How to Transfer and Consolidate Old 401(k) Plans

Around 21% of Americans who quit their jobs either cash out their 401(k) or leave it to be transferred into cash by the employer. Both result in billions of dollars in lost retirement savings.

Cashing out was a problem before the pandemic, but the Great Resignation created a dramatic ripple effect. With a large chunk of the workforce leaving their employers (many having only been there for a few years) they disregarded existing (albeit small) retirement accounts — leaving them idle, cashing them out, or leaving them subject to employer cash out.

This opened up the floodgates for significant tax penalties, misplaced accounts and immeasurable losses in potential savings. The solution? Track down, transfer and consolidate your accounts. This is where having a financial advisor to guide you is of immense benefit. Not only can such a professional help you facilitate this transfer, but many of them can also handle the process for you. Here’s the checklist for finding lost 401(k) accounts and transferring them into an effective retirement vehicle.

The Importance of Moving Your 401(k) Accounts

Saving for retirement is a long play, one that only works if you plan and remain consistent over the years. Cashing out a retirement plan can be counterproductive to your savings goals and is taxed substantially.

Instead, here is how the process should go once you leave an employer:

Locate your current 401(k) plan: Most sponsoring firms have an app where you can view your retirement portfolio. If you never set one up, connect with your current employer in the HR department.
Contact your new plan provider and complete the necessary forms and account setup.
Connect with your former provider and ask them to make the transfer to the new account or send them a check.

Try to avoid getting a check issued to you directly. Out of sight, out of mind applies in this situation. If you were to receive a check and failed to resupply a new eligible retirement account within 60 days, you now get taxed from 20% – 45% depending on the account you drained.

When Should you Leave Your Current Holdings?

The only time you should consider not moving your retirement account from one place to another is when your current employer is producing high returns with few fees. But there are a few aspects of this decision to consider.

If you have less than $1,000 in the account, the employer can cash out for you (without your consent) and issue you a check. If you don’t put that into a new eligible account within 60 days, you are taxed.
Old employers may charge you more fees once you’re not an active employee.
You can no longer make contributions to that account once you leave the company.

Seeing as how this option is a slippery slope, many find it much simpler to consolidate and transfer their accounts each time they change employers.

Checklist for Finding and Combining Lost 401(k) Accounts

On average, you will have between around a dozen jobs in your lifetime. Assuming that a third of those were part-time or one-off jobs you took during your teens and early 20s, that leaves two-thirds as career-based contracts or salary positions which you were actively making a retirement contribution through. This roughly translates to eight or nine retirement accounts over your working tenure.

When it’s just two to three accounts, you may find you can keep track of them with little incentive to combine. But once you start moving into accounts four and on, numbers one through three can easily be forgotten about. If you are curious about any accounts that may be lingering, here’s how to find them:

Direct Contact: If you know who your former account providers were you can reach out to them directly. A quick search of your personal information should be all that’s needed to locate an old account.
Database Search: Although a more cumbersome process, database research is the “leave no stone unturned approach.” Here are the main sites to check:

Consolidation: Once you’ve located all of your retirement accounts, you can choose to consolidate them under a separate retirement plan or your current employer’s company-sponsored retirement plan. To move them simply complete the same steps as if you just left your previous employer:

Locate your current plan: Most sponsoring firms have an app where you can view your retirement portfolio. If you never set one up, connect with your current employer in the HR department.
Contact your new plan provider and complete the necessary forms and account setup.
Connect with your former provider and ask them to make the transfer to the new account or send them a check.

The Bottom Line

Having any portion of your retirement savings cashed out puts you in the potential zone for an insufficient amount of savings for your retirement. Plus you are subject to up to a 45% tax on each cash-out. Once you leave a company make sure you’re taking your savings with you and placing them in the proper vehicle.

Tips for Wealth Building

If you’re looking for ways to maximize the growth of your money, consider working with a financial advisor. An advisor can help you create an investment plan or even manage your wealth for you. If you don’t have an advisor, finding one doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you’re not sure how much to invest because you’re curious about the potential return, consider using SmartAsset’s free investment calculator.