Got retirement $ from an old job?
Many people are unaware that they have money in retirement accounts – for example, 401(k), 403(b), SIMPLE IRA, SEP IRA, 457 plans (state and local governments and some nonprofits) and Thrift Savings Plan (TSP) (federal government) – from past jobs. Yipee! It’s like finding a $20 in a winter coat you haven’t worn in a long time.
Here are three options for handling your loot:
Option 1: Rollover
You can move your money from that old workplace account into your retirement account at your current workplace (if you have one) or into an individual retirement account (IRA). This option can be helpful, because it puts more of your assets in one place, which means less account tracking for you. Two more reasons you might want to do a rollover: 1) if your current workplace retirement account has lower fees than your old account, or 2) if your current workplace retirement account has fund options that you prefer over your old account’s options.
This IRS chart shows which account types can be rolled into other account types.
For Just Futures clients: this 2-minute video explains how to roll over funds into your Just Futures 401(k) or 403(b) retirement account. Or, if you have a Just Futures IRA, here’s Betterment’s explanation of how you can do a rollover into that account.
If you do not have an IRA, opening one directly with a financial institution is pretty simple. If you like Just Futures’ investment approach – we offer fund portfolios that align with social justice values – consider opening an IRA with us.
If you’re unsure whether to roll over the funds into your current workplace retirement account or into an IRA, this article can help you decide. Note that retirement account plans often have particular rules. Contact the plan administrators for guidelines for your specific accounts.*
Option 2: Let it be
Plans often let you keep your money parked there, even if you no longer work at the sponsoring employer. If you leave your money in this account, it will continue to belong to you. If you want, you can adjust your investments within the plan’s fund offerings. But you will likely not be allowed to add money to this account, with some exceptions for rollovers.
If you choose this option, note two stipulations. First, some plans require you to close your account if the amount of assets in it do not meet a minimum, usually between $1,000 and $7,000. In this case, you could roll over the money into another account (see option 1 above) or cash out and use the funds for immediate expenses (see option 3 below).
Second, leaving your money in an old account could mean paying higher fees than when you worked for your old employer sponsor. This scenario happens when an employer pays plan fees for their staff. When you are no longer a staff member, the plan administrator may begin deducting those fees from your account. Those deductions often occur monthly. As a result of no longer being a staff member of your old employer, other fees may increase as well.
Option 3: Cash out
If you can afford to continue investing these assets, then consider choosing one of the options above. Investing now increases your chances of being able to enjoy a dignified retirement later. And while you can borrow money for most life expenses, banks typically will not lend you money to fund everyday retirement expenses.
But if you have an urgent expense, then these assets can help you pay for it. JUST KNOW: cashing out retirement funds before you are age 59 ½ could mean paying additional income tax and a 10% early withdrawal penalty. Some workplace retirement plans allow you to avoid these extra costs by taking a loan from your account, which you repay back into your account over time. Further, some plans allow for “hardship” withdrawals. Finally, if your money is in a Roth account, then you may be able to avoid some of the additional tax and penalty costs. This chart gives more detail about loans, hardship withdrawals, non-hardship withdrawals, age requirements, and Roth exceptions.
Surprise money might be waiting for you!
Even if you never intentionally put money from your paycheck into a workplace sponsored retirement account, it could be that:
1) The default setting for your paycheck was to contribute a little bit. If you didn’t read your paystub carefully, you may have been paying into an account without knowing. You can check a paystub from old jobs for a deduction into a 401(k) or other workplace retirement plan. Or check W-2 tax forms from old jobs. Box 12 should show any contributions you made into a workplace retirement plan.
OR
2) Your employer may have contributed money on your behalf into an account. If you worked at the organization long enough for that money to become “vested,” then you have a right to it.**
So, consider checking with your past employers to see if you have any lingering account assets. If a long time has passed since you left those old jobs, the retirement plan administrator may have sent your unclaimed assets to a government agency that handles unclaimed property. You can check online databases – often without too much hassle – for potential assets from your old jobs:
- National Registry of Unclaimed Retirement Benefits
- State government
- Pension Benefit Guaranty Corporation
If someone you love passed away, and you think unclaimed assets might exist under their name, you can check these databases for those assets, too.
Hungry for more knowledge? Read on to learn about how to decide between a Roth or pre-tax account.
If you don’t have a retirement investing account, or if your employer contracts with a different retirement plan administrator, we’d love to show you the advantages we at Just Futures can offer! Contact us: info@justfutures.com.
~Lisa, Manager of Coalitions and Worker Power
*Just Futures encourages you to discuss rolling money from one account to another with your financial advisor/planner, considering any potential fees and/or limitations of investment options.
**Any contributions you make to your 401(k)/403(b) are yours. However, depending on your employer plan’s vesting schedule, the matching contribution from your employer may not be yours unless you meet the requirements. Some vesting schedules require you to stay at your job for a predetermined amount of time before the employer match is yours to keep. For example, you might be entitled to 100% of an employer match if you've stayed 3 years, but none if you leave before then. Another variation of a vesting schedule is earning 20% of an employer match for every year you stay, so you receive 100% of the match once you've stayed for 5 years. Check your plan's rules if you're thinking of changing jobs.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. Nothing contained herein is to be considered a solicitation, research material, an investment recommendation or advice of any kind. The information contained herein may contain information that is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. Just Futures explicitly disclaims any responsibility for product suitability or suitability determinations related to individual investors. Investing involves the risk of loss that clients should be prepared to bear. No investment process is free of risk; no strategy or risk management technique can guarantee returns or eliminate risk in any market environment. There is no guarantee that your investment will be profitable. Past performance is not a guide to future performance. The value of investments, as well any investment income, is not guaranteed and can fluctuate based on market conditions.