Many people may be surprised at how someone could forget about their 401(k) retirement benefits and pension. In the United States, this is a common occurrence. According to data provided by the Capitalize website, there are currently as many as 29.2 million 401(k) retirement benefit accounts that Americans have forgotten about, with an average balance of $5,661.6, totaling approximately $1.65 trillion.
There are various reasons behind this situation. For instance, after working for an employer for a few years, employees often move on to new jobs. Many assume that their 401(k) plan will automatically transfer to the new employer, thus overlooking the issue. This results in the original retirement account being completely forgotten or only discovered many years later.
Tracking down old 401(k) accounts can be challenging because your former employer may no longer be in business, or may have been acquired by another company and operating under a new name. Or, you may not even remember the formal name of the small company you worked for years ago.
Even if you have forgotten about your previous 401(k) retirement plan, it continues to exist and accrue interest silently. Although service fees may be deducted monthly to maintain the account, if you have left it untouched for many years, the total funds in it may be much higher than you imagine.
So, if someone hasn’t been able to save enough money for a comfortable retirement but suddenly remembers they have a forgotten retirement savings account, the funds in it could potentially improve their situation.
So how can one retrieve their old 401(k) retirement benefits plan?
The first step is to contact your former employer. If you haven’t moved after leaving that company, you should receive statements about the 401(k). These statements will have the necessary contact information. If you have moved but never updated your contact information, you can reach out to the human resources office of your former employer, and they will try to obtain information about the 401(k) account. If your former employer cannot assist you and you have statements, you can contact the company handling the account. The 401(k) retirement plan administrator will be able to provide assistance.
If your former employer still holds your 401(k), and if the amount exceeds $7,000, you can choose to keep it there or roll it over into a new company’s 401(k). If it’s less than $1,000, you can request a check for the amount. If the amount is between $1,000 and $7,000, you can roll it over into a new individual retirement account (IRA) that you open.
With your social security number, it’s relatively easy to locate your previous 401(k) plan and other retirement accounts. The U.S. Department of Labor is currently working on creating a new database that includes old 401(k) and other retirement accounts, aimed at allowing people to find and access all their previously deposited retirement funds.
The database was supposed to be operational by December 24, 2024. However, the Employee Benefits Security Administration (EBSA), a subdivision of the U.S. Department of Labor, only started contacting retirement account managers in November this year to request relevant information. Retirement plan administrators can voluntarily submit information to this organization.
In addition to assisting in locating old retirement accounts, the EBSA can help people address other issues, whether they are currently employed with the original employer or not. They can assist with matters such as health insurance (including COBRA), pre-authorization for medical treatment, locating unclaimed pension benefits, and more.
If you find that the EBSA manages your retirement funds, you can visit their website to learn more about how to file a claim. The EBSA is required to respond to your request within a 90-day period.
The U.S. government previously established the National Registry of Unclaimed Retirement Benefits (NRURB) to help individuals locate old retirement benefit plans. PenChecks Trust is the outsourced independent provider operating the website. Plan sponsors of 401(k) plans can register old accounts for free, and inquiries about old accounts are also free. By entering your social security number (no account creation required), the system will show if you have any retirement benefit accounts.
Upon finding your old 401(k) account, your initial thought might be to withdraw the money quickly. However, if there is a significant amount in the retirement account, it’s advisable not to rush into withdrawing it. Otherwise, it may be considered an early withdrawal. You have 60 days to transfer the money to another retirement account.
If you are not yet 59 and a half years old, you would need to pay a 10% penalty and taxes on the entire withdrawn amount for early withdrawals. This is not a small loss. For instance, if your retirement account holds $50,000, but you withdraw the funds before reaching the age of 59 and a half, it would be considered an early withdrawal. After paying state and federal taxes, plus a 10% penalty, your loss could amount to as much as $25,000.
Even if you plan to transfer this money to another retirement account, it’s best not to withdraw it first and then deposit it. Instead, request the 401(k) plan administrator to transfer the funds directly to another retirement account.
It should be noted that if you plan to transfer the funds to certain Roth accounts, you will also need to pay taxes on the transferred funds. This is because contributions to Roth accounts are made with after-tax money.
Lastly, if you open a new Roth individual retirement account or Roth 401(k) account, you must wait for five years before withdrawing the funds to avoid penalties.