Got an Orphaned 401k? Best 401k Rollover Options

By : Jeremy Sorci | August 16, 2018

Clients often come to our 401k advisors with questions about old retirement accounts that they’ve “left behind” when they’ve moved on to another job with a different employer. It’s easy to understand; after all, the average American works for seven employers over the course of their working life, and it’s all too easy to leave that retirement account behind. 

Overall, more than half of the U.S. workforce have left an employer-sponsored retirement account, like a 401k, behind when they’ve taken another job. Altogether, these so-called “orphaned” IRAs — more than 15 million of them! — total more than $1 trillion. Here are the best 401k rollover options to track down your money.

Where’s My Money? 401k Advisors Offer Advice

Many people change jobs every few years, especially at the start of their careers, and in the transition from one job to the next, it’s easy to forget about a 401k or other retirement account — or just to assume the account is being monitored somewhere, by someone, and will end up where it’s supposed to be. 

Unfortunately, that’s not the case. Many of these “orphaned” accounts aren’t monitored by anyone, so instead of helping to build your nest egg, that money is simply sitting there, doing nothing. But you worked hard for those funds, and you should use them to help secure your financial future. After all, even a small account has the potential to grow over time. 

So how do you find your lonely, lost accounts? The first step: Contact your former employer. Speak with the human resources department and ask them how to contact the plan provider. But what if your old company no longer exists, or human resources simply don’t have the information you need?

Luckily, there are a few places to turn:

If these options don’t work, ask the wealth advisor that you’ve chosen to help you with your 401k rollover options to help you track down your funds. 

I’ve Found My Account: What are the Best 401k Rollover Options?

Now that you’ve found your account, it’s time to consider your options. First and foremost, don’t cash out the account; if you’re under age 55 you’ll likely incur penalties from the Internal Revenue Service, as well as income tax on the amount of the withdrawal. But what’s the alternative?

Best 401k rollover options

One option is to leave the account where it is if the employer allows it. But a better alternative may be to roll your account into your current 401k. Why is this a better option? Because it’s easier to manage one account than several, and you can ensure that the account’s investment strategy falls within your overall comprehensive financial plan. This option may make the most sense for accounts that hold less than $10,000.

If your account balance is more than $10,000, you may want to rollover into an IRA. These plans offer more flexibility if you need to make an early withdrawal, as compared to an employer-sponsored 401k. Roll over the funds directly into your IRA to avoid taxes.

Your wealth advisor or retirement planning advisor can help you determine which option makes the most sense for your situation.

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