The downsides of a 'forgotten' 401(k) and how to find it
When you land a new job you are excited about, the last thing on your mind is your old retirement plan. But while technically you can leave your 401(k) parked with your former employer once you start a new job, it may not be the best option.
There are a number of potential drawbacks to leaving your 401(k) languishing — among them the possibility of eventually forgetting about that money entirely as your career progresses and your former job gets bumped further down your resume.
What are the drawbacks of leaving a 401(k) with a former employer?
"Several dangers lurk when you leave a 401(k) or similar tax-deferred retirement account with your former employer," said personal finance site SmartAsset.
For one, there is potential for your former employer to move your funds. "Employers can cash out accounts with less than $1,000 and send you the money," which will result in taxes owed "if you don't roll the money over into a new account within 60 days," said SmartAsset. There is also the chance of an early withdrawal penalty. An employer may alternatively opt to move accounts of certain sizes over to an IRA, which can carry added costs.
You could also be "charged an additional fee to maintain those accounts," said NBC News. Even if that fee seems small, it may have a sizable impact — a "$4.55 monthly nonemployee maintenance fee on top of other costs can add up to nearly $18,000 in lost retirement funds over time," said the outlet, citing an analysis by online retirement provider PensionBee.
Lastly, there is the possibility that an account left behind simply slips your attention. This could lead to a scenario where "the investment mix becomes unbalanced, losses accumulate and the account remains subject to higher fees and fewer investment choices than an IRA," said SmartAsset. Even worse, you could forget about the balance entirely and forgo your savings.
How can you find an old or forgotten 401(k)?
If you lose track of an old 401(k), the "good news is that money will always be yours, no matter how long it's been," said NerdWallet. However, it is your responsibility to find it.
Options for finding a lost account include:
Contacting your former employer. "One of the easiest ways to track down an old 401(k) plan" is reaching out to your former employer," said Kiplinger. Start by contacting HR or accounting.
Checking old account statements, pay stubs or tax forms. Digging through old documents may provide some clues. For instance, "if you're able to find an old 401(k) account statement, you can also contact the plan administrator," said NerdWallet. Meanwhile, an old pay stub or W-2 could confirm whether you had an account in the first place.
Using the Retirement Savings Lost and Found Database. Managed by the Employee Benefits Security Administration (EBSA), this database is "meant to serve as a centralized location for workers to find lost or forgotten retirement accounts or benefits and get information on how to obtain those funds," said Kiplinger. It is usable "if you worked for a private sector employer or were a member of a union that sponsored a retirement plan."