A Quick Story
I had a client reach out to me recently to get help recovering some money from a stock he had purchased back in 1990 while living in another state. After he moved away, he forgot about it entirely, until recently when he was notified that it was being held by the state treasury as unclaimed property.
Not only did we help him recover it, but we also learned that the $1,000 initial investment had grown to $91,000! Not bad for a small investment you forgot even existed!
Overview
Not everyone has such a wild story to tell about an orphaned investment account, but what many people don’t realize is that there may be money they have forgotten about as well. That is why I am writing today about forgotten 401ks.
Most employers today have a 401k plan or some other form of retirement savings account that is funded by employee and employer contributions. Getting started with the plan is very simple, and in many cases, employees are automatically enrolled. On the other hand, the process of managing your retirement account after you leave a job can be quite confusing. Starting a new job, which sometimes requires relocating, is already busy enough. As a result, many people choose to do nothing about it. That is how an active 401k becomes a forgotten 401k.
Forgotten 401k Statistics
As of 2023, it’s estimated that there are 29.2 million left-behind or forgotten 401ks across the United States. In total, it’s believed that the assets in these accounts combine to total 1.65 trillion dollars. That’s a lot of forgotten money!
Modern labor trends such as “The Great Resignation”, and more frequent job changes have only made the problem worse, with the number of forgotten accounts increasing by approximately 20% since 2021.
All of this leads to some questions. How do you prevent your retirement savings from being forgotten? And how do you recover one if it’s already been left behind?
Prevention
When you leave a job, you have four things that you can typically do with your retirement account.
- Leave it: Many employers will allow your account to stay within the plan. This is the simplest option, but if you do this with enough employers, it can be easy to lose track of some money.
- Rollover to New Employer Retirement Account: As long as the plan allows it, you will likely be able to combine your old account with your new employer provided retirement account. This consolidation helps prevent forgotten assets.
- Rollover to IRA with Financial Advisor: This option ensures another set of eyes on your hard-earned savings which can make sure it’s always accounted for. It’s also possible that it will grow faster with professional management of the investments.
- Cash it Out: Cashing out retirement funds can have major tax consequences. You should consider consulting with a tax professional before choosing this option.
There are more pros and cons to each of these options that should be considered further before making your decision. A financial advisor like me can consult with you to help you determine which option is best for you.
Recovery
There are several methods to get started in recovering forgotten assets.
- Call Former Employers: If you are uncertain if you have any remaining retirement assets left behind, you can call and talk to the HR department to learn what you need to do to move your money.
- Utilize National Registries: There are a few reputable registries such as the National Registry of Unclaimed Retirement Benefits that allow you to enter your information and search for any forgotten accounts.
- Seek Professional Help: Financial Advisors like me are very familiar with the process of relocating retirement accounts. We help facilitate the process of moving your account, so you don’t have to try to figure it out alone.
Conclusion
I know how hard people work to put money away for retirement, so the last thing I want is for those retirement accounts to become orphaned and left behind. That’s why I invite you to think back to your previous jobs and take inventory of your retirement accounts.
If you suspect that you have an account that has been, or will soon be forgotten, contact us today. We offer free consultations and would love to help you create a net worth statement and help you reach your retirement and investment goals. Give us a call or schedule an appointment by clicking “Schedule Appointment” in the menu bar above.
Sources:
https://www.hicapitalize.com/resources/the-true-cost-of-forgotten-401ks/
https://www.cnbc.com/2023/08/09/1-in-5-americans-have-dormant-401k-plans-how-to-claim-yours
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Investing includes risks, including fluctuating prices and loss of principal.
3 Peaks Financial does not provide tax or legal advice. Please consult a tax professional before implementing information or strategies found in this publication.
*Connor Dye is solely an investment advisor representative of 3 Peaks Financial Advisors, and not affiliated with LPL Financial.