Other Benefits Of A 401
Even for employers who do not offer any matching program, every employer with a 401 plan is responsible for administering the plan. That may seem like its no big deal, but it actually saves quite a bit of trouble for the employees. As an employee in a 401 plan, you dont have to worry about the complicated rules and regulations that need to be followed, or about making arrangements with the funds in which you invest your moneyyour employer takes care of all of that for you. Thats quite a bit of saved paperwork.
At the same time, employees who participate in a 401 maintain control over their money. While employers provide a list of possible investment choices, most commonly different sorts of mutual funds, employees have quite a bit of freedom to decide their own strategy. Whether you are willing to take on a little more risk with your investments, or if you would rather play it safe, theres probably an option for you.
Track Down Previous Employer Via The Department Of Labor
If you cant find an old statement, you may still be able to track down contact information for the plan administrator via the plans tax return. Many plans are required to file an annual tax return, Form 5500, with the Internal Revenue Service and the Department of Labor . You can search for these 5500s by the name of your former employer at www.efast.dol.gov. If you can find a Form 5500 for an old plan, it should have contact information on it.
Once you locate contact information for the plan administrator, call them to check on your account. Again, youll need to have your personal information available.
What Is A 401 Account
A 401 plan, named for the section of tax code that governs it, is a retirement plan sponsored by an employer, allowing employees to save a portion of their paycheck for retirement.
The advantage to employees of saving with a 401 plan is they are able to save funds they have earned, before taxes are deducted from a paycheck.
Many employers offer a company match meaning whatever the employee contributes, the company matches.
Although 401 plans were originally born as a supplement to pension plans, they are now often the sole retirement plans offered at companies.
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How Can I Find My Old 401 Account
Ask previous employers whether theyre maintaining any accounts in your name. If the company no longer exists, contact the plan administrator. If you dont know the name of the plan administrator, search the Department of Labor website for the companys Form 5500 , which will list their contact information. You might also check the states unclaimed property database via the National Association of Unclaimed Property Administrators .
Darin Bostic, a Schwab financial planner, points out that the best way to keep track of your funds is not to lose them in the first place. Consolidating similar accounts, such as old and new brokerage or IRAs, can help you keep track of your savings, says Darin.
Whats more, consolidation helps ensure your assets are working in harmony toward your long-term goals. Its difficult to follow a comprehensive investment strategy when your money is spread out all over the place.
What Happens If I Leave My Employer And I Am Not Fully Vested
If you terminate employment, and are only partially vested, the nonvested portion of your account is lost . For example, if you have $1,000 in your account that is subject to vesting and you are only 60% vested at the time you terminate employment, you are only entitled to $600. The remaining $400 is forfeited.
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What To Do With A Lost Retirement Account When You Find It
Once youve found a lost retirement account, what you do with it depends on what type of plan it is and where its located.
Old 401k balances can be rolled into your current employers plan or rolled into an IRA in a trustee-to-trustee transfer. You can also request a payout of the plan balance, but if you are under the age of 59.5, the payout will be subject to income taxes and a 10% penalty for early withdrawal.
If you find an old pension through the PBGC, youll have to go through a process to verify your identity. Once the PBGC has established that you are owed the benefits, you can apply for them at any time once youve reached retirement age.
Its not uncommon for former employees to leave funds in a former employers retirement plan, believing theyll get around to dealing with it later. Years pass by, and maybe youve forgotten about a few old accounts. Even if they didnt amount to much at the time, a few hundred dollars here and there combined with some market growth over the years just might add up to a nice addition to your retirement savings. Its worth a look!
Feel More Confident With Your Retirement Plan
You offer a retirement planor youre thinking about it. Thats a great thing. But it comes with some questions. You may want help with things like plan compliance and participant engagement.
Thats where we come in. Were one of the leaders for 401 and 403 plans focused on helping you follow retirement plan rules and increase participation and savings rateswhile making your plan administration as efficient as possible.1
Talk to your financial professional about your defined contribution plan options or give us a call at 800-952-3343 to discuss how we can help.
