The term “orphan 401(k)” refers to 401(k) plans that former employees have forgotten about or otherwise abandoned. (It can also refer to a workplace retirement account that no longer has a sponsor.)
Someone could end up with one or more orphan 401(k) plans if they make frequent job changes throughout their working years. If you have dormant 401(k) accounts with previous employers, you could be leaving a significant amount of money on the table.
Knowing how to find orphan 401(k) plan assets — and what to do with them once you do — matters for planning your financial future.
What Is an Orphan 401(k) Account?
A 401(k) retirement account is a defined contribution plan that allows employees to save money for retirement on a tax-advantaged basis, using elective salary deferrals. A 401(k) plan also allows employers to make matching contributions on the employee’s behalf.
An orphan 401(k) account or dormant 401(k) is a 401(k) plan that a plan participant has left behind after leaving a job. Many people have one or more orphan 401(k) plans. That’s because the typical worker changes jobs approximately 12 times during their lifetime, according to data from the Bureau of Labor Statistics (BLS).
Assuming you enroll in their employer’s 401(k) plan with each new job, you could easily end up with a dozen orphan 401(k) accounts by the time you’re ready to retire. The money left behind in orphan accounts doesn’t disappear but it doesn’t automatically follow the plan participant either.
Orphan 401(k) plans can be costly for employers to maintain on behalf of former employees. And the employee, of course, misses out on the benefit of the money saved in those accounts as they work to get on track for retirement.
What to do with an Orphan 401(k) Account
It’s important to understand what to do with orphan 401(k) accounts, because doing nothing could mean missing out on a valuable addition to your retirement plan. If you have one or more orphan accounts, there are several options for managing them, including:
• Cashing the plan out
• Rolling the money into a 401(k) plan at your current employer
• Rolling orphan 401(k) amounts into an Individual Retirement Account (IRA)
• Leaving it with your former employer
Each option has pros and cons. Cashing out an orphan 401(k), for example, could put a lump sum of cash into your hands. But you’ll owe income tax on the full distribution, along with a 10% early withdrawal penalty if you’re younger than 59 ½.
Rolling the money over into your current 401(k) or into an IRA can help you avoid both taxes and penalties, assuming you pursue a direct rollover. If you don’t have as much extra money as you’d like to invest in your 401(k) at your current job, for example, rolling over money from an orphan 401(k) could give your balance a boost. But it’s important to evaluate investment options when doing so, as you could end up paying higher management fees.
If you’re satisfied with your former employer’s investment options and fees, you could leave your orphan 401(k) where it is for the time being. Keep in mind, however, that your employer may cash you out of the plan if your balance is below $1,000.
If you have one or more orphan 401(k) plans, here’s a simple checklist of what to do next:
• Locate each account, taking note of the account balance and plan investments.
• Consider your overall retirement goals and how much you have saved in total so far.
• Estimate the potential tax consequences and costs of cashing out your old orphan accounts and think about how you’d use those funds.
• Evaluate your current 401(k) and/or IRA to determine if rolling over orphan 401(k) plans makes sense, based on the investment options available and whether doing so might yield fee savings.
Looking at your entire retirement outlook can help you decide the best way to manage orphaned 401(k) accounts while minimizing taxes and investment fees.
Pros and Cons of Orphan Accounts
A 401(k) can be an incredibly useful type of retirement plan, given the tax benefits it infers. With a traditional IRA, the money you contribute is tax-deductible and growth is tax-deferred. If your employer offers a matching contribution, that’s free money you can put toward your retirement.
Your plan may also allow in-service loans at low interest rates, which is helpful if you need to borrow money in a pinch.
Orphan 401(k)s, however, have their own benefits and drawbacks.
Orphan 401(k) Pros
These accounts represent money you could add to the retirement savings pot that informs your retirement plan. You could roll the funds over to your current 401(k) or an IRA in order to keep growing retirement wealth on a tax-advantaged basis. Or you could withdraw the cash in a lump sum if needed.
Orphan 401(k) Cons
Orphan 401(k) accounts may be difficult to track down if you’ve changed jobs frequently. Even if you know where your orphan 401(k) accounts are, it can be hard to manage multiple accounts and keep track of your investments and fees across your entire portfolio.
