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Switching Jobs in the ‘Great Resignation?' Don't Leave Retirement Money Behind

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Millions of Americans are quitting and finding new jobs as the pandemic-fueled "Great Resignation" continues.  

Many are probably leaving retirement plans with thousands of dollars behind.

More than 25 million people who switched jobs between 2004 and 2014 left one or more employer-sponsored retirement accounts at their former workplace, according to a report from the Government Accountability Office.

While these accounts can usually be recovered, tracking them down after the fact can take a lot of time and effort and means you've left money on the table. And, if you don't recover your employer-sponsored plans by the time you retire, you could face penalties for failing to withdraw money regularly.

"We highly recommend people don't leave money scattered all over," said Gail Reid, a certified financial planner and private wealth advisor for Ameriprise Financial Services in Glendale, California.  

Rollovers

There are a few things that experts recommend looking at when switching jobs.

First, if you have an employer-sponsored retirement plan that needs to vest, you may want to wait to quit your job to ensure you get all the matching funds you can, said Reid.

When you start at a job, there are a few things you can do with your old plan. You can keep the money there, transfer it to a new plan with your current employer or put it into an individual retirement account.

The process of moving funds is called a rollover and can be done through plan administrators to make sure you don't get hit with added costs.

"If you do it the right way, there shouldn't be penalties," said Kaya Ladejobi, a CFP and founder of Earn Into Wealth in New York.

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One reason to roll all your money into a new employer-plan is that it's helpful to keep everything in one place — it makes it easier to ensure that your investments are properly allocated, and update beneficiaries. Having everything in one plan can also come in handy if you'd like to take a loan against your 401(k), which people can do for things such as a home purchase, said Reid.

On the other hand, rolling funds into an IRA can make sense if you don't have a new employer plan or would like to have more control over your investments.

Cashing out

It almost never makes sense to cash out a retirement plan if you're younger than 59½, according to Reid. Having the money invested in the market will always yield a better return and avoid costly penalties before retirement.

In some cases, if you have less than a certain amount of money — usually $5,000 — you may be forced out of your plan. If this happens, you'll have to roll over your account or your previous employer may send you a check.

Of course, you don't have to move accounts right away. If you have more than $5,000 in a plan, you generally can't be forced out.

If you need time to sort through your next money move, that's OK — as long as you don't forget about an account.

"You can always leave your retirement account where it is; you just don't want to lose track of the money," said Ladejobi.

How to find a lost account

If you've lost track of any accounts, it makes sense to start getting them together and consolidated as soon as possible.

The best way to start is to make a list of your previous employers and see if you can find what company they use for their retirement plans, said Reid.

You can also search the National Registry of Unclaimed Retirement Benefits, or Brightscope, which both have lists of lost or unclaimed accounts.

It especially makes sense to start consolidating your accounts if you're over 60, said Reid. And, if you're older than 72, you should have one account you're drawing from to avoid complicating required minimum distributions — which sometimes must be taken from each individual account, depending on the type.

If you completely lose track of a 401(k) and fail to take the required minimum distribution, that can result in a 50% penalty, said Reid.

Even if you aren't near retirement, having everything in one place can help you plan better for the future.

"You can't know where you're headed, if you don't know what you have," said Zaneilia Harris, a CFP and president of Harris & Harris Wealth Management Group in Upper Marlboro, Maryland.

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