Referring to 2021 as “The Great Resignation” isn’t an exaggeration. An average of almost 4 million resignations took place every month in 2021. Many of these resignations left abandoned retirement accounts. However, you can leave your job and take your retirement money with you.
As employees jet out, they could be leaving behind more than just a resignation letter. According to Capitalize, Americans abandon about 2.8 million retirement accounts every year. That adds up to 24.3 million retirement accounts, like 401(k)s, worth more than $1.35 trillion!
Here’s how to take care of your employer-sponsored retirement account as you join the great resignation.
Plan your rollover
If you’re making plans to leave your job, check in on your retirement account before your last day. Make sure you can access your plan with a non-company login. If you’ve got a new job and a new 401(k), you should be able to move the account over to your new setup. If you don’t have a new 401(k) or your job doesn’t offer one, there are other options.
You’ve likely heard of an Individual Retirement Account or IRA. IRAs and 401(k)s are both retirement-saving options but just a bit different from each other. Unlike a 401(k), an IRA is a plan that isn’t tied to work. Anyone can have one, regardless of work status. Moving your 401(k) to an IRA, or rolling it over, protects the money from immediate tax consequences.
How to rollover your 401(k)
- Get a new retirement account. Open an IRA account at any investment firm you like that accepts rollovers. Not all brokerages or robo-advisors offer this, so make sure you open an account with one that does.
- Move your money over. You’re usually given a set time frame to do this after leaving your job. It could be 30 to 90 days, depending on what the company sets up. The sooner you do this, the better. You can trigger a rollover from your old account to your new account. You should receive a notification when this transaction completes. Make sure the rollover goes from one company to another and not to you directly. If a check goes to you, it could be considered a cashout, and you’d be taxed on that amount as income.
- Close down the 401(k). Once your transaction is complete, you can close down the account you have with your old employer. In some cases, you don’t have to do anything, and it will close on its own, but check with your old human resources department to see what final steps you have left.
If you don’t move your 401(k) over to your new job or an IRA, you could take it out in cash. Keep in mind that you could face taxes and fees — like the early withdrawal penalty — for cashing out a retirement account before turning 59 ½ years of age.
What happens if you don’t move your 401(k) when you leave your job?
Sometimes life happens, and you might’ve left your retirement account back with your old job. That doesn’t mean the money went to someone else or even back to your company.
When you leave an account behind, nothing happens to it. In most cases, you’re not required to take it. Suppose you didn’t touch it before you left. In that case, it could still be managed by your old employer’s custodian, including the investment options you set up for it.
In most cases, you can’t continue making contributions to it if you aren’t with your employer anymore. If your employer made contributions to it, those will stop. Depending on your old company’s management, you might still face fees that could eat into your returns. For instance, there might be administrative, investment, or other service fees.
If it’s been a long time since you left an employer or they closed down, got acquired, or changed names, there’s a chance your retirement account has moved on to somewhere new. If you’ve contacted your old employer and there’s nothing they can do, try looking in the National Registry of Unclaimed Retirement Benefits. You can search for your funds in the database to see where your old account has ended up. You can also try the Department of Labor’s Abandoned Plan search.
Should you roll over your 401(k)?
Doing nothing with your old 401(k) is an option, but it’s not your only option. Your money should follow you wherever you go. Try to be as proactive as possible as you get ready to leave or soon after you depart your job so you can keep your money with you. Whether it’s a new company 401(k), an IRA, another investment vehicle, or cashing out, you have plenty of choices to make with your old 401(k).
This article was produced by Young and the Invested and syndicated by Wealth of Geeks.
Featured Image Credit: Pexels.