Do I Have A 401k I Don’t Know About
If you think that you may have enrolled in a 401K plan with a previous employer, but youre not quite sure, there are a few ways to find out if you did.
The easiest way is to contact the HR department of your former employer and ask them whether you ever contributed to a 401K while in their employment. Youll need to give them your personal details along with the dates that you worked for them, so keep this information to hand.
If your old employer has since gone bust or you cant remember which companies youve worked for in the past, check the National Registry of Unclaimed Retirement Benefits website. Youll be able to see whether youve been listed on their database by your old employer as someone with unclaimed retirement plan funds.
If you havent been listed on the National Registry of Unclaimed Retirement Benefits database, there are a couple more options to explore. Visit NAUPA or missingmoney.comwhere you can search by state based on where youve lived or worked to find out whether any unclaimed assets belong to you.
Roll It Over To Your New Employer
If youve switched jobs, see if your new employer offers a 401, when you are eligible to participate, and if it allows rollovers. Many employers require new employees to put in a certain number of days of service before they can enroll in a retirement savings plan. Make sure that your new 401 account is active and ready to receive contributions before you roll over your old account.
Once you are enrolled in a plan with your new employer, its simple to roll over your old 401. You can elect to have the administrator of the old plan deposit the balance of your account directly into the new plan by simply filling out some paperwork. This is called a direct transfer, made from custodian to custodian, and it saves you any risk of owing taxes or missing a deadline.
Alternatively, you can elect to have the balance of your old account distributed to you in the form of a check, which is called an indirect rollover. You must deposit the funds into your new 401 within 60 days to avoid paying income tax on the entire balance and an additional 10% penalty for early withdrawal if youre younger than age 59½. A major drawback of an indirect rollover is that your old employer is required to withhold 20% of it for federal income tax purposesand possibly state taxes as well.
You Can Roll Over A 401 Account
Workers generally have four options for their 401 when they leave a company: You can take a lump-sum distribution you can leave the money in the 401 you can roll the money into an IRA or, if you are going to a new employer, you may be able to roll the money to the new employer’s 401.
It’s usually best to keep the money in a tax shelter, so it can continue to grow tax-deferred. Whether you roll the money into an IRA or a new 401, be sure to ask for a direct transfer from one account to the other. If the company cuts you a check, it will have to withhold 20% for taxes. And whatever money isn’t back in a retirement account within 60 days will become taxable. So if you don’t want that 20% to be considered a taxable distribution, you’ll have to use other assets to make up the difference.
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Vested Versus Unvested Amounts
When you find your 401 balance, you might notice that some of the account is vested and some of it isn’t. Amounts that are vested are yours no matter what if you leave the company, you get to take that money with you, but you would lose any unvested amounts. You’re always 100 percent vested in your contributions. However, your employer may make contributions to your 401 plan on your behalf but might put vesting requirements on the money. According to federal law, contributions must vest at least as fast as either the cliff vesting or graded vesting schedules. With cliff vesting, you must be fully vested at the end of three years of service. With graded vesting, you must be 20 percent vested by the end of your second year of service, and must vest an additional 20 percent each year after that, making you fully vested by the end of your sixth year.
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.
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Why Do Employers Have Vesting Policies
One reason employers have vesting policies is to encourage the longevity of their employees. Many employees will stay in their jobs until they are fully vested in their 401s in order to gain the most financial benefit. For employees, this may be a consideration when it comes time to look for a new job.
On that note, it is always important to consider the financial impact of a new job. If your salary is going to increase significantly, you may be willing to take the hit on your 401 balance, especially if you have only been with the company for a year or two. However, if you are close to the point of being fully vested in your 401, it may be more beneficial to wait a few months or even a year to allow your 401 to become fully vested before switching jobs.
Why You Should Roll Over Your Old 401 Accounts
Once you find forgotten retirement funds, you can make it easier to keep track of your money by simply rolling over your old 401 accounts into an IRA at a brokerage you already have an account with. This way you can manage your nest egg easier since all of your money is in one place.
