Was your first job delivering the newspaper, babysitting, or working at a fast-food restaurant? According to the Bureau of Labor Statistics, those born from 1957 to 1964 have held 12.3 jobs between 18 and 52. That’s a lot of jobs! This statistic includes both full-time and part-time jobs and jobs held concurrently. I thought this number was high, but then I remembered I had four jobs before I was 19. How many jobs have you held?
The frequency with which people change jobs has been increasing in recent years, so it’s possible that the number of jobs held over a lifetime could continue to rise, especially for millennials. Each new job opportunity may offer a 401(k). The more you change jobs, the more 401(k)s to manage and keep track of. If you leave the 401(k) behind, there is a real risk that you might forget about the account. A 2021 study by fintech company Capitalize found that an estimated 24.3 million forgotten 401(k)s hold approximately $1.35 trillion in assets, with another 2.8 million left behind annually.
In 2021, approximately 68% of private industry workers in the United States had access to retirement benefits through their employers. 75% of those workers participated in the retirement plans. It’s worth noting that the percentage of companies offering 401(k) plans can vary widely depending on the size and type of the company. Larger companies are more likely to offer retirement benefits, including 401(k) plans, than smaller companies. Additionally, specific industries are more likely to provide retirement benefits than others. And even if you didn’t contribute to a retirement account, your employer may have. Plus, companies may merge with another company, dissolve, or be sold to another company. These types of transactions make it difficult to track down your retirement plan account in the future.
Many 401(k)-statement delivery preferences default to electronic (e-delivery), so it could be easy to forget about old 401(k)s. If you have moved and have not updated the address, the custodian cannot find you.
So how do you find forgotten 401(k) plans? If you’ve lost track of an old 401(k) plan, there are several steps you can take to try and find it:
The National Registry of Unclaimed Retirement Benefits (NRURB) is a free service that helps connect individuals with unclaimed retirement benefits from previous employers. Here’s how it works:
If you find old retirement accounts, be prepared for a potentially long paperwork process to gain control of those assets, especially if the company is no longer in business.
The NRURB only includes retirement benefits reported to them by employers and plan administrators, so not all unclaimed retirement benefits will be listed in the database. A company may turn in your plan if you become a non-responsive participant. A non-responsive participant is one that has accrued benefits, has terminated employment, and fails to provide instructions to their employer on what to do with their balance.
If you think you have unclaimed retirement benefits, check with your former employers and retirement plan administrators, as well as the NRURB, to ensure that you are taking all the necessary steps to claim your benefits.
Pension plans were more popular in the last century, but now most companies no longer offer them. Because they are an older method of compensation, it’s not hard to lose track of old pensions. Pensions are generally calculated by earnings and years of service and are payable at age 65. Pensions usually don’t issue annual statements or have online access, so it is easy to forget if you had one or even qualified for benefits. If you think you may have worked at a company that offered a pension, it is important to check to see if you are entitled to a monthly benefit or a lump sum payment. Lump sum payments can be rolled into an IRA to avoid paying tax on the amount received. If you cash out a lump sum payment or a retirement plan, you most likely will pay tax on the amount received and a penalty if you are under age 59 ½.
If it is a pension that you think you are entitled to, you can follow the same process as finding 401(k)s. Contact your old employer or plan provider first to see if they can help.
Here are other sources associated with pension plans:
Have you forgotten or lost other cash assets? If you were ever mailed a check that you did not cash, the funds were then turned over to the state for safekeeping. MissingMoney.com is a searchable database that covers all 50 states. You can start by performing a broad search by entering your last name and the states where you lived, and then begin to drill down to see if your name appears. If you find yourself, you can download a claim form and start the process to receive the missing money. Once you verify your identity and file the claim, sit back and wait patiently for a new check to arrive.
There is a process that takes place when you leave your employer and you want to roll your retirement plan to an IRA. Usually, it involves a telephone call or completing paperwork to start the process. Once you terminate employment, you can no longer contribute to the 401(k) plan; however, you may be able to contribute to your IRA. We’ll save those rules for another article.
It is beneficial to consolidate your old retirement plans and IRAs into one IRA by the time you have reached your required minimum distribution (RMD) age. Suppose you have three 401(k)s, a 403(b), and an IRA. When you reach your RMD age, you must take a distribution from each account instead of a lump sum from one account. This becomes an administrative nightmare to manage. Not only do you need to make sure you take your distributions from each account, but you will receive multiple tax forms for documentation on your tax return.
Simplifying your life by consolidating accounts to an IRA means you only need to go to one place to see all your investments. If you move, you only need to contact one custodian to change your address. If you request a withdrawal, you only need to contact your advisor instead of filling out 401k distribution paperwork. When you reach your RMD age, you will need to take a distribution from each account instead of a lump sum from one account.
There are several other reasons why rolling an old 401(k) into an IRA may be a good idea:
If you find yourself with multiple 401(k)s and want to consolidate them into an IRA, be sure you are requesting to move the funds via a “direct rollover.” A direct rollover means the retirement plan custodian makes the check payable to your new IRA custodian so that the funds are deposited directly into the IRA versus having the check made payable to you. There are rules around moving retirement plans to IRAs, and you don’t want to be at risk for violating those rules. If the retirement plan check is made payable to you (indirect rollover), you are only allowed one indirect rollover every 12 months. If you have several 401(k)s you are trying to consolidate, you want to be sure they are moving into the IRA via a direct rollover.
It is important to note that rolling an old retirement account into an IRA is not a taxable event. You won’t be penalized if you deposit the old money into the IRA within 60 days. At tax time, you will receive a tax form from the old plan and a tax form from the IRA, which should cross each other out and result in no taxation.
If you leave all of your retirement plans behind, there is much work to do later to consolidate them at retirement. It pays to go through the rollover process immediately to maintain control of your hard-earned money.
As you continue to transition between jobs in the future, keep in mind your retirement benefits. Track down old 401(k)s, pensions, and other missing money utilizing the tools above. Then, work with a financial advisor to determine the best course of action, whether it’s a distribution, leaving it as is, or consolidating the plans into an IRA. A financial advisor can walk you through the process and ensure that you are following the rules, as well as advise you on creating a diversified investment portfolio that matches your risk tolerance and long-term goals.
Author: Nancy D. McKee, CFP® | Financial Advisor | Allegheny Financial Group | May 2023
Allegheny Financial Group is a Registered Investment Advisor. Securities offered through Allegheny Investments, LTD, a registered broker/dealer. Member FINRA/SIPC.