Mind on Money: Don't forget your 401(k) when changing jobs | F. Marc Ruiz: Your Mind on Money

June 27, 2021

It was easy to do. Life is busy, and the pork was surely not typical vacation cargo. Sometimes it’s easy to neglect important but less evident matters. Like a 401(k) when we are changing jobs. We know the plan is there, it's just not obvious and easily stepped over on the way out the door.

According to a recent white paper study I reviewed by a research firm called Capitalize, Americans have left behind a whopping $1.35 trillion in 24.3 million 401(k) accounts at prior employers. I’m going to go out on a limb here and guess if a 401(k) has been left behind, it's probably not getting a lot of attention to the way it's invested, and because eventually I can assure you, the money will become important again, let’s explore leaving behind versus other options.

Often 401(k) plan balances can be left behind, but sometimes they can’t. In many plans account balances under $5,000 are often automatically distributed and taxed after a couple of months. While this isn’t ideal, it's also not the end of the retirement planning world, so don’t panic if a surprise check arrives in the mail. In almost all cases, however, these checks are preceded by a confusing warning letter, so if you’ve just left your job, open the mail.

For companies allowing separated employee balances to stay in the plan, leaving the plan behind can have advantages. Plan expenses may be competitive, and there should be some level of familiarity with investment options and service platforms. The key is to make sure the plan is being actively attended to, let’s say twice a year, to make sure investment choices continue to be appropriate.