Greg is 43 years old. During his 20-year career, he worked for four different employers.
In his 20s and early 30s, Greg didn’t pay attention to his finances – at that time, he didn’t have a wife and two kids.
But now, things are different.
He remembers contributing to his previous employers’ 401(k) plans, but he can’t remember if he transferred his 401(k) money when he left his employers.
For some of us, this scenario sounds all too familiar.
We become busy with our new employer and forget (or don’t want to be bothered with) moving our 401(k) money.
It’s YOUR retirement money, take time to move it now.
Even if you left your last employer 10 years ago, don’t be embarrassed.
It’s never too late to claim your 401(k) from your previous employer.
Begin by contacting the Human Resources (HR) department of your previous employer.
If a new company acquired your last employer, contact the HR department of the new parent company.
If your previous employer no longer exists, check online databases like the National Registry of Unclaimed Retirement Benefits, U.S. Department of Labor’s Abandoned Plan Search, or your state’s unclaimed property database.
Once you confirm you have money in a previous employer’s 401(k) plan, evaluate these three options.
1- Transfer money directly into your current employer’s 401(k) plan
This process is no longer cumbersome due to IRS 2014 regulatory changes and advancements in technology.
You’ll need to make sure your previous employer’s plan and your current employer’s plan are traditional 401(k) plans, meaning they’re funded with pre-tax money.
If your current employer has a Roth 401(k) plan, you’ll need to consider the tax consequences.
2- Transfer money directly into an IRA
If contributions to your 401(k) were made after taxes were withheld from your paycheck, then you need a Roth IRA.
Make sure your money moves directly from the 401(k) plan to your IRA to avoid the 10% tax penalty and income tax withholding.
3- Cash out
If you receive a check made payable to you AND you are younger than 59 ½ years old, a 10% penalty will be deducted from your check.
Also, you are subject to ordinary income tax on this distribution (even if you are over 59 1/2 years old).
Most plans automatically withhold 20% for income taxes.
Discuss your situation with a CFP® Professional to better understand your options and the financial impact on your lifestyle goals.
Remember, it’s your retirement money – there’s no need to be embarrassed about forgetting it.
Moving forward, pay attention to your contributions to employer-sponsored retirement plans.
Contact us if you need a financial consultation.
(Update to original post from August 19, 2014)
ABOUT THE AUTHOR:
Niv Persaud, CFP®, CDFA®, RICP®, is a Managing Director at Transition Planning & Guidance, LLC. Life is more than money. It’s about living the lifestyle you want and can afford. For that reason, Niv consults with clients on money, life, and work. Her approach capitalizes on techniques she learned throughout her career, including as a management consultant, executive recruiter, and financial advisor. Her services include developing comprehensive financial plans, divorce financial reviews, and retirement plans. Niv actively gives back to her community through her volunteer efforts. She believes in living life to the fullest by cherishing friendships, enjoying the beauty of nature and laughing often — even at herself. Her favorite quote is by Erma Bombeck, “When I stand before God at the end of my life, I would hope that I would not have a single bit of talent left and could say ‘I used everything you gave me.’”