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As millions of Americans quit their jobs to take time off, find a new job, or even start their own business, financial experts have a warning: don’t lose sight of valuable employer-sponsored retirement plans.
Neglecting such a plan, which can contain thousands of dollars after just a year of work, is more common than you might think. During the decade 2004 to 2014, more than 25 million people who changed jobs left one or more employer-sponsored retirement accounts at a former workplace, according to a report by the Government Accountability Office.
Of course, these accounts can be recovered years after the fact. However, finding them later can take a lot of time and effort, and means you’ve likely missed out on income by neglecting to properly manage your investments.
Plus, if you can’t find any lost employer plans when you retire, you could be subject to penalties if you don’t withdraw money regularly.
“We strongly recommend that people don’t leave money scattered everywhere,” said Gail Reid, certified financial planner and private wealth advisor for Ameriprise Financial Services in Glendale, Calif.
When to overthrow
To make sure you don’t leave money on the table, there are a few things experts recommend when you change jobs.
First, if you have an employer-sponsored retirement plan that needs to be vested, you may want to wait before you quit to make sure you get all the matching funds you can, Reid said.
When you start a new job, you have a few options regarding your old plan. You can keep the money there, transfer it to a new plan with your current employer, or put it in an individual retirement account.
The process of transferring funds is called a rollover and can be done by the plan administrators to make sure you don’t incur additional costs.
“If you do it right, there should be no penalties,” said Kaya Ladejobi, CFP and founder of Earn Into Wealth in New York City.
One of the reasons for moving all of your money into a new employer plan is that it helps to keep everything in one place – this makes it easier to ensure that your investments are allocated correctly and to keep them up to date. beneficiaries. Having everything in one plan can also come in handy if you want to take out a loan against your 401 (k), which people can do for things like buying a home, Reid said.
On the flip side, rolling funds in an IRA can make sense if you don’t have a new employer plan or want more control over your investments.
Should we cash?
According to Reid, it almost never makes sense to cash out a pension plan if you’re under 59 and a half. Having the money invested in the market will always produce a better return and avoid costly penalties before retirement.
In some cases, if you have less than a certain amount of money – typically $ 5,000 – you may be forced to quit your old work plan. If this happens, you will need to renew your account yourself or your former employer might send you a check.
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Of course, you don’t have to move accounts immediately. If you have more than $ 5,000 in a plan, you usually can’t be forced to opt out.
If you need some time to sort out your next money transfer, that’s okay, as long as you don’t forget an account.
“You can always leave your retirement account where it is; you just don’t want to lose sight of the money,” Ladejobi said.
Find a lost account
If you’ve lost track of your accounts, it makes sense to start collecting and consolidating them as soon as possible.
The best way to start is to make a list of your past employers and see if you can find which company they are using for their retirement plans, Reid said.
You can also search the National Register of Unclaimed Retirement Benefits or Brightscope, both of which contain lists of lost or unclaimed accounts.
It’s especially a good idea to start consolidating your accounts if you’re over 60, Reid said. And, if you’re over 72, you should have an account to tap into to avoid complicating the minimum distributions required – which sometimes need to be taken from each individual account, depending on the type.
If you completely lose track of a 401 (k) and fail to make the required minimum distribution, it can result in a 50% penalty, Reid said.
Even if you’re not near retirement, having everything in one place can help you plan better for the future.
“You can’t know where you’re going if you don’t know what you’ve got,” said Zaneilia Harris, CFP and president of Harris & Harris Wealth Management Group in Upper Marlboro, Maryland.
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