Leaving Your Job? Don't Forget To Take Your 401k

401k’s are critical long-term investments too often forgotten by job-switchers. They are vastly more important than the staplers and pens most people remember to box up.

Consider: Some 7.5 million Americans took about $440 billion in distributions from their 401k plans in 2004, according to Brightworks Partners research. Of the 7.5 million, 6.25 million were job changers and 1.25 million retired. Of the 7.5 million, 55% had 401k balances greater than $5,000.

Thanks to a law enacted in 2005, people leaving their jobs with less than $5,000 in their 401k automatically have their plan rolled into an IRA.

Keep your 401k savings working towards your retirement. If you’re no longer investing your time and energy into your old company, why should you entrust them with your retirement savings? Either move your 401k to your new company, or roll it into an IRA. If you do forget your plan, the state may take it as “unclaimed property.” Nobody, including the state, wants that. — CAREY GREENBERG-BERGER

Roll over but don’t play dead [MarketWatch via Free Money Finance]
(Photo: Digital Sextant)

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  1. humphrmi says:

    Umm, sorry but this article is full of holes.

    >Keep your 401k savings working towards your retirement.
    >If you’re no longer investing your time and energy into
    >your old company, why should you entrust them with your
    >retirement savings?

    Just because you leave your employer does not mean that your invested 401(k) “stops working”. It’s been invested in funds, stocks, whatever. It still is.

    You’re not “entrusting” your employer with your 401k, you’re entrusting their 401k manager with your money. And that manager is required by law to maintain your account for you, regardless of your employment status. You can leave your funds there until you retire, if you wish.

    >If you do forget your plan, the state may take it as
    >”unclaimed property.” Nobody, including the state,
    >wants that.

    Retirement plans cannot be declared “unclaimed property”.

    I’ll agree that it’s not a bad idea to roll your 401k plan over to your new employer’s plan, just to keep everything together. But don’t make it sound like if you don’t move it, you lose it. The law protects your 401k balance regardless of your employment status.

  2. Kornkob says:

    Now, if you forget where your money is you might as well say that you ‘lose’ it but that’s not the same as failing to claim it means that they get to take it away from you.

  3. tadowguy says:

    I kinda feel bad for saying this, but, how stupid do you have to be to “forget” about your 401k? Oops, I forgot about several thousand or tens or even hundreds of thousands of dollars. That’s like forgetting you have a car, or forgetting you are married.

  4. thrillhouse says:

    Either move your 401k to your new company, or roll it into an IRA.

    You’re always much better off rolling it into a Traditional IRA. There you will be able to invest in any mutual fund on the market. If you take it to a new employer, then you’ll be limited to the 8 or 10 that they offer.

  5. Jeff says:

    Yeah, I’m not sure about this either. When I left my last job, I thought I’d roll over my 401k into an IRA, but somehow neglected to realize that their might be a penalty fee incurred by doing so. And there was. And it was a lot.

    I should have just left it there.

  6. thrillhouse says:

    @Jeff:
    there should not be a hefty penalty to roll a 401k to an IRA. You are not and should not be taking a distribution. The money should never touch your hands. If so, then yes, you will lose ~40% in taxes and fees. Is that what happened? The 401k custodian should be sending the check straight to the new mutual fund company with you signing documents to authorize this, but never touching it yourself.

    I did this recently with no fee. If there was then it was not significant enough to remember.

  7. AcilletaM says:

    Jeff, did you put it the wrong kind of IRA?

  8. Jeff says:

    Hm, I’ll have to make a few calls.

  9. Hoss says:

    @Jeff: I’m not being a wise arse — you should read the article to understand what you did wrong.

  10. CaptainRoin says:

    @thrillhouse: when I switched jobs and rolled into the new 401k they sent the check to me with the Mutual fund Co. as the “pay-to-the-order-of”. But I had to then forward the check on, they wouldn’t send it directly to them.

  11. RandomHookup says:

    This is a bit dated, but shows that a high percentage of job changers simply cash out the 401k, assuming it’s not *that* much money, not realizing they are taking a big hit toward their retirement.

    http://www.businesswire.com/webbox/bw.091399/192561563.htm

    That’s a bigger mistake than not taking it with you when you leave.

  12. thrillhouse says:

    @AcilletaM:

    Good point! trying to roll to a Roth IRA would screw everything up since 401k dollars are pre-tax and a Roth is after-tax money.

  13. thrillhouse says:

    @CaptainRoin:

    weird that they had you handle the check. Even still, the point is that you did not take a distribution, and the money did not hit your bank account.

    If you were to be a middle man in that case you would get hit big time.

  14. FredTheCat says:

    Interesting this should come up as my wife just mentioned a few days ago that during her employment at a mall-based retail chain some 17 years ago she had money that was going into a 401k and wondered if she could still get whatever (presumably small) amount there was. Of course we have no records that I’m aware of and I’m wondering how I should go about starting to investigate this?