Search Form 5500 Directory
All employers that provide 401 plans to their employees are required to fill out a 5500 form every year with the DOL. Websites like FreeERISA* allow users to search by company name to locate the correct Form 5500. Another option is to search the DOLs 5500 database. Both simple searches will provide you with additional contact information.
For further assistance in finding lost 401 plans, the U.S. Department of Labor has an Abandoned Plan Search, which helps participants and others find out whether a particular plan is in the process of beingor already has beenterminated. The name of the Qualified Termination Administrator responsible for the termination will be listed as well, giving you a good idea of who to contact .
But beware: some companies, even legitimate ones, can acquire your information about unclaimed retirement accounts and offer to assist you with your search, often with a percentage fee for their services.
When it comes to planning and saving for retirement, its vital to have all your assets accounted for. Locating an old 401 plan is like finding cash in the pocket of an old pair of jeans. Its money you forgot you had but are happy you found. So if you know youve contributed funds to a 401 account but cant figure out where those funds are, the resources listed above may help you find past retirement accounts that may have been lost along your employment journey.
The Advantages & Disadvantages Of The 401
With the exception of certain company contributions, the money in your 401 plan is yours to keep, even if you lose your job. However, if you get fired from your job, things will likely never be the same with your 401. While the company cannot confiscate your 401, it might require you to move it to another account. You might also lose any contributions the company has made on your behalf.
TL DR
If you lose your job, your 401k is likely to experience some changes. While the company can’t take any of the money you put into the fund, you may have to remove the money from the fund and roll it over to another fund.
Tracking Down A Lost 401
Its easy to understand why some workers might lose track of an old 401: Those born between 1957 and 1964 held an average of 12.4 jobs before the age of 54, according to the Bureau of Labor Statistics. The more accounts you acquire, the more challenging it is to keep track of them all.
Perhaps this is why there are some 24 million forgotten 401s holding assets in excess of $1.3 trillion.1 Left unattended too long, old accounts can be converted to cashand even transferred to the state as unclaimed propertyforgoing their future growth potential.
If youre among those with misplaced savings, heres how to locate and retrieve them:
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Learn Whether You Can Qualify To Supplement Your Income
For many Americans, the balance of their 401 account is one of the biggest financial assets they own but the money in these accounts isn’t always available since there are restrictions on when it can be accessed.
401 plans are meant to help you save for retirement, so if you take 401 withdrawals before age 59 1/2, you’ll generally owe a 10% early withdrawal penalty on top of ordinary income taxes.
However, there are limited exceptions. For instance, if you incur unreimbursed medical expenses that exceed 10% of your adjusted gross income, you can withdraw money from a 401 penalty-free to pay them. Similarly, you can take a penalty-free distribution if you’re a military reservist called to active duty.
Because the exceptions are narrow, most people must leave their money invested until 59 1/2 to avoid incurring substantial taxes. However, there is one big exception that could apply if you’re an older American who needs earlier access to your 401 funds. It’s called the “rule of 55,” and here’s how it could work for you.
How To Make The Best Use Of The Rule Of 55
The restrictions of the rule of 55 make it vital to use smart planning techniques. First and foremost, you need to time your early retirement so that you don’t leave your job before the year in which you’ll turn 55. One of the most common misunderstandings of the rule is that if you quit at 54, you can simply wait a year and then start taking penalty-free withdrawals. The timing needs to work.
Second, if you want to maximize the amount of access you have to make penalty-free withdrawals, you need to roll over as much money as possible that doesn’t qualify into your current employer’s 401 plan account before you retire. Many companies allow you to transfer 401 balances from old employers into the new employer account, and you can also often move IRA money that was previously rolled over back into a 401. Whatever’s in the current employer’s 401 account when you quit working will potentially qualify.
Finally, remember not to roll over your eligible 401 account into an IRA after quitting at 55 or older. Doing so will lose the exemption and subject you to penalties until you hit 59 1/2.
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Can Anybody Cash Out A 401 K Early
If you resign early, you might want to cash out your 401 k. However, you might face a financial penalty for doing so. If you haven’t reached retirement age, you can often expect to be charged 10% plus ordinary income tax on the amount in your 401 k for an early withdrawal. If you think you might want to take your 401 k money out of the IRA early, you should discuss this with your current employer.