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Call Your Old Employer
If you suspect you have missing 401 funds or even if you’re not sure, it’s still a good idea to contact old employers and ask them to check if they’re holding your old account. Your former company will have records of you actually participating in a 401 plan.
You’ll either need to provide or confirm your Social Security number and the dates of your employment, but if you can, you’ll have found the fastest way to dig up a missing 401.
How To Avoid 401 Early Withdrawal Penalties
There are certain exceptions that allow you to take early withdrawals from your 401 and avoid the 10% early withdrawal tax penalty if you arent yet age 59 ½. Some of these include:
Medical expenses that exceed 10% of your adjusted gross income
If you leave your employer at age 55 or older
A Qualified Domestic Retirement Order issued as part of a divorce or court-approved separation.
Even if you can escape the additional 10% tax penalty, you still have to pay taxes on your withdrawal from a traditional 401. owner owes no income tax and the recipient can defer taxes by rolling the distribution into an IRA.)
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Search Unclaimed Assets Databases
If your search is still coming up empty, your former employer has folded or was bought by another company, youâre not out of luck yet.
It may take a little more effort and research but there are many national databases that can help you track down your old 401 accounts:
- The Department of Laborâs Abandoned Plan database can help you identify what happened to your old plan and the contact information of the current administrator
- The National Registry of Unclaimed Retirement Benefits allows you to do a free search for any unclaimed retirement money using just your Social Security number
- FreeERISA is another free resource to search for any old account information that has been filed with the federal government
- The Securities and Exchange Commissionâs website or your stateâs Secretary of State can provide more information on your previous employer
Can A Part Time Employee Contribute To A 401k Plan
Few Part-Time Employees Are Eligible to Participate. While 74 percent of employers offer a 401 or similar plan to their employees, only 38 percent of them extend eligibility to part-time workers.
The Current State of 401s: The vast majority of workers view a 401 or similar plan as an important benefit. A similar percentage of employers believe that their employees see such a benefit as important.
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A Special Note For Pennsylvania Residents
If you live in Pennsylvania, you should start your search sooner rather than later.
In most states, lost or abandoned money, including checking and savings accounts, must be turned over to the states unclaimed property fund. Every state has unclaimed property programs that are meant to protect consumers by ensuring that money owed to them is returned to the consumer rather than remaining with financial institutions and other companies. Typically, retirement accounts have been excluded from unclaimed property laws.
However, Pennsylvania recently changed their laws to require that unclaimed IRAs and Roth IRAs be handed over to the states fund if the account has been dormant for three years or more.
If your account is liquidated and turned over to the state before the age of 59.5, you could only learn about the account when you receive a notice from the IRS saying you owe tax on a distribution!
Company 401k plans are excluded from the law unless theyve been converted to an IRA. If you know you have an account in Pennsylvania, be sure to log onto your account online periodically. You can also check the states website at patreasury.gov to see if you have any unclaimed property.
What Is A 401
A 401 is an employer-sponsored retirement plan enabling workers to save money in a tax-deferred way. Often employers will match contributions up to a percentage of salary. Its just like any other retirement plan in the sense that youre trying to save money and reduce taxes as you do it. Like an IRA, you will pay taxes once you start taking withdrawals in retirement.
If you opted for it when you were hired, every paycheck a percentage of your salary is taken out and put into a 401 retirement account. Your employer may add some more money, maybe even the same amount, on top of that. That money is usually invested, and has been accumulating. How much is in there?
There are different types of 401s. A Roth 401 operates much in the same fashion as a Roth IRA. While still employer-sponsored, it uses after-tax income to fund itself, so you pay the taxes now, and not later in retirement. While one can deliberate the merits of which to use, the general consensus is that a Roth format is useful if one believes they will be in an higher tax bracket later in life when withdrawing from their retirement accounts.
Conversely, a traditional 401 advocate might argue that the ability to put more money into an account in the beginning and through time, allows the saver to make the most of compound interest.
Read more about how a 401 works in this article from TheStreet.
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How To Find An Old : 7 Ways
People prone to leaving things behind usually don’t lose a 401 account, but it happens more often than you think – especially if you don’t have a great deal of cash stashed away in a 401.
