Retirement Tip of the Month

Recover Your Lost Retirement Account

Workers who change jobs often leave their retirement plan accounts behind and then forget about them. However, a new federal database should make it easier for you to find your lost retirement account from a previous job.

As of May 2021, more than 24.3 million 401(k) accounts worth a total of $1.35 trillion had been forgotten about. In May 2023, it was more than 29 million accounts, worth more than $1.6 trillion. In 2021, these lost accounts made up 20% of all the money in 401(k) plans. About 25% in 2023. The federal Secure 2.0 Act, which was signed into law in late 2022, may help with this. The Employee Benefits Security Administration (EBSA) of the Labor Department was told to set up a “lost and found” for retirement savings.

Is It Worth It?

The project should be up and running by December 29th. With this new database, you may be able to find 401(k) accounts from previous jobs that you had forgotten about. But remember that you’re still responsible for checking the database and moving the money to a new account. Transferring those lost funds is a tricky process. But is it worth it? We think so, yes. Especially if your lost retirement account has tens or hundreds of thousands of dollars sitting in it. Getting help from a financial advisor could also make the transfer process more manageable.

What You Need to Know

Workplace plans worth less than $1,000 usually get cashed out automatically when a worker leaves. Other accounts, on the other hand, may have been left alone in old investments and are now being subject to administrative fees. If you have a lost retirement account, you can do a few different things with it.

For ease of use, you could leave your account with your old employer. If your account is worth $5,000 or more, your former employer can’t make you move it*. The next thing you could do is “rollover” the account to your current job. But make sure to transfer the money straight to the new retirement account at your new job. If you receive the money first, the IRS might see it as an early withdrawal and charge you a 20% withholding tax.

It’s easier to keep track of your money when you move it to a new account. But there are other benefits, too. For example, you might be able to borrow money from your new plan, which you wouldn’t be able to do if you left the money at your old job.

You could also put the money into an IRA (individual retirement account). Even though transferring the money to an IRA may give you more control and freedom,* there are drawbacks. Keep in mind that IRAs are not protected from creditors like 401(k)s and other employer-sponsored plans are. In the end, you should think about what the best choice is for you and your retirement income strategy.

When Will the New Database Be Ready?

The new database is set to go live on December 29th. But it’s important to remember that it will still be very new at that point. It will need some time to fully work and fix any bugs that might be there. Until then, here are some other ways you might be able to find your lost retirement account: 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