Now, many employees end up in multiple jobs and careers by the time they quit the workforce. According to LinkedIn, by age 32, U.S. workers have had an average of four jobs in the 10 years following college. And the Bureau of Labor Statistics reports that a younger baby boomer, during the time period between the ages of 18 and 48, held 11 jobs on average.
Americans often become “job hoppers” because they are looking for advancement, or want to work in new industries. This can, however, leave our retirement savings scattered across many different 401(k)s, or 403(b)s or other tax deferred savings plans. This can also make it difficult to know what needs to be tweaked in your accounts, and how much more you need to save before retirement.
If you have several scattered retirement accounts, you may want to consider corralling your savings. Here are some steps to think about:
Find your retirement accounts
In order to corral all your accounts, you first must locate all your retirement plans.
If you know you had a plan with certain employers but don’t know how to access it, reach out to your former company. They should provide you with the information you need to access the account.
What happens if the company is no longer in business? Well, your retirement account should still be held somewhere. It’s your money, after all. You can go to the Abandoned Plan database, hosted by the Department of Labor. There you can search the company, and you will be provided with information on how to locate the lost plan.
You can also search the National Registry of Unclaimed Retirement Benefits to find plans under your name.
Once you find one account, you can potentially spot a few more, as there’s a possibility you have multiple plans hosted by the same company. The other accounts should come up as you log into the management company’s website.
Organize and rebalance your accounts
After years of neglect, your forgotten retirement accounts may not be properly balanced. This means there may be too much emphasis on one type of investment, or not enough on another.
If you plan to keep the IRA or company plan open, you may want to consider diversification, so there’s the right amount in stocks, bonds, U.S. investments or international exposure that’s appropriate for your investment goals and risk tolerance.
You’ll need to check each account individually at first. However, if you can list them all in one place, you’ll see how your combined investment diversification stands up. An online tracking service can continue to monitor your accounts, possibly flagging you if you need to consider rebalancing again. (Please remember, application of asset allocation and diversification concepts does not assure a profit or protect against loss in a declining market. It is possible to lose money by investing in securities.)
Online tracking services can’t do the rebalancing for you, however; you’ll have to go to each individual account to manage the rebalancing. And if the diversification seems off but it’s not time for you to rebalance, you’ll have to look at each individual account to determine which one may be out of balance the most.
Decide if you should roll over
While you might want to roll over your company retirement accounts into one IRA, this is not always the best option. Often, if you’ve worked at larger firms, you will have the opportunity to keep your funds in the company retirement plan without penalty, even after you’ve left. And the fees could be lower, because so many people within the company opt into the plan.
In these situations, it could be advantageous to keep the funds where they are, at least in the short term. But as a word of warning, you likely won’t be able to add more money to the plan, and you won’t have as many options for investing the money as you could in an IRA.
There are times where a company will automatically roll over your 401(k) into an IRA, particularly if you don’t have a large enough amount in the account (typically, this will mean having less than $5,000) at the time of your departure. The company may not choose the best IRA for your needs, so you may want to select a better one.
You can also typically roll the money over into a new company’s retirement plan.
Whatever you decide to do, please note that Prudential does not provide tax advice and you should consult with a qualified professional who can explain each step of the process. Incorrectly rolling over retirement funds can create a tax nightmare. If you cash out your company retirement plan, you’ll likely need to pay taxes on the total amount, plus potentially pay a 10% early withdrawal fee.
This could also increase your current income tax rate, because it’s taxed as regular income.
What you can do next
In the corporate world, upward mobility has been supplanted by sideward, backward and every-which-way-ward movement. This can mean multiple retirement accounts left behind—but hopefully not forgotten. Solution: Track 'em down, tot 'em up, rebalance if needed, and consider consolidation.