August 19, 2019
Put simply, people change jobs pretty regularly, Tom. According to the Bureau of Labor Statistics, the average worker in America changes employers every 4 years or so. And when we do this, many of us end up starting a new retirement account. But that does not mean we can forget the old one. This morning, I want to remind our listeners of the options available for those accounts, and how to handle them.
The best way to find an old retirement account is to contact your previous employer to get the contact information for the plan administrator. Once you have that, you can reach out to them to get the details on your old account. Even if you are not sure whether you participated, you should contact past employers. Reach out to the human resources department at your old employer and simply ask them if you participated in their 401(k) plan. Have your full name, social security number and the dates you worked for them on hand when you contact them.
That said, it isn’t always that straight forward. Companies go out of business, change the location of their office, or get bought out. If this is the case for one of your old employers, try to find an old 401(k) plan statement to see if it contains any contact information for the firm that administered the plan, and then contact them. If you cannot do that, seek out former employees you worked with to see if they still have any records that will help you locate the plan administrator for your old account.
You still have options. Because most plans are required to file an annual Form 5500 with the government, you can search for your former employer’s 5500 on a number of websites, like www.freeERISA.com. If you can find a Form 5500 on an old plan, it will have the contact information you need. You can also visit the National Registry of Unclaimed Benefits to see if your former employer has listed you as a missing participant. This registry is a nation-wide, secure database listing of retirement plan account balances that have been left unclaimed. This website is designed to help match employers with abandoned or forgotten employee retirement account balances with the former employees. Lastly, you can check the Labor Department's Abandoned Plan Database. This database will tell you whether a plan is in the process of being, or has been, terminated and the name of the Qualified Termination Administrator, who you can then contact about your account.
Once you find them, you have a several options. The first option, if it is available, is to leave your account alone. Most companies allow former employees to keep their money in their plan if it is over $5,000. However, you will not be able to make contributions to the account if you do this. I would not recommend leaving your account in place unless your account has very low fees or money management services.
The second option is to roll your old 401(k) savings into an individual retirement account. Doing this allows your money to grow tax deferred and gives you more investment options than the typical employer plan. And when you go this route, you are also able to continue making contributions.
Finally, if you get lucky, you may be able to roll your old accounts into your current account. Not all employers will accept a rollover, but it is worth asking your current plan administrator to see if it is possible. When you go this route, simplicity and ease of management are the biggest benefits. You also get broader creditor protection than you would with an IRA. However, you want to keep in mind that an employer 401(k) plan may have a limited number of investment options compared with an IRA, and that you are subject to the new employer’s plan rules, such as transaction limits.
Don’t do it! First, you will pay a huge chunk in taxes. The penalties are dependent on your age and tax situation, but if you cash out a 401(k) account before age 59½, it will most likely be subject to both ordinary income taxes and a 10% early withdrawal penalty.
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