When employees change jobs, their retirement plan account may be left behind and forgotten. Fortunately, a new federal database should make it easier to find your lost retirement account from a previous employer.
As of May 2021, there were over 24.3 million forgotten 401(k) plan accounts, totaling approximately $1.35 trillion. For May 2023, there were over 29 million forgotten accounts, worth more than $1.6 trillion! These lost accounts accounted for 20% of all 401(k) plan assets in 2021. In 2023, approximately 25%*. Thankfully, this could change starting this month. Recently, the Department of Labor was tasked with developing a “lost and found” retirement savings program.
Is It Worth It?
The project is scheduled to go live on December 29th. Using this new database, you could potentially find your lost 401(k) accounts from a previous job that you had forgotten about. Remember, however, that it is still your responsibility to check the database and complete the necessary steps to transfer the funds to a new account. It’s a difficult process to transfer those lost funds, but is this effort worth it? We think so, especially if you have tens or hundreds of thousands of dollars in that lost retirement account. Seeking advice from a financial professional may also help with the transfer process.
What You Need to Know
Plans under $1,000 are typically automatically cashed out when a worker leaves a job. Other accounts, on the other hand, may have been overlooked and eventually forgotten about. If you’ve discovered you have a lost retirement account, here are a few ways to deal with it:
You could leave your account with your former employer for the sake of convenience. If your account is worth $5,000 or more, your former employer cannot force you to transfer it*. The next option would be to “rollover” the account to your current employer. Make sure to transfer the funds directly to the new workplace retirement account. If the money is sent to you first, the IRS may consider it an early withdrawal and charge you 20% withholding taxes. Transferring your old funds to your new account not only makes your money easier to track, but there are additional benefits, too. You may be able to take out a loan through your current employer’s plan, which you wouldn’t have been able to do if you had left the money at your previous job.
Another option is to transfer the funds to an individual retirement account (IRA). While transferring to an IRA provides more control and flexibility*, there are some drawbacks. Employer-sponsored plans, such as 401(k), are typically protected from creditors, whereas individual retirement accounts (IRA) are not. Overall, consider which option best suits you and your retirement strategy.
When Will the New Database Be Ready?
As previously stated, the new database is scheduled to go live on December 29th. However, it is important to note that it will only be in its early stages by that point, and will need some time to become fully operational and iron out any potential flaws. Until it’s ready, you may be able to find your lost retirement account using the National Association of Unclaimed Property Administrators or the National Registry of Unclaimed Retirement Benefits. Consider making use of one of these options before you forget. You might have a lost retirement account with a significant accumulation of funds still in it!
*Source: MarketWatch