Summary of Pros and Cons of Orphan Accounts
|You have several options from which to choose (keeping the orphan account, rolling it over, cashing out, etc.)||It can be difficult to manage multiple 401(k) accounts and make holistic portfolio decisions.|
|You may have access to unique investments or lower fees through an old 401(k) than you have at your current account.||It’s easy to lose track of old 401(k) accounts.|
|Money maintained in a 401(k) account may have better protection from creditors than other types of accounts.||If you keep the account with your former employer, you’re only able to invest in those investment options on the plan menu.|
Pros and Cons for Employers
Some employers prefer having orphan accounts remain in plan, but others do not. That’s because keeping former employee assets in plan may give them access to better pricing from financial services providers. But there is also an added administrative cost for employers to manage orphan plans.
How to Find Orphan 401k Plans
It’s possible that you could have one or more orphan accounts you’ve forgotten about over the years. But that doesn’t mean your money is lost forever. Fortunately, there are different possibilities for how to find orphan 401(k) plan assets.
1. Contact Previous Employers
The simplest way to find an old 401(k) account may be to reach out to your previous employer. You can contact your former company’s human resources administrator or the plan administrator who should be able to tell you the status of your orphan account.
There may be three possibilities, depending on the account balance:
• Balance of $1,000 or less: Your former employer could have cashed out the account and sent the check to your last-known address on file.
• Balance of $1,000 to $5,000: Your former employer could have rolled the money over to an IRA on your behalf.
• Balance greater than $5,000: Your account should still be intact with your former employer.
If your employer claims that they sent you a check but you didn’t receive it, you’ll need to try and track that payment down.
If your employer rolled the account into an IRA, your plan administrator or HR administrator should be able to provide the details of the account. You can then reach out to the financial institution that holds the IRA for more details on your account balance and investments.
Assuming your orphan 401(k) is still in place with your former employer, you can then decide whether you’d like to leave it where it is, cash it out or roll it over.
2. Dig Deeper
It’s possible that your former plan administrator may not have details available for where your 401(k) money went. In that case, you’ll need to do a little more digging to try to find it. There are several resources you can use to search for orphan 401(k) accounts online, including:
• Department of Labor’s abandoned plan database
• FreeERISA, which allows you to search for employee benefit plans by zip code
• National Registry of Unclaimed Retirement Benefits , which could help you find orphan 401(k) plans if your former employer’s are registered
The more information you can provide, the easier it may be to find missing 401(k) accounts. For example, to use the Department of Labor’s abandoned plan database, it helps to know your plan name, employer name, city, state and zip code when completing a search.
3. Search Unclaimed Property Databases
If you’re still unsuccessful in turning up orphan 401(k) plans, there are some other databases you can use to search for them. Employers who can not track down plan owners may turn over their assets to their state’s unclaimed property department.
You can look for missing money through these sites:
• Unclaimed.org , sponsored by the National Association of Unclaimed Money
You can also search for abandoned or orphaned pension plans through the Pension Guaranty Corp.’s unclaimed pension benefits database .
Retirement Investing With SoFi
Finding orphan accounts could help you to boost your total retirement savings balance overnight. One way to put that money to use is by rolling that money over to a new IRA to streamline your investment strategy.
If you don’t have one yet, the SoFi Invest® investment app makes it easy to open a Traditional or Roth IRA. Once you’ve created an account, you can use it to build a portfolio of stocks and exchange-traded funds.
How can I find out if I have an old 401(k) account?
The easiest way to find out if you have an old 401(k) account is to contact your former employer’s human resources administrator or plan administrator and ask. They should be able to tell you if you were enrolled in the company’s 401(k) plan and if so, where that account is now.
How do I find all my retirement accounts?
If you believe you have multiple orphan 401(k) accounts floating around, you could use a retirement benefits database to search for them. There are multiple databases you can use to search for orphan accounts, including 401(k) plans and pension plans. You can also use unclaimed money databases to search for inactive or dormant 401(k) accounts.
Are unclaimed retirement benefits legit?
The National Registry of Unclaimed Retirement Benefits is a legitimate resource for finding lost or missing retirement accounts. The database allows you to search for orphan 401(k)s simply by entering your Social Security number. If the database finds an unclaimed retirement account, you can then reach out to the employer whose contact information is listed for more information.
Photo credit: iStock/LaylaBird
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