In your lifetime, chances are you have switched jobs at least once. Changing jobs is complicated enough and managing a 401K is the last thing on one’s mind when switching employers. A survey done in 2013 by ING USA showed that half of American adults who participated in an employer-sponsored retirement plan, such as a 401(k), have left an account at a previous employer. These “orphaned” retirement accounts represented more than $1 trillion in investment dollars in 2010. If you are part of the statistics, here is what to do:
- Start by locating where your money is. The easiest thing to do is call the Human Resources Department at your previous job; if they cannot help or if your previous employer no longer exists, a government agency such as the Pension Benefit Guaranty Corporation or the National Registry of Unclaimed Retirement Benefits can help. Pension Benefit is designed to help find lost defined-benefit plans, commonly known as pensions, but it may be able to help find a 401(k) or similar defined-contribution plan. If you still receive the statements from the plan, try to create online access.
- Consider your options: Once you have located your account(s), determine your investment strategy and consider your options:
- Your current employer’s plan: If your current employer will allow it, you can roll the orphaned account into your current 401K; you will need to make sure the new plan’s investment menu meets your retirement savings needs. Consolidated accounts make maintenance considerably easier.
- Roll the orphaned account into an IRA: While 401Ks are great retirement savings instruments for employer matching and easy pre-tax contributions, they usually carry high fee funds and administration fees. Rolling the orphaned account into an IRA could be more cost effective, will provide you with more control of your money and how it is invested, provide easier and fastest access to it, as well as greater investment choices and oversight. Having a single IRA for all your money can give you a more complete picture of how close you are to your retirement goal.
- Whatever you do, don’t cash it out! Cashing out the money on a retirement plan before you are 59 1/2 has the potential to put you back at square one for retirement savings since you’ll pay a 10% penalty in addition to the income taxes on that money.
- Get help! Now that you are starting to organize and take control of your finances, make sure to get the appropriate help (talk to a financial planner, call up your investment firm and ask to speak to an analyst, or take some classes), to make sure you get the information you need to make the best money decisions for you.
Anderson, Nancy L. “3 Things To Consider When You Have An Old 401(k) You Don’t Know What To Do With.” Forbes, Forbes Magazine, 1 May 2017, www.forbes.com/sites/nancyanderson/2017/04/29/3-things-to-consider-when-you-have-an-old-401k-you-dont-know-what-to-do-with/#7251135c4516.
Henry, Alan. “What Should I Do With My Old, Orphaned 401(k)s?” Lifehacker, Lifehacker.com, 20 Aug. 2014, lifehacker.com/what-should-i-do-with-my-old-orphaned-401-k-s-1624399449.
Holsopple , Scott. “What to Do with Orphaned 401Ks.” U.S. News & World Report , 3 June 2017, money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2014/06/03/what-to-do-with-orphaned-401-k-s.
LaPonsie, Maryalene. “Have a New Job? What to Do With Your Old 401(k).” Money Talks News, 5 Nov. 2017, www.moneytalksnews.com/5-reasons-you-should-find-your-orphaned-401k-new-home/.