You may find it hard to believe, but it’s a fact: People lose track of their retirement money. And it happens a lot. According to the firm Capitalize, in May 2023 there were 29.2 million abandoned 401(k) accounts, totaling $1.65 trillion. It is estimated that one in five American workers has left behind a 401(k) retirement account.
This leads us to several questions: How do people forget about their 401(k) money? And how do you recover it?
How A 401(k) Can Get Lost
The process begins when an employee with a 401(k) leaves his/her employer. At that point, there are several options:
- It can be rolled over to a new employer’s plan, if the new employer offers a 401(k) plan.
- The employee can roll it over into an IRA.
- The employee can cash it out. However, this step has income tax implications that most people prefer to avoid.
- If the balance is less than $1,000, the employer will cash out the account and give the proceeds to the former employee, deducting income tax and the 10% penalty.
- If the balance is between $1,000 and $7,000, the employer must roll it into an IRA, unless the employee rolls it over to a new plan or cashes it out.
- How most 401(k) accounts get lost: If the account is $7,000 or greater, the employee can choose to leave it with the old employer. Then there are three possible ways to lose track of it:
(1) The employee neglects to alert the plan administrator of any changes in his/her address over time.
(2) The company merges with another, goes bankrupt, or otherwise goes out of business, but does not alert the former employee.
(3) Faulty record keeping by the plan administrator results in the plan’s losing track of the participant.
Online Tools To Find A Lost 401(k)
Here are some tools to help you determine if you’ve got 401(k) money somewhere out there:
- The Retirement Savings Lost and Found Database is a new search tool, established under the Secure Act 2.0 and rolled out this year by the Department of Labor. The agency has requested that employers voluntarily provide the name and Social Security number of all separated vested particpants age 65 or older who are still owed benefits. Information gathering is ongoing, so the database remains a work in progress. You will need to have, or set up, a login.gov account to search the database.
- Willing to hire someone to do the searching for you? Two companies to contact are Capitalize and Beagle
It’s your money. Don’t lose it!
