When a worker changes jobs, their retirement plan account may be left behind and forgotten about. Fortunately, a new federal database should make it easier to find your lost retirement account from a past job.
As of May 2021, there were about 24.3 million forgotten 401(k) plan accounts, their value totaling over $1.35 trillion. For May 2023, there were nearly 29 million forgotten accounts, totaling more than $1.6 trillion! These lost accounts accounted for 20% of all 401(k) plan assets in 2021. In 2023, around 25%*. Thankfully, this could change soon. Under the Secure 2.0 Act, 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 this month.
Is It Worth It?
The project is scheduled to go live on December 29th. Using this new database, you may potentially locate 401(k) accounts from past jobs that you had forgotten about. Remember, however, that it is still your own responsibility to check the database and complete the steps to transfer the funds to a new account. It is still a difficult task to transfer these lost funds. However, is this effort worthwhile? We think so. Especially if you have tens or hundreds of thousands of dollars in that lost retirement account. Seeking advice from a financial advisor may also aid you in the transfer process.
What You Need to Know
If a retirement plan account is valued under $1,000, it is typically automatically cashed out when the employee leaves their job. Other accounts, on the other hand, may have been overlooked and are still with your old employer. There are a few ways you could choose to handle this.
You could leave your account with your former employer for the sake of convenience. If your account is worth $5,000 or more, your former employer cannot force you to transfer it*. Alternatively, it may be more beneficial to “rollover” the account to your new job. Be careful, however, to move the funds directly to the new workplace retirement account. If the money is sent directly to you first, the IRS may consider it an early withdrawal and charge you 20% withholding taxes. Transferring these funds to your new account not only makes your money easier to track, but there are other benefits. For instance, you may be able to take out a loan through your current employer’s plan, something you would not have been able to do if you had left the money at your previous job instead.
Another alternative is to move the funds to an individual retirement account, or IRA. While switching to an IRA might end up providing you with more control and flexibility*, it does come with some drawbacks. Employer-sponsored plans, such as a 401(k), are normally protected against creditors, whereas individual retirement accounts are not. Overall, consider which choice best suits you and your personal financial 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 vital 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 the database is ready for you to use, some other options for finding your lost retirement account might include the National Association of Unclaimed Property Administrators or the National Registry of Unclaimed Retirement Benefits. It may be a good idea to seek out one of these options before you forget.
*Source: MarketWatch