A few definitions before you read today’s blog topic:
What is a 401K
A 401(k) is an employer-sponsored retirement savings option that allows you to contribute money from your paycheck into an investment account. Contributions to a traditional 401(k) are made pre-tax, which can lower your taxable income.
What is an IRA
An individual retirement account (IRA) is a tax-advantaged savings account designed to help individuals save for retirement. Those with earned income (and their non-wage-earning spouses) are generally able to contribute to an IRA.
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I’m sharing two stories to showcase a common mistake that happens when you are leaving the workforce. It involves losing employment, moving on and retirement monies owed.
My first story involves a guy named Tim, a former manager of the mall Foot Locker store who was told his job was no longer available as they have sourced another employee to take it over. He was a very good store manager and deterred theft, retained good employees, had excellent customer service reviews and knew how to retain profit each month to maximize his bonus structure. In other words, Tim was a manager you’d seek out to run your retail store. Sadly, Tim’s Regional Director had a buddy that needed to find a management position and it was determined that Tim needed to go to make room for the Director’s friend.
After 18 years at Foot Locker, Tim was no longer employed – fired.
My second story involves a man (Curtis) in his 50’s who was employed by his Dad and Dad’s wife (stepmom) in an HVAC company.
The stepmom was only around for the last 5 years, yet she encouraged his Dad into starting 401K accounts for them and the employees to help build retirement funds. The technician (Curtis) regularly contributed to his company 401K with each paycheck. His paystubs showed the amount every week that was invested. He only received a statement of what was in this account during the first year, after that time period – the person in charge (stepmom) forgot to send out statements and he didn’t think about it.
Dad and new stepmom wanted to shut the business down and retire – so they did. That left Curtis scrambling to do something else or work for a competitor. He decided to start up his own business and become an Air Duct Cleaner. Over the years he saw way too many filthy air ducts – so he bought equipment from IQ Air and moved on, excited to be on his own.
In both of these cases, Tim and Curtis forgot about their 401K money sitting in their own company retirement accounts.
It wasn’t until someone casually asked them “hey, did you ever have and contribute any 401K money when you worked there?” did they remember and were shocked that nobody at the company reminded them it was there and they thought their money was literally gone. After having been let go there was a rush to try and secure new jobs so resumes had to be created, new clothes for interviews, talking with networks of friends and relatives – it’s a full time job just trying to find a new job! No wonder people forget about their 401K Retirement Accounts after they leave a company.
After 2023, there were 29.2 million left-behind 401(k) accounts holding roughly $1.65 trillion in assets, up 20% from two years earlier, according to the latest data by
Capitalize, a financial tech firm
With more Americans changing jobs more than ever before, the risk of “forgetting” a 401K plan with a previous employer is increasing. Ask your friends to review if they secured their retirement money after leaving a job.
They should have rolled over their 401K plan into an IRA that they can now control themselves. When people leave money at their old employer you could be hit with more fees and you literally have no control over what they invest in, so it’s best to “roll it over” into a plan that only you control. The term rolling it over indicates you do not take the money in a check as that becomes taxable right away. You want to leave it in a retirement plan status that you only take out when you are older. There are retirement adventures ahead – but they cost money! Be sure to talk to an advisor or set up your own account at a firm like Fidelity Investments (just an example – no affiliation).
As people are leaving jobs, more retirement accounts are being left behind than ever before. You might simply forget you had money there as you did not realize the company had a 401K plan that was accruing interest and investment gains on your behalf.
Nearly half of employees leave money in their old plans during work transitions, according to a 2024 report from Vanguard.
This is your property. You should take it with you when you leave a company.
If not – this money may be sent to an “unclaimed funds” account in your state and it may be difficult to find. Once these funds leave their investment status they stop making money – no interest, no gains.
As companies remove their human workforce many HR professionals are being let go. Without an HR professional to oversee your exit from a company, the chances of many other people leaving behind their retirement money is high.
Be the type of friend that gives another friend a call and asks simply, “are you owed any 401K money?” to someone leaving a company. It’s how both Curtis and Tim were reminded of their situation and they quickly made arrangements to procure those funds immediately. Take control over your retirement funds, after all – it is your money!
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