Data from Plan Sponsor Council of America shows that 58% of 401 transfer balances are between $1,000 and $5,000 when a career professional leaves an employer. That’s not an insignificant range of money, but it’s money you could have working for you, if you could only find it.
Additionally, the U.S. Government Accountability Office states that over 25 million Americans with cash in a 401 or other employer retirement plan left that money behind when they moved on to greener career pastures.
People leave old 401 accounts behind for many reasons. The account holder may have engaged in a string of job-hopping experiences and lost an old retirement account in the shuffle. Or, the 401 account holder’s company merged with another firm, was bought out, or went bankrupt.
You might even automatically have been enrolled in an old 401 company by a firm you only spent a year or so working at, didn’t realize it, and completely missed bringing the 401 account along with you to your next job.
If that sounds vaguely familiar, how do you find the money you lost in an old 401 account and what do you do with it when you get it back?
There are plenty of ways to get the job done. Let’s take a closer look.
If You Find The Money
What to do with your 401 funds when you find the account largely depends on where you find it.
If the account resides in your employer’s plan, you do have the option to leave the money and the account there — just note you can no longer contribute money to it.
To get back in the game with your sidelined 401, roll it over into an individual retirement account or a current employer’s 401 plan. That way you can put the fund money to work by investing in stocks, bonds and funds that appreciate in value and accumulate more money for your retirement, on a tax-efficient basis.
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What Events Will Cause Me To Become 100% Vested
There are 3 major events that will automatically cause you to become 100% vested regardless of years of service:
Employers often choose to fully vest participants in cases of death or disability, but they are not required to do so.
Pros And Cons: 401 Vs Ira
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Is The 401k Match Coming Back
We first discussed the 401K match, something a lot of companies had done away with temporarily. Mike shared that despite the loss of the match, the savings rate for 401K participant had not dropped. People are still putting money into their 401Ks. We discussed a recent study concerning the return of the 401K, and although Mike agreed with the optimism of the results , he found the study to be limited by the small amount of participants.
Organize And Rebalance Your Accounts
After years of neglect, your forgotten retirement accounts may not be properly balanced. This means there may be too much emphasis on one type of investment, or not enough on another.
If you plan to keep the IRA or company plan open, you may want to consider diversification, so theres the right amount in stocks, bonds, U.S. investments or international exposure thats appropriate for your investment goals and risk tolerance.
Youll need to check each account individually at first. However, if you can list them all in one place, youll see how your combined investment diversification stands up. An online tracking service can continue to monitor your accounts, possibly flagging you if you need to consider rebalancing again.
Online tracking services cant do the rebalancing for you, however youll have to go to each individual account to manage the rebalancing. And if the diversification seems off but its not time for you to rebalance, youll have to look at each individual account to determine which one may be out of balance the most.
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What Does A 401 Plan Administrator Do
The 401 plan administrator is typically an outsourced third party who is tasked with handling all day-to-day responsibilities, including:
- Consulting the employer on initial plan design, employee matching program, and profit-sharing options
- Preparing the Summary Plan Description for participants and beneficiaries
- Determining employee eligibility and enrolling participants
- Approving all loans and distributions, as well as employee status changes
- Monitoring IRS compliance and regulatory changes affecting the plan
- Conducting audits and nondiscrimination testing
- Filing Form 5500, Safe Harbor notices, and Form 1099-Rs with the IRS
- Fixing compliance problems that may arise
- Helping employers get through mergers and bankruptcies
- Generating annual participant censuses, and
- Communicating plan updates, changes, or benefits to employees.
National Registry Of Unclaimed Retirement Benefits
The National Registry of Unclaimed Retirement Benefits helps employers connect with their former employees to returned unclaimed retirement accounts.
Using your social security number, they will search their database for any accounts associated with you. If one is found, they will provide you with the contact information for the plan’s administrator. Or if you’d like, they will contact your plan for you.
Then, you’ll receive information and a form to select how you want your 401 sent back to you.
This resource is only for unclaimed 401 reported by your former employers. If they havenât reported your 401, it will not show up in the database.