“It’s beneficial to consolidate your accounts to reduce oversight obligations,” Cavazos says. “Having all of your funds consolidated in one account allows you to keep track of your balance and account performance.”
If you already have an existing IRA, you can roll your 401 balance into that account. Otherwise, it’s easy to open a new IRA at the big-name brokers like Charles Schwab, Fidelity, Vanguard, Betterment or E*TRADE. Rolling over your old 401 plan into an IRA gives you more control over how you invest your retirement funds since you won’t be limited to just the funds that were offered by your former employer. These large brokerages give you thousands of investment options, including mutual funds, index funds and individual stocks.
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Too Complicated Get Some Help
If this process seems like a lot of work, youâre not alone. Locating your old 401 accounts and finding the proper place to transfer them to can get confusing.
Rolling 401 Assets Into An Ira
When you retire or leave your job for any reason, you have the right to roll over your 401 assets to an IRA. You have a number of direct rollover options:
Rolling your traditional 401 to a traditional IRA. You can roll your traditional 401 assets into a new or existing traditional IRA. To initiate the rollover, you complete the forms required by both the IRA provider you choose and your 401 plan administrator. The money is moved directly, either electronically or by check. No taxes are due on the assets you move, and any new earnings accumulate tax deferred.
Rolling your Roth 401 to a Roth IRA. You can roll your Roth 401 assets into a new or existing Roth IRA with a custodian of your choice. You complete the forms required by the IRA provider and your 401 plan administrator, and the money is moved directly either electronically or by check. No taxes are due when the money is moved and any new earnings accumulate tax deferred. Earnings are eligible for tax-free withdrawal once the IRA has been open at least five years and you are at least 59½.
Rolling your traditional 401 to a Roth IRA. If your traditional 401 plan permits direct rollovers to a Roth IRA, you can roll over assets in your traditional 401 to a new or existing Roth IRA. Keep in mind youll have to pay taxes on the rollover amount you convert.
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Keeping Your Money In A 401
You are not required to take distributions from your account as soon as you retire. While you cannot continue to contribute to a 401 held by a previous employer, your plan administrator is required to maintain your plan if you have more than $5,000 invested. Anything less than $5,000 will trigger a lump-sum distribution, but most people nearing retirement will have more substantial savings accrued.
If you have no need for your savings immediately after retirement, then theres no reason not to let your savings continue to earn investment income. As long as you do not take any distributions from your 401, you are not subject to any taxation.
If your account has $1,000 to $5,000, your company is required to roll over the funds into an IRA if it forces you out of the planunless you opt to receive a lump-sum payment or roll over the funds into an IRA of your choice.
Traditional 401 Vs Roth 401
When 401 plans became available in 1978, companies and their employees had just one choice: the traditional 401. Then, in 2006, Roth 401s arrived. Roths are named for former U.S. Senator William Roth of Delaware, the primary sponsor of the 1997 legislation that made the Roth IRA possible.
While Roth 401s were a little slow to catch on, many employers now offer them. So the first decision employees often have to make is between Roth and traditional.
As a general rule, employees who expect to be in a lower after they retire might want to opt for a traditional 401 and take advantage of the immediate tax break.
On the other hand, employees who expect to be in a higher bracket after retiring might opt for the Roth so that they can avoid taxes on their savings later. Also importantespecially if the Roth has years to growis that there is no tax on withdrawals, which means that all the money the contributions earn over decades of being in the account is tax-free.
As a practical matter, the Roth reduces your immediate spending power more than a traditional 401 plan. That matters if your budget is tight.
Since no one can predict what tax rates will be decades from now, neither type of 401 is a sure thing. For that reason, many financial advisors suggest that people hedge their bets, putting some of their money into each.
