When employees change jobs, many of them leave behind their retirement plan accounts and eventually forget about them. 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 in value. 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 thanks to the federal Secure 2.0 Act, signed into law in late 2022. The Employee Benefits Security Administration (EBSA) of the Department of Labor was tasked with developing a “lost and found” retirement savings program, which is planned to go live by late December.
Is It Worth It?
The project is scheduled to go live on December 29th. Using this new database, you could potentially find 401(k) accounts from previous jobs 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. That includes deciding what to do with the funds, appointing a new administrator, selecting investments, and so on. It is still a difficult process to transfer those lost funds. Is this effort worthwhile? We believe so. Especially since you could have tens or hundreds of thousands of dollars in that lost retirement account. Seeking advice from a financial advisor may also help with the transfer process.
What You Need to Know
Workplace plans under $1,000 are typically automatically cashed out when you leave your job. Plans worth more than that, on the other hand, may have been overlooked and are now being subject to administrative fees. There are a few ways to deal with lost retirement accounts.
You could leave your account with your former employer for convenience. If your account is worth $5,000 or more, your former employer cannot force you to transfer it*. The next option is to “rollover” the account to your current employer. However, 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. For example, you may be able to take out a loan through your current employer’s plan, which you would not be 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, or IRA. While transferring to an IRA may provide more control and flexibility*, there are some drawbacks. Employer-sponsored plans, such as 401(k)s, are typically protected from creditors, whereas IRAs 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 be in its early stages at that point and will require some time to become fully operational and iron out any potential flaws. Until it is 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. Other options exist beyond just the federal database, and it may be a good idea to look into them now, before you forget.
*Source: MarketWatch
