Ever wonder what happened to your old 401(k) after you left a job? A recent Forbes article explores this idea. If there wasn’t much in the account, it may already be gone. Often, employers take the funds in the 401(k) and dump them into forced individual retirement accounts (IRAs) that may have very conservative investment philosophies combined with high fees. These two factors combined often mean that an account with a small value may soon be reduced to nothing. According to a recent study by the Government Accountability Office (GAO), in a survey of nine IRA providers, there were more than $3.4 billion in 1.8 million forced IRA accounts. This is money that employees are literally leaving behind and often forgetting about. The GAO estimates that as many as 600,000 new forced IRAs may be created each year, meaning that hundreds of thousands of employees are leaving their jobs each year and forgetting to take their retirement funds with them. Most 401(k) plans allow the employer to roll an individual’s plan assets into an IRA if the balance is less than $5,000. This is especially important in today’s job market where younger workers are changing jobs more frequently and leaving behind small balances in their employer-sponsored retirement accounts. These can add up to tens of thousands of dollars over several years that is being left behind by employees when they leave their jobs.
As part of your Houston estate plan, it is important to keep an eye on your 401(k) plan and take the steps necessary to move the plan assets when you leave the job if it makes sense to do so. One option is to transfer the assets into an IRA. There are a couple of ways this can be done, and if done properly, you will not owe any income tax as a result of the transfer. You should speak with your financial advisor to determine the best way to handle any existing retirement plans you have in place.
See Ashlea Ebeling, Employers Dump 401(k)s Into IRAs Costing Ex-Employees Billions, Forbes, Jan. 7, 2014.