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Check The National Registry Of Unclaimed Retirement Benefits
The National Registry is a nationwide, secure database listing of retirement plan account balances that have been left unclaimed by former participants of retirement plans.
It is essentially a search engine of lost 401 plans.
The only thing you need to search the database is your social security number. No additional information is needed, and there is no cost to search the database.
Option : Leave It Where It Is
You don’t have to move the money out of your old 401 if you don’t want to. You won’t ever lose the funds provided you don’t lose track of your old account again. But this option is usually the least desirable.
For one, it’s more difficult to manage your retirement savings when they’re spread out over many accounts. You also get stuck paying whatever your old 401’s fees were, and these can be higher than what you’d pay if you moved your money to an individual retirement account, for example.
But if you like your plan’s investment options and the fees aren’t too high, you could consider leaving your old 401 funds where they are. Just make careful note of how to access them again so you don’t forget.
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How To Find An Old 401 And What To Do With It
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There are billions of dollars sitting unclaimed in ghosted workplace retirement plans. And some of it might be yours if youve ever left a job and forgotten to take your vested retirement savings with you.
But no matter how long the cobwebs have been forming on your old 401, that money is still yours. All you have to do is find it.
Contact Your Old Employer About Your Old 401
Employers will try to track down a departed employee who left money behind in an old 401, but their efforts are only as good as the information they have on file. Beyond providing 30 to 60 days notice of their intentions, there are no laws that say how hard they have to look or for how long.
If its been a while since youve heard from your former company, or if youve moved or misplaced the notices they sent, start by contacting your former companys human resources department or find an old 401 account statement and contact the plan administrator, the financial firm that held the account and sent you updates.
You may be allowed to leave your money in your old plan, but you might not want to.
If there was more than $5,000 in your retirement account when you left, theres a good chance that your money is still in your workplace account. You may be allowed to leave it there for as long as you like until youre age 72, when the IRS requires you to start taking distributions, but you might not want to. Heres how to decide whether to keep your money in an old 401.
The good news if a new IRA was opened for the rollover: Your money retains its tax-protected status. The bad: You have to find the new trustee.
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Check Every Corner Of Your 401
Once you gain access to your account online or review your statement, check how your money is invested.
Most 401 administrators automatically invest your money into a target-date fund. Target date funds are portfolios of various mutual funds and investments tailored to your estimated retirement date. Using your age, the percentage mix of these investments changes to match your risk tolerance as you near retirement.
If you don’t want to hold your money in a target-date fund, you have the option to change investments.
However, if your plan hasn’t automatically allocated your money, it may be waiting to be invested. In this case, your money will be sitting in your account, not growing in a glorified savings account.
Itâs a rare occurrence, but checking your 401 balance will help catch any funds not adequately invested.
Make Sure You Actually Contributed
Before you go through the hassle and process of calling the HR department at your old employer, or searching through databases, its a good idea to verify that you contributed to the plan.
If you are unsure if you contributed to a 401 plan, you can check your previous year tax return and old W-2. Any contribution will be in Box 12 of the W-2.
ERISA, or the Employee Retirement Income Security Act of 1974, sets minimum standards for retirement plans, and protects retirement savings from abuse or mismanagement.
Among other things, employees are required to make annual reports
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Ing Shot: Dont Attempt This At Home
Its possible that Nick from Michigan, or others reading this, still find the prospect of tapping a 401 or retirement account tempting, especially if you have debt hanging around your neck like an albatross. Weve said it before here, and Blayney will say it again as our last word on the subject:
When it comes to taking money out of an IRA or 401, Im always reminded of the TV commercials showing stunts men or racing car drivers that warn DONT ATTEMPT THIS AT HOME! Yes, it might seem like taking money from your retirement account is an easy, even attractive, thing to do after all its your money, right? But there are many pitfalls and adverse consequences for the unwary, and it is imperative that anyone considering this, first talk to a competent qualified professional a CFP professional before doing this.