Keeping Track (8/28/2019)

An important topic I raised a few years ago in this blog deserves another mention: when you switch or leave a job, don’t forget about your 401(k). Although it may seem impossible that you would lose track of your retirement plan, we live in a fast-paced world with a focus on reducing the amount of paper we all use. As a result, more and more of our statements, storage and communication are now electronic. Losing track of an account, especially when you do not receive a regular, physical statement, is not impossible.

If you do lose track of your account, here are some negatives that could arise. Your previous employer could process a distribution to you, which will cause the funds to be taxed, as well as potential penalties to be charged if you are under age 59 ½. If they do allow you to leave the investment as it is, the employer’s name and administration will still be on the plan. Should you need to make any changes to the plan, you will need to go through the company administration. Often, the employer will change administrators and/or investment platforms. You could spend inordinate amounts of time trying to hunt down the person or system you need in order to enact any changes, possibly with futile results. The worst-case scenario would be that you completely forget about the account. You might not receive any updates on your account status if you have a different address, email or phone number.

To avoid all this trouble when you leave your job, contact the 401(k) administrator to find out the options available to you. At the very least, you will want to have your employer removed from the plan. You could establish an IRA Rollover to receive the funds, which would save you taxation and penalties. Your new employer may allow you to roll your old plan into your new plan. Either case allows you to have control over your funds and likely will save you fees and future administrative issues.

Taking a distribution is also an option. While this may not be favorable for you in many cases, making your own choice will be better than someone else doing it for you. The IRS does have some exceptions that will allow you to take the distribution without penalty if certain criteria are met.

If you are leaving a job and have a retirement plan, make handling it a top priority. By doing so, you will make the most suitable choice for your personal situation and prevent your account from being lost in the shuffle.As always, you can call us and we will be happy to advise you on the best course of action.

Lisa Dugan

Posted August 28, 2019