Do You Get Your 401 If You Quit
Be aware of the following rules regarding your old 401 account:
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If your 401 has a total investment of more than $5,000, your employer may allow you to leave the account with them even after you quit the job.
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If your account has a balance of less than $1,000, your employer may force you out and pay the amount left in your account with a check.
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If the total investment amount in your old 401 is between $1,000 and $5,000 and your employer wants to force you out, they must transfer the amount to your IRA.
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Keep Tabs On The Old 401
If you decide to leave an account with a former employer, keep up with both the account and the company. People change jobs a lot more than they used to, says Peggy Cabaniss, retired co-founder of HC Financial Advisors in Lafayette, California. So its easy to have this string of accounts out there in never-never land.
Cabaniss recalls one client who left an account behind after a job change. Fifteen years later, the company had gone bankrupt. While the account was protected and the money still intact, getting the required company officials and fund custodians to sign off on moving it was a protracted paperwork nightmare, she says.
When people leave this stuff behind, the biggest problem is that its not consolidated or watched, says Cabaniss.
If you do leave an account with a former employer, keep reading your statements, keep up with the paperwork related to your account, keep an eye on the companys performance and be sure to keep your address current with the 401 plan sponsor.
Keeping on top of how the plan is performing is very important as you may later decide to do something different with your hard-earned money.
Your Retirement Money Is Safe From Creditors
Did you know that money saved in a retirement account is safe from creditors? If you are sued by debt collectors or declare bankruptcy, your 401k and IRAs cannot be liquidated by creditors to satisfy bills you owe. If youre having problems managing your debt, its better to seek alternatives other than an early withdrawal, which will also come with a high penalty.
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Substantially Equal Periodic Payments
What if you’re under 55? There’s another option for taking distributions without paying the 10% penalty. Unemployed individuals can receive what is termed a substantially equal periodic payment from their 401.
Payments must be distributed over a minimum of five years or until the individual reaches age 59½, whichever is greater. There are three different methods for calculating SEPP distributions:
- Required minimum distribution
- Amortization
- Sanitization
Your choice can be modified once after an election if your income needs to change. When the recipient reaches 59½, withdrawals may cease or ratchet up or down without penalty. There are no further rules until you reach 72, when required minimum distributions take effect.
Payments are typically calculated based on the life expectancy of the account holder or the combined life expectancy of the plan participant and his beneficiaries. Distributions can be taken with any frequency during the year as long as withdrawals do not exceed the pre-calculated annual value. If the amount is arbitrarily modified, the 10% penalty exception is negated and you have to pay the penalties.
You can also withdraw money from an IRA using the SEPP method. An online calculator can help you estimate what to withdraw, but this is one task that requires the help of a financial advisor to make sure you do it correctly.
What Determines How Long A Company Can Hold Your 401 After Leaving A Job
The retirement money you have accumulated in your 401 is your money. This gives you the freedom to change jobs without worrying that your savings may get lost in the process. The money can stay in your employerâs retirement plan for as long as you want, but there are certain cases when an employer may force a cash out or rollover the funds into another retirement account.
These factors may determine how long an employer can hold your 401 money after you leave the company:
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Cashing Out A 401 Is Popular But Not So Smart
Intellectually, consumers know that cashing out retirement accounts isnt a smart move. But plenty of people do it anyway. As discussed, you may be forced out of your former plan based on your account balance, but that doesnt mean you should cash the check and use it for non-retirement related purposes. In the long run, your financial future will be better served by rolling the money over into an IRA or if applicable, your new employers 401 plan.
A 2020 survey by Alight, a leading provider of human capital and business solutions, found that 4 out of 10 people cashed out their balances after termination between 2008 and 2017. About 80 percent of those who had an account balance of less than $1,000 cashed out, while 62 percent who had balances between $1,000 and $5,000 did the same.
Based on historical rates of return, a $3,000 cash out at age 24 leads to a $23,000 difference , in your projected account balance at age 67, so even a small amount of money invested into a retirement vehicle today can make a big difference in the long run.
Leave The Money In Your Former Employers 401
Many companies will let former employees stay invested in their 401 plan indefinitely if there is at least $5,000 in the account. However, if there is less than $5,000 in your account, your old company can cash you out of the account .
