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Do You Have a Forgotten 401(k)?

Do You Have a Forgotten 401(k)?

As of earlier this year, job switchers had left their money in some 29 million 401(k) accounts with former employers. That’s about 25% of the money in all 401(k) plans!

This staggering number suggests that many individuals may have forgotten about their retirement savings tucked away in these accounts.

After Covid many Americans were looking for a different work-life balance and the nation was hit by “The Great Resignation”. When people leave a job they need to be aware of the money they could be forgetting about. 3.8 million and 4.4 million accounts were left behind in 2021 and 2022 respectively.

If you’ve changed jobs over the years, you may have a forgotten 401(k) or two.

Understanding the Forgotten 401(k)

A 401(k) plan is a popular employer-sponsored retirement savings vehicle. When you change jobs, you typically have a few options for your 401(k) account:

  1. Leave it with your former employer: You can choose to keep your retirement savings in your old employer’s 401(k) plan. Many individuals opt for this option, especially if they are satisfied with the investment options and fees associated with the plan.
  2. Roll it over to your new employer’s plan: If your new employer offers a 401(k) plan and allows rollovers, you can transfer your old 401(k) funds into your new account. This option simplifies management but may not be available in all cases.
  3. Roll it over to an IRA: You can also transfer the funds into an Individual Retirement Account (IRA). IRAs offer greater control and flexibility over your investments.
  4. Cash it out: This option is generally discouraged because it may lead to penalties and tax implications. However, some individuals choose to cash out their 401(k) when switching jobs.

“The forgotten 401(k) phenomenon typically occurs when individuals choose to leave their retirement savings with former employers,” says Daniel Lerner Executive Vice President of investor Services, at David Lerner Associates, “These accounts often fade from memory as you focus on your current job, life changes, and financial responsibilities. Years later, you may not even remember the existence of these accounts, much less their value.”

Why a Forgotten 401(k) is a Concern

A forgotten 401(k) can have a significant impact on your retirement savings and financial security.

Here are some reasons why it’s essential to address this issue:

  • Lost Earnings Potential: Your forgotten 401(k) could be invested in a mix of stocks, bonds, and other assets that could generate returns over time. By neglecting this account, you miss out on the potential for compound growth.
  • Higher Fees: Your former employer’s 401(k) plan may have higher fees than other retirement account options. Paying unnecessary fees can erode your savings over time.
  • Diversification: By consolidating your retirement accounts, you can create a diversified portfolio that aligns with your long-term financial goals. Neglecting a forgotten 401(k) limits your ability to manage your investments effectively.
  • Tax Consequences: If you decide to cash out a forgotten 401(k), you may incur early withdrawal penalties and tax liabilities. This can significantly reduce your savings.

How to Locate and Manage Forgotten 401(k) Accounts

  • Review Old Statements: Start by going through your financial records and old statements. These documents may contain information about your 401(k) accounts, including account numbers, balances, and contact details for plan administrators.
  • Contact Former Employers: Reach out to your previous employers to gather information about your 401(k) accounts. They can provide details about the plan’s status and any changes that may have occurred since you left.
  • Utilize the National Registry: The National Registry of Unclaimed Retirement Benefits is a free online service designed to help individuals locate forgotten 401(k) accounts. You can search for unclaimed benefits and connect with plan administrators.
  • Hire a Professional: If your efforts to locate your forgotten 401(k) accounts prove unsuccessful, consider hiring a professional to help you navigate the process. Financial advisors and retirement plan specialists can assist in tracking down and managing these accounts.
  • Roll Over or Consolidate: Once you’ve located your forgotten 401(k) accounts, evaluate your options. Consider rolling over the funds into your current employer’s plan or an IRA, both of which can offer better control and flexibility.
  • Review and Adjust Investments: As you manage your forgotten 401(k) accounts, take the opportunity to review and adjust your investment allocations. Ensure that they align with your risk tolerance and long-term financial goals.
  • Monitor Regularly: After you’ve addressed your forgotten 401(k) accounts, it’s essential to stay vigilant. Regularly review your retirement accounts, consolidate where possible, and keep track of changes in investment options and fees

A forgotten 401(k) can be a hidden treasure trove of retirement savings that you may have lost track of over the years. Ignoring these accounts can have significant consequences for your financial future. Take the time to locate and manage your forgotten 401(k) accounts, and consider consolidating them into a more strategic and diversified retirement plan. By doing so, you can maximize your retirement savings and work towards a more secure financial future.

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice

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