Americans have $2.1 trillion in forgotten retirement savings. Here’s how to find out if you’re missing a 401(k)

The dangers of a forgotten 401(k)

Not knowing where your account is held if you leave your funds with a former employer’s 401(k) can come with some major financial implications, says Andrew Huynh, a certified financial planner at Pink Planning. These include:

The fees: “Former employees are often charged extra fees periodically and can even have their funds forced out of the plan if their balances are under a certain threshold,” Huynh says.

Indeed, it is not uncommon for some plans to shift the full administrative fee — or the operational balance such as management, legal and tech costs — to your individual balance, says Jeff Judge, a CFP with Chesapeake Financial Planners. “It’s not usually one dramatic charge,” Judge says. Rather, it’s a “slow bleed that adds up over years, and most people never look closely enough to catch it — that bleed compounds against you at the exact moment you’re not watching the account.”

These high administrative fees are often the default for neglected plans. David Demming, a CFP at Demming Financial Services Corp., points out that retail 401(k) fees, in some cases, are higher than what a coordinated, customized portfolio might pay through institutional discounts on fund fees and trading. “Because 401(k) fees are often higher, clients pay much more than at least our clients,” Demming says, adding that his firm applies fee discounts, such as “no IRA retainer and institutional discounts on fund fees, trading and purchases.”

Inaccurate beneficiaries: Demming warns that the dangers of these lost accounts go beyond just a high expense ratio. “Lost accounts are a problem, often with no or inaccurate beneficiary designations,” he says, noting that some states will eventually even confiscate entirely abandoned accounts under unclaimed property laws.

“Additionally, [beneficiaries] may face five-year payouts rather than 10-year payouts when documentation is incomplete,” Demming says. For context, the SECURE Act grants heirs a 10-year window to draw down an inherited 401(k) to spread out the income tax obligation. However, if the owner’s beneficiary paperwork is missing or incomplete, the IRS may trigger a harsh default penalty known as the 5-Year Rule, which forces the account’s heir to completely empty the account and pay all accompanying income taxes twice as fast.

Investments that don’t work in your favor: One of the most critical facets of a 401(k) is how it’s invested. And when you leave your account with a former employer, you leave with them your allocation strategy, says Matt Chancey, a CFP with Tax Alpha Companies. “You can’t manage what you can’t see,” Chancey says. “Scattered accounts create three problems: your asset allocation isn’t coordinated, you can end up overweight in employer stock without realizing it [and] what happens when a former employer switches 401(k) providers.”

“Every time you leave a job you should roll those funds out to an IRA.” — Catherine Valega, CFP and founder of Green Bee Advisory

In those cases, he explains, the accounts transfer to the new recordkeeper, leaving funds “mapped to whatever the new plan offers, often not matching what you chose,” Chancey adds.

Nathan Sebesta, a CFP at Access Wealth Strategies, adds that these abandoned plans ultimately result in “outdated investment allocations” that make an overall retirement plan harder to manage. Left unmonitored, the underlying investments suffer from underperformance friction.

What’s more, if an employer switches providers while you are no longer on staff, your investment oversight can diminish almost entirely. If you need the help of a professional, you can use this free tool to get matched with fiduciary advisers from our ad partner SmartAsset, as well as sites like CFP Board and NAPFA.

Making the recovery

“If you didn’t and don’t know where funds are, you can call your old employer,” says Catherine Valega, CFP and founder of Green Bee Advisory. “They should be able to tell you who is the current plan recordkeeper. Then you call them with your Social Security number number. Sometimes your state’s find missing money site works, as well.”

In the event your former employer is no longer in business, you may need to rely on some alternative resources. Clark Randall, the director of financial planning at Creekmur Wealth Advisors, suggests a handful of free databases designed to reunite savers with their money:

• The DOL Retirement Savings Lost and Found Database: Maintained by the Department of Labor, this federal tool matches your Social Security number with potential retirement accounts. This online registry is built to display a list of retirement plans linked to a searcher’s information, though data completeness relies heavily on voluntary reporting from plan administrators.
• The PBGC Missing Participants Program: Run by the Pension Benefit Guaranty Corporation, this database includes defined contribution plans such as 401(k)s. Participation for 401(k) providers, though, is voluntary.
• The National Registry of Unclaimed Retirement Benefits: This is a free, privately run database where individuals can safely search for lost plans using their Social Security number.
• MissingMoney.com: Administered by the National Association of State Treasurers, this site acts as a unified directory for state unclaimed property. If an employer completely loses contact with you, they may legally hand your balance over to a state treasury.

The $15,000 question

The average lost 401(k) balance topped some $66,691 at the time of Capitalize’s latest report in 2023. So what do you do if you are able to successfully recover one? The next likely hurdle is deciding where to put it, pros say. While rolling it over into a tax-deferred Traditional IRA is often the path of least resistance, a Roth conversion can also act as a tactical strategy, according to Sebesta.

“Whether to complete a tax-free rollover or a Roth conversion depends heavily on your current and future tax brackets,” Sebesta notes. “A $15,000 Roth conversion may make a lot of sense if you are in a temporarily low tax bracket and can afford to pay the tax from outside funds. Otherwise, a tax-free rollover to a Traditional IRA is often the cleaner option, and it still leaves the door open for conversions down the line.”

Chancey agrees, offering a strict rule of thumb for job-changers weighing the conversion math. “If you’re in a low-earning year with 15-plus years to retirement, converting to a Roth usually wins. You pay tax on the $15,000 today at a low rate and let it grow tax-free forever,” Chancey says. “But if you’re in your peak earning years, that same conversion could push you into a higher tax bracket, costing you more than the tax-free growth is worth.”

How to avoid this issue

Huynh says that regularly logging into your online accounts and updating your contact information is critical to keeping tabs on your money.

Ultimately, leaving your money to chance rarely works in a saver’s favor, Valega says. “Every time you leave a job you should roll those funds out to an IRA,” she says. “It’s in your interest to roll your funds out.”

Sebesta agrees, adding that for most of savers, an old 401(k) must be actively reviewed and either rolled into an individual account or moved into a current employer’s plan — wherever the investment options, costs, and flexibility serve you best.