Recover Your Lost Retirement Account(?)

An increasing number of retirement plan accounts have been left behind, and then forgotten, when workers change jobs. Thankfully, a new federal database should help you more easily track down your lost retirement account from a previous employer.

There were over 24.3 million forgotten 401(k) plan accounts, worth around $1.35 trillion combined, as of May 2021. For May of 2023, it was over 29 million forgotten accounts, worth over $1.6 trillion! These lost accounts represented 20% of all 401(k)-plan assets in 2021. In 2023, around 25%*. Thankfully, this may change thanks to the federal Secure 2.0 Act, signed into law in late 2022. The Labor Department’s Employee Benefits Security Administration (EBSA) was directed to create a “lost and found” for retirement savings.

Is It Worth It?

The project is planned to go live by December 29th. Using this new database, you could potentially find 401(k) accounts from previous jobs you’ve forgotten about. Remember, though, it’s still up to you to check the database and do the necessary work to get the money moved into a new account. That involves deciding what to do with the funds now, selecting a new administrator for them, selecting investments, etc. It is still a daunting process to transfer those lost funds. Is this effort worth it? We believe so, yes. Especially if you have tens or hundreds of thousands sitting in that lost retirement account. Seeking assistance from a financial advisor could also help facilitate the transfer process. 

What You Need to Know

Plans under $1,000 are, typically, automatically cashed out when a worker leaves an employer. Other accounts, however, may have been left untouched in old investments and are being charged administrative fees. There are a few options for dealing with lost retirement accounts.

You could leave your account with your former employer out of convenience. If your account is valued at $5,000 or more, your old employer can’t force you to move it*. Your next option would be to “rollover” the account to your current employer. Be sure, however, to transfer the money directly to the new workplace retirement account. If the money goes to you first, the IRS may consider it an early withdrawal and hit you with 20% withholding taxes. Transferring your old funds into your new account not only makes your money simpler to keep track of, but there are further benefits: You may be able to take a loan from your current employer’s plan, something that wouldn’t be an option if you left the money at your former job instead.

Another option is to transfer the money into an individual retirement account, or IRA. While transferring into an IRA allows for more control and flexibility,* there are some downsides. Remember that 401(k)s and other employer-sponsored plans are typically protected from creditors, while IRAs are not. All in all, think through what the best option for you and your retirement strategy is.

When Will the New Database Be Ready?

As we previously mentioned, the new database is set to go live on December 29th. However, it’s important to note that it will be in its infancy at that point and will take some time to become fully operational and work out any potential glitches. Until it’s ready, some other options for finding your lost retirement account may include 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 now, before you forget.

*Source: MarketWatch