Often, retirement plan accounts are left behind and forgotten about as a result of workers switching jobs. However, you will be relieved to know that a recently established federal database should make it simpler for you to locate the retirement account that you misplaced from some previous employer.
As of May 2021, there were more than 24.3 million 401(k) plan accounts that had been forgotten about. These accounts had a combined value of approximately $1.35 trillion. It was over 29 million accounts that had been forgotten, worth more than $1.6 trillion, in May of 2023. In 2021, these lost accounts accounted for twenty percent of the total assets held by 401(k) plans. Around twenty-five percent in the year 2023. The federal Secure 2.0 Act, which was signed into law in late 2022, may, thankfully, bring about a change in this situation. The Employee Benefits Security Administration (EBSA) of the Department of Labor was given the directive to establish a “lost and found” system for retirement savings accounts.
Is It Worth It?
The plan is to launch the project by the 29th of December. By utilizing this newly created database, you have the opportunity to find 401(k) accounts from previous jobs that you may have forgotten about. It is important to keep in mind that it is still your responsibility to check the database and carry out the necessary tasks to transfer the funds into a new account. This includes making decisions regarding what to do with the funds, choosing a new administrator for them, choosing investments, et cetera.
The process of transferring lost funds is challenging. Is the time and effort necessary? We think so. You could have tens or hundreds of thousands of dollars sitting in that lost retirement aount. Also, getting help from a financial advisor could help make the transfer process easier.
What You Need to Know
Typically, retirement plans with a value of less than $1,000 are automatically cashed out when a worker leaves their job. Others, on the other hand, may have been left unattended and are consequently being subject to higher administrative fees. If you have a lost retirement account, you have a few different options to choose from.
It might be the most convenient for you, you could leave your account with your previous employer. Your previous employer can’t compel you to move your account if it is valued at $5,000 or more. However, if you transfer the cash value to the account at your current employer instead, it will come with additional advantages.
Transfer Your Money
Transferring your previous funds into your new account not only makes it easier to keep track of your money. However, it also comes with additional benefits. For example, there’s a possibility that you could obtain a loan from the plan offered by your current employer. This is something that wouldn’t be possible if you left that money at your previous job. Keep in mind, however, that the money should be transferred directly to the new retirement account at your new job. If it goes directly to you first, the IRS may consider the money an early withdrawal. You would then be subject to a withholding tax of twenty percent.
There is also the option of transferring the funds into an individual retirement account, also known as an IRA. While moving money into an IRA may give you more control and flexibility,* there are a few drawbacks to consider. Keep in mind that IRAs are not protected from creditors in the same way that 401(k)s and other employer-sponsored plans are. In the end, you should consider which of the available choices is the most suitable for you and your retirement strategy.
When Will the New Database Be Ready?
The new database is, as we mentioned, scheduled to become operational on December 29. Nevertheless, it’s important to keep in mind that it will still be in its infancy at that point. It will take some time for it to become fully operational and work out any potential bugs. Until it is ready, some additional options that you may consider to locate your previously lost retirement accounts 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 before you forget.
*Source: MarketWatch
