Tom: We have a great topic this morning – how to take care of your old 401k accounts.
Mellody: This is a very important topic, and it has come to my attention that some of your listeners are unsure of what to do with – or where to find! – their old 401k accounts. It is understandable in this day and age, with people changing jobs frequently and everything migrating to online management that accounts are forgotten or lost. But they are holding your money, and your future hostage, so you want to make sure you track them down and make them work for you. This morning, I am going to tell you how to do that.
Tom: First, how do we locate old accounts?
Mellody: The best method to locate an old 401k account that you haven’t kept track of is to contact your previous employer, and ask them to provide you with the plan administrator information. Then you can just contact the administrator. If you are not sure whether you participated or not, this is also a good option. Contact your old employers and ask them if you ever participated in their 401k plan. Remember to have your full name, Social Security number and the dates you worked for them ready when you talk to them.
Sometimes, it isn’t as easy as just calling up an old employer, due to mergers, bankruptcies, relocations, or other events. If this is the case for you, try to locate an old 401k plan statement to see if it contains any contact information for the firm that administered the plan. If it does, call them and ask if they can check on your account. Another route you can take is to seek out former employees you worked with to see if they still have any records that will help you locate the company that administered the plan.
Tom: Are those the only options? What if we do not have any of those paths open?
Mellody: There are a few more ways to track down your old accounts. Because most plans are required to file an annual “form 5500” with the government, you can search for your former employer’s 5500 on a number of websites, like www.freeerisa.com. If you can find a form 5500 on an old plan, it will have contact information. You can also check with the national registry of unclaimed benefits to see if your former employer has listed you as a missing participant.
The registry is a nation-wide, secure database listing of retirement plan account balances that have been left unclaimed. This website is designed to help match employers with abandoned or forgotten employee retirement account balances with the former employees. Finally, you may also find information at the Labor Department’s abandoned plan database. This search helps you find out whether a plan is in the process of being, or has been, terminated and the name of the qualified termination administrator, who you can then contact about your account.
Tom: Once we find them, what do we do with these accounts?
Mellody: You have a few options here. First, you can keep the account where it is, now that you have located it. Most companies allow former employees to keep their money in their plan if it is over $5,000, but you can’t continue to make contributions or take loans. This route is not something I would recommend unless the plan has significant benefits, such as very low fees or money management services you really appreciate.
You can also roll your old 401(k) assets into an IRA. This option still allows your money to grow tax deferred, and gives you more investment options that the typical employer plan. You can also continue growing your retirement savings in a rollover IRA through IRA contributions to the account. Make sure to research IRA fees and expenses when selecting an IRA provider, though. These fees vary greatly from firm to firm.
Finally, you can roll your old accounts in to your current employer’s plan. However, not all employers will accept a rollover from a previous employer’s plan, so you will need to check with your current plan administrator. Some of the benefits of going this route include the simplicity of having one account, making it easier to track and manage, as well as broader creditor protection than an IRA. However, you want to keep in mind that an employer 401(k) plan may have a limited number of investment options compared with an IRA, and that you are subject to the new employer’s plan rules, such as transaction limits.
Tom: What about cashing them out?
Mellody: Whatever you do, do not give in to the temptation to cash them out, because you will incur big tax penalties. The consequences vary depending on your age and tax situation, but if you tap your 401(k) account before age 59½, it will generally be subject to both ordinary income taxes and a 10% early withdrawal penalty.
Tom: Always great advice. Thanks for joining us, Mellody.
Mellody: Have a great week, Tom!