Do you have a long-lost retirement account that you left behind with a former employer? Maybe it's been so long that you can't even remember? With over 24 million "forgotten" 401(k) accounts holding roughly $1.35 trillion in assets, even the most organized professional may be surprised to learn of their unclaimed "found" money.
This alarming statistic prompted the proposal of the “SECURE Act 2.0” which, among others, will call forth the creation of a national online lost-and-found database to help people track down forgotten retirement accounts.
What are "Forgotten" Retirement Accounts?
Considering that baby boomers alone have worked an average of 12 jobs in their lifetime, it can be all too easy for retirement accounts to get lost in the shuffle. Think back to your first job. Can you remember what happened to your work-sponsored retirement plan? If you're even slightly unsure, then it's time to go looking for your potential "forgotten" funds.
Retirement Plan Account Types
Before we get into your search, let's review the types of work-sponsored retirement accounts available. By no means is this an exhaustive list, but the following are the most commonly-found retirement accounts.
- 401(k) - This is a company-sponsored retirement plan that allows employees to contribute a portion of their wages to individual accounts. Some employer plans include automatic enrollment for new employees, so it's possible you may have contributed money without being aware of it.
- 403(b) - This is a retirement vehicle offered by public schools and certain 501(c)(3) tax-exempt organizations. Just as with a 401(k) plan, a 403(b) plan lets employees defer some of their salary into individual accounts. The deferred salary is generally not subject to federal or state income tax until it's distributed. If you've ever been employed by a public school, college, university, church or non-profit, you may have been offered a chance to participate.
- Defined Benefit Plan - Sometimes known as traditional pensions, which promise the participant a specified monthly benefit at retirement. Often, the benefit is based on factors such as the participant's salary, age, and number of years worked for the employer.
Once you reach age 72, you must begin taking required minimum distributions from your 401(k), 403(b) or other defined-contribution plans in most circumstances.
Starting Your Search
The NRURB is a free tool to locate your unclaimed or lost retirement benefits. It utilizes employer and Department of Labor data to determine if you have any unpaid or lost retirement account money. The site is secure and only requires you to key in your Social Security Number so you’ll be able to view the results in a few seconds.
However, the NRURB database only includes unclaimed plan assets from distributions processed by PenChecks Trust and other independent organizations that have registered unclaimed benefits records. Thus, although extensive, you may not be able to find your record there.
If your forgotten account was worth more than $1,000 but less than $5,000, it might have been rolled into a default traditional Individual Retirement Account (IRA). Employers create default IRAs when a former employee can't be located or fails to respond when contacted. You can search for 401k and IRA accounts for free using this database, but registration is required.
The department of labor tracks plans that have been abandoned or are in the process of being terminated. Try searching their database to find the Qualified Termination Administrator (QTA) responsible for directing the shutdown of the plan.
One of the best ways to find lost retirement accounts is to contact your former employers. If you're unsure where to direct your call, the human resources or accounting department should be able to check their plan records to see if you've ever participated. However, you will most likely be asked to provide your full name, Social Security number, and the dates you worked, so be sure to come prepared.
If your former employer is no longer around, look for an old 401k statement. Often these will have the contact information for the plan administrator. If you don't have an old statement, consider reaching out to former coworkers who may have the information you need.
Even if these steps don't turn up much info, they can help you gather important information.
Once you've found your retirement account, what you do with it depends on the type of plan and where it's held. Your location also matters. Depending on where you live, rules and regulations may differ, but here are the common actions you can take:
1. Roll it over to your current retirement account.
If your current employer offers a 401(k), roll your funds over to your new account. That way you can easily track and manage investments and avoid having more responsibilities, which is the case when you have multiple accounts.
Otherwise, you can roll it over to your Individual Retirement Account (IRA), which is a better choice if you plan on taking early withdrawals. One of the benefits of IRAs is that there are instances when you can take early withdrawals penalty-free:
- Higher education expenses
- Permanent disability
- Purchase of home by a first-time homebuyer (meaning you have not owned a home in the past two years) – You can also use the funds withdrawn to help out a parent, child, or grandchild who must satisfy the “first-time homebuyer” requirement, to buy a home.
- Unreimbursed medical expenses
- Health insurance premiums while unemployed
- Qualified reservist distributions
- If you’re the beneficiary of the IRA.
2. Withdraw your money.
You can opt to withdraw your funds but it may not be the wisest decision. It’s worth taking note that distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income, and if you take one before the age of 59½, a 10% federal income tax penalty commonly applies. In addition, 20% of the withdrawn amount is withheld for tax purposes.
3. Leave it be.
Leaving your 401(k) with your former employer’s plan custodian may be the least tedious and simplest option to take, and it has no tax implications. Nevertheless, it is impractical to do so as it will be hard to manage your investments and you may be subject to more responsibilities if you have multiple accounts. Additionally, you won’t be able to continue making contributions to the plan.
No matter what you decide to do, be sure to involve your tax and financial professionals since they'll be informed on current regulations for your state. They can also help you identify a strategy for your newfound money: travel, investment, maybe that vacation home you've always wanted. You worked hard for that money, after all, so you should get to enjoy it!
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your financial advisor, attorney, or tax advisor. For additional information and disclosures, please visit our website at www.mbewealth.com. MBE Wealth Management, LLC is a registered investment advisor.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.