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For big retirement savers, the silver lining of record-setting inflation is the record-setting cap increase for your 401(k) in 2023. But if you leave a company–whether or not it’s on your own terms—what happens to your employer-sponsored retirement account? While you have a few options for handling an old 401(k), some strategies are better than others. Here’s what to know about dealing with a 401(k) from previous employers, and why it’s important to handle it sooner rather than later.
Don’t let your old 401(k) get lost
Broadly speaking, you have three options for a 401(k) at a company where you no longer work: Cash it out, leave it where it is, or roll it into a new plan or account.
First off, experts generally advise against cashing it out. With some exceptions, you’ll be faced with taxes on the distribution, not to mention the 10% tax penalty if you’re younger than age 59½.
For the “leave it where it is” route, you might be tempted to simply leave your retirement savings in your former employer’s plan. I get it—the hassle of organizing your accounts might not seem like a top priority, especially if you were just laid off. However, there are some obvious downsides here—namely, you can no longer contribute to that plan. Plus, the longer you wait, the trickier it can be to track down old 401(k) accounts. (Then again, thanks to provisions in SECURE 2.0, finding old accounts should be easier than ever.)
The other risk with leaving you account where it is what plan administrators, aka the financial firm holding the account, might do with your abandoned funds. According to NerdWallet, if there was more than $5,000 in your retirement account when you left, there’s a good chance that your money is still there as is. But if you left an amount between $1,000 and $5,000, the plan administrator is allowed to move funds into a specialty IRA without your consent. (Although SECURE 2.0 changed that limit to $7,000, effective for distributions made after 2023.) And for any amount less than $1,000, they may simply cut a check for the total, send it to your address on record, and leave you to deal with the tax bill and an early-withdrawal penalty.
The wisest path forward is typically to consolidate your old 401(k) into another qualified retirement plan. The obvious advantage is maximizing your savings, having access to a broader range of investments, and the ease of having less to keep track of. Still, if you’ve already let an old 401(k) (or more) get lost in the shuffle, you’re not alone. Here’s how to track down an old 401(k).
How to track down an old 401(k)
If you’re on the hunt for a 401(k), there are a few places you should start your search. Your first step should be to contact your old employer. Start with the human resources department or find an old 401(k) account statement to contact the plan administrator.
If your old employer or plan administrator can’t tell you where your money is, then your next step is trying to track down your 401(k) with your social security number. Plug your SSN into any of these databases to try and find your old account:
Once you find your money, it should be fairly easy to move your investments into the account of your choosing. In any case, it’s worth taking to a financial advisor before moving your old 401(k) to make sure you understand any planning consequences that may arise.
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