In any case, unless your former employers plan has outstanding investment options or unique benefits, leaving your 401 behind rarely makes sense. According to the Bureau of Labor Statistics, the average U.S. worker changes jobs 12 times throughout a career.
If you leave a 401 plan behind at each job, you will have to sort through a trail of plans to figure out what you have at retirement. Additionally, you risk overpaying for too many unnecessary investments.
To be sure, if you have been through a layoff and are not sure of your next move, keeping your 401 funds with a former employer may make sense in the short-term.
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Roll It Over Into Your New Companys 401
If you value the simplicity of having all of your retirement assets in one placeor you prefer the offerings of your new employers planyou can roll your old 401 into your next jobs 401. Your old and new 401 providers will probably have forms you can submit for an easy transfer between providers. If your old provider issues you a check to give to your new provider, make sure you deposit it into your new account within 60 days. Otherwise, you may be subject to the same taxes and penalties youd face if youd cashed out the account.
You Could Just Leave Your 401 Alone
The money will remain invested, and the financial firm handling your 401 will keep mailing you quarterly statements telling you how it is doing. Any future growth will be tax-deferred.But this passive choice comes with an opportunity cost. If you just leave the 401 assets in the plan, youre giving up control and flexibility. Your investment choices may be limited, the plan fees may be high, and you may not be able to quickly access your money or do what you want with it. If you have a trail of old 401s left with a bunch of former employers, things can get really complicated when you retire especially when you have to take Required Minimum Distributions . Leaving the money in the plan may not be the wisest choice.
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How Long Can A Company Hold Your 401 Funds When You Withdraw
When you leave a job, you can decide to cash out your 401 money. Generally, when you request a payout, it can take a few days to two weeks to get your funds from your 401 plan. However, depending on the employer and the amount of funds in your account, the waiting period can be longer than two weeks.
Each company has different time frames for making distributions when you request a payout. Check the waiting period of your employerâs 401 plan by checking the summary plan description given by the company. The waiting period starts when you request a payout up to when you receive the cash distribution, or funds are rolled over to an IRA or 401.
For Many Americans The Balance Of Their 401 Account Is One Of The Biggest Financial Assets They Own
But 401 plans are meant to help you save for retirement, so there are age restrictions that impose penalties if you take money out before reaching a certain age.
Yet even though the general age at which penalty-free distributions are typically available from tax-advantaged retirement accounts is 59 1/2, there are situations in which you can get access to a 401 account as early as age 55 without paying a penalty.
Not everyone who’s 55 has the ability to use this provision. Below, you’ll learn more about what many call the “rule of 55” and how it can work for you.
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If You’re Still Working For The Company
Most 401 plans don’t allow “regular withdrawals” at age 55 while you’re still working for the company. A regular withdrawal is defined as one that’s not subject to penalties and doesn’t require you to qualify based on special circumstances.
You might be able to take a 401 loan or qualify for a hardship withdrawal rather than take a regular withdrawal if your 401 plan allows these options. Not all 401 plans are required to offer loans or hardship withdrawals, however.
You can check with your plan administrator to see if they have a special provision that allows for something called an “in-service distribution.”
If You Get Terminated From Your Job You Have The Option Of Cashing Out Your 401 However This Is Probably Not The Smartest Move
Image source: Andrew Magill.
If you get terminated from your job, you have the ability to cash out the money in your 401 even if you haven’t reached 59 1/2 years of age. This includes any money you’ve contributed and any vested contributions from your employer — plus any investment profits your account has generated. However, you may face a 10% early withdrawal penalty from the IRS for cashing out early, so this might not be the best option. Here’s what you need to know to make an informed decision about your 401 after you’re no longer with your employer.
How to cash out and the implications of doing soThe procedure for cashing out is usually rather simple. All you need to do is contact your plan’s administrator and complete the necessary distribution paperwork. However, there are a few things you need to keep in mind, especially regarding the tax implications of cashing out.
Unless your 401 is of the Roth variety, all of the money you withdraw will be treated as taxable income, no matter how old you are or the reason for the withdrawal. So, even if you are older than 59 1/2, it’s important to consider how cashing out will affect your tax status for the year. If you have a large 401 balance, cashing out could easily catapult you into a higher tax bracket. Your plan provider will be required to withhold 20% of the amount you cash out for taxes , and will also file a form 1099-R to document the distribution.
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