It may sound hard to believe, but I frequently help clients find money that they didn’t know existed (or just plain forgot about.) The majority of this “found money” is sitting in retirement plans with former employers. And, not surprisingly, these former employers aren’t going to beat down your door to reacquaint you with your funds. You might have to do a little digging.
So, how do you know if there’s an orphaned account sitting out there with your name on it? Today, we will explore the answer to this and the potential consequences of not taking action on money left behind.
Finding lost money
When someone leaves a job, they typically remember to collect all of their personal effects from their desks before exiting that one last time. However, it’s the things that aren’t right in front of them that are sometimes overlooked. This is especially true for retirement plans.
Capitalize found that there is about $1.35 trillion sitting in “forgotten” 401(k) plans. This staggering number is the direct result of workers changing jobs frequently in their careers, leaving behind these unclaimed 401(k) plans as a result.
While you still own these accounts, as time passes and companies change hands, it can become increasingly harder to locate exactly where your funds have traveled. Moreover, the more time you have been separated from employment, the easier it is to lose track of your funds.
Because of this, websites have been created to help people find out if they have any unclaimed retirement funds. One such place is the National Registry of Unclaimed Retirement Benefits. Here, you can search a nationwide, secure database to see if you have left any money behind.
Of course, finding the money is just the first step. After you have its location, you then have to figure out what to do with it. This is where it helps to have an experienced team of professionals at your side to help guide you through the arduous process.
Consequences of leaving money in old retirement plans
401(k)s, 403(b)s, 457s, and pension plans are just a few of the common retirement vehicles that have been offered to American workers over the past century. They can offer some of the best ways to maximize retirement dollars (especially when an employer participates). However, when you leave a job, that’s the time to consider if your money should go with you.
Here are some of the consequences of leaving retirement accounts with former employers:
Poor communication
When your retirement account is left with a former employer, there’s a chance you might miss out on critical information that is only available to current employees.
For example, if your account is still registered with your former work email, there is a good chance that you are not receiving any correspondence regarding your account status and other critical updates.
This can be risky since there is a chance that your money has changed hands and has been transferred to a new administrator. Or, in the worst of outcomes, your former company went bankrupt and had to freeze your account (which sometimes takes years to resolve, if at all).
Unwanted distributions and transfers
If your account balance falls below $1,000, most 401(k) plans have the right to cash out your balance and send you a check (minus 20% tax withholding). If your account is between $1,000 and $5,000, your employer is allowed to transfer it into an IRA.
In either case, decisions are being made with your money without your consent. While they are totally legal, they may not be the best decision for you.
Higher fees
Sometimes (but not always), the fees you pay to a retirement plan administrator exceed those of what you would pay in an IRA. If this is the case, you may be better off rolling your money over to an account that will cost less and help your money last longer.
Your risk profile may have changed
Let’s say you just found a 401(k) from twenty years ago. Upon requesting and receiving the last statement, you discover that your allocation is pretty risky, which makes sense since you haven’t reallocated in two decades.
Now, nearing retirement, you want to shift your assets into a more conservative portfolio, but you don’t know where to turn. In this case, you will have two options: call up customer service and direct the representative to make the necessary changes or set up an online account and do it yourself.
If either of these choices sounds daunting (or just too much work), you should seek professional guidance. In some cases, it may make sense to stay where you are; in others, rolling over your funds into an IRA may be a better idea. The bottom line, you won’t know until a proper analysis is carried out.
Missing out on better opportunities
The grass isn’t always greener on the other side, but if you don’t at least take a peek, how will you know?
Sometimes we uncover old retirement plans that still offer attractive, fixed yields—interest rates so high that we haven’t seen them in thirty, forty, or even fifty years. For most retirees, these types of accounts should be kept right where they are.
Although, more commonly are the garden-variety retirement accounts, invested in a mix of mutual funds (and maybe company stock) that are typically limited to a set number of offerings. In this case, it’s important to see if options are available outside of the plan that better suits your needs.
The point is that you have options once you leave a job. But you want to know what they are. If this means you roll your retirement savings over to a new employer, into an IRA, or keep it where it is, it should be your choice to make and your alone.
Investment advisory services are made available through AE Wealth Management, LLC (AEWM). AEWM and Rowlette and Associates, LLC DBA: South Shore Retirement Services are not affiliated companies. Investing involves risk, including the potential loss of principal. Any references to protection benefits, safety, security, lifetime income, generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Our firm is not affiliated with or endorsed by the U.S. Government or any governmental agency. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. 1351727 – 06/22
