If you have been through a few employers over the years, there is a good chance that you may have a 401k or Pension plan that you don’t know about. Maybe you forgot about. This is what happened to my wife when she recently received mail from her employer 10 years ago in reference to her 401k Plan. Her employer contacted her because of changes coming to the allocations in her plan. We found out where her 401k was held before creating an online account. Her balance? Drum roll please…………Her 401k only had $31. It was unclear if she had more money in the past or if fees ate away her nest egg. Once you quit your job, your 401k is no longer sponsored by your employer. That means you will have to pay more fees to maintain your account.
Why didn’t she receive any statements over the years? She never registered online with her 401k account holder and she never setup her communication preferences. We wanted to rollover her $31 to her newer 401k plan but we were told the balance was too small to perform a rollover. That means we had to cash out the $31 and perform a rollover ourselves within 60 days.
A few weeks after we cashed out her $31 and closed out her old 401k, that same employer contacted her again. This time the letter referenced her Pension. Pensions were once very popular before 401k’s took over. The cost of managing pension plans became too great as cheap 401k’s spread rapidly. Many large companies have switched their retirement plans over to 401k’s while small businesses switched over to SEP IRA’s or ESOP’s (Employee Stock Ownership Plans). That is why today less than 5% of companies offer Pension Plans. In my wife’s case, her employer offered both a 401k and Pension Plan and it turned out she had both accounts without really knowing about it. She is not alone as millions of American’s misplace billions of dollars each year in forgotten accounts.
We were excited as we wondered how much money she had in her pension. We joked around that she probably had less than $100 just like her misplaced 401k. We started the process of figuring out what she had in her pension plan hoping for more money than her 401k. True enough her pension earned an average of 4% per year with a total balance of $4200. When it comes to cashing out your pension, you have a few options. You can receive a payout over 5 years or longer, or you can receive a lump sum. Either way, you will have to pay early withdrawal penalties and income taxes. Based on historical data, we expect to earn better than 4% with her current 401k so we decided to rollover the pension into the 401k. Once you request the payout, it can take 1 to 2 full months before you see the money.
How Can I Find My Lost Accounts?
There are two ways you can go about finding your lost retirement accounts. You can contact your previous employers and ask them directly, or you can search for your accounts through certain websites. There are many scam websites out there that promise to find your money. The most trustworthy site I can find is unclaimed.org. It is best to start searching now before you forget all about everything you just read. If you find more accounts, try to consolidate them into your latest retirement plan so you can manage your money better.
Interested in opening a retirement account? Open a Roth IRA or Traditional IRA with the smart money manager Betterment where you get $5000 managed free for a year. Consider subscribing to my monthly newsletter to stay up to date on our personal finance hacks.
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