The forgotten 401(k) problem

401(k) is one of the popular retirement savings accounts for Americans. It is a great tool for saving money in a tax-efficient way. However, many of us tend to change jobs every few years based on the data from a national survey U.S. Department of Labor conducted last year. When a person changes a job, they usually need to decide what to do with the 401(k) savings they accumulated. Unfortunately, many of them choose to leave their 401(k) account behind for some extended period of time. Ultimately, a person could end up with at least several 401(k) accounts when they retire after having different jobs throughout their career.

Now, how many accounts have been left behind? How much money is in them? The research team with Capitalize Money, Inc. provided their white paper, “The True Cost of Forgotten 401(k) Accounts (2021)”, with the statistics. They determined that there is total $1.35 trillion of assets and more than 24 million forgotten 401(k)s as of May 2021. That means the average balance of each forgotten 401(k) account is around $55,400. They concluded that an additional 2.8 million accounts are left-behind by job changers each year even though some would be reclaimed or liquidated eventually. 

Now, when you decide to change a job, you are encouraged to review several different options to decide what you should do with your retirement account under your former employer. The different options could include the following:

1. Rollover into an individual retirement account (IRA)
2. Rollover into a new 401(k) account if the new employer permits it
3. Withdraw and close your retirement account
4. Leave the money behind in your former employer’s retirement plan

Of course, it depends on an individual’s situation to determine which options are available to choose from. For some, one option would be better than other options. We, Kramer Wealth Managers, encourage you to ensure you have a plan to take care of your retirement plans with your former employers throughout your career.

For those who realizes that they do have a forgotten 401(k) account, please feel free to contact us if you would like to discuss and determine which option is best for your forgotten retirement account. You don’t want to leave your money behind when it should be there as part of your retirement savings to use when you retire in future.