategy.
When Will the New Database Be Ready?
As we previously mentioned, the new database is set to go live on December 29th. However, it’s important to note that it will be in its infancy at that point and will take some time to become fully operational and work out any potential glitches. Until it’s ready, some other options for finding your lost retirement account may include: the National Association of Unclaimed Property Administrators or the National Registry of Unclaimed Retirement Benefits. Other options exist beyond just the federal database, and it may be a good idea to seek them out before you forget.
*Source: MarketWatch