Sept. 8, the Friday after Labor Day, marks National 401(k) day. It’s the day Americans are encouraged to check in on their Retirement readiness.
But what about all the 401(k)s out in the ether? If you’re not sure where one of your 401(k) accounts is, now is as good a time as any to find it.
According to Capitalize, a company that helps consumers find and transfer retirement accounts, there were 29.2 million lost 401(k) accounts in May 2023, worth about $1.65 trillion.
Even if you’ve left a small balance behind, it could be valuable when you retire.
What’s so great about 401(k)s, anyway?
Adrianna Vargo, a certified financial planner at Domain Money in Cleveland, Ohio, sees a myriad of tax benefits with the 401(k) plan. Contributing to a pre-tax traditional 401(k) reduces your taxable income, while a Roth 401(k) allows you to contribute after-tax money but enjoy tax-free growth and tax-free withdrawals.
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Another key advantage of the 401(k) is the employer match, if it’s offered. If you put a certain percentage of your paycheck into a 401(k), let’s say 3%, some companies will match that percentage.
“You essentially get free money just for contributing,” Vargo says.
And whether you leave your job, you get laid off, or you’re fired, that 401(k) money is yours to keep.
Why look for a lost 401(k)?
“I think it’s worth the effort for several reasons,” Vargo says. “The first one being so that you don’t lose track of it long term. And if it goes too long without having your eyes on it, you may completely forget about it. And we don’t want to lose out on that money.”
She also says that investment options and strategy change over time, depending on your money goals and how close you are to retirement. Keeping all your accounts in one place gives you an overview of how it’s invested and where it stands.
When you leave your job, you have four options with your 401(k), each one with its own pros and cons, says Thao Truong, a CFP with Morton Wealth in Calabasas, California.
Cashing out is one option, but that would mean paying taxes and early withdrawal penalties. Or you could roll it over to your new employer’s retirement plan. Another option is to roll it over into an individual retirement account (IRA). The last option would be to leave the account at your current company.
“You don’t have to make any decisions,” Truong says, “but the problem is that you can easily forget about it.”
How do I find my lost 401(k)?
Contact your previous employer
If you think you have a 401(k) from a previous job, finding it could take some effort. Start with the human resources department of your last employer. The department should be able to connect you with the plan administrator or tell you if the account has been transferred to a new provider.
If you have an old statement, you can skip this step and contact the plan administrator directly.
Search databases
You can use your Social Security number to search for old retirement plans in various databases, either by yourself or with the help of a financial advisor.
Try government websites, such as the Department of Labor’s Abandoned Plan Search and the U.S. Pension Guaranty Corp. for unclaimed pensions.
You could also use databases such as the National Registry of Unclaimed Retirement Benefits, the National Association of Unclaimed Property Administrators site MissingMoney.com, and FreeErisa, an employee benefits database. These databases compile information on lost retirement accounts and are publicly accessible.
Other websites, such as Capitalize, also allow you to search retirement accounts for free but charge for premium services such as certain rollovers and account management.
I’ve found my 401(k). Now what?
Once you’ve found your 401(k) account, the options are the same as when you leave an employer, Vargo says. Cash it out, roll it over or leave it where it is. Do what’s right for you, she says, but rolling over has its benefits.
“Keeping it all in one house and … knowing what it’s invested in and where it stands is really important.”
If you choose to roll your old 401(k) over to a new one or into an IRA, it does not count toward your annual contribution limit.
You can contribute up to $22,500 to a 401(k) in 2023 as an individual, and an additional $7,500 as a catch-up contribution if you’re 50 or older. For IRAs, you can contribute up to $6,500 per year ($7,500 if you’re 50 or older).
After you make your plans, you have a good opportunity to review your retirement accounts. Vargo recommends doing this periodically throughout the year, especially when you know what your income was for the prior year and what you think it might be in the next year.
“With the caveat, though, if you do have a big change in income or a change in your family dynamic, maybe you had a baby or something along those lines, those life-change events are always a good time to review, too, and make sure that where you’re saving your money each month aligns with your long-term and short-term goals.”
Then, for the most part, try not to think about it, Vargo says.
Truong also says you don’t need to check your fattened-up 401(k) account daily.
“You’re investing for the future, not tomorrow,” she says. “The more you look at it, the easier you get emotionally attached to market movement, and market movement happens every day. If you get emotional … you’re going to buy and sell.”
Instead, she recommends reviewing your plan once per quarter, or once a year, to make sure your plan is growing according to your goals.
The perfect time each year to check in? Maybe the Friday after Labor Day, National 401(k) Day.
Evolution of the 401(k)
Evolution of the 401(k)
Americans held $7.3 trillion in 401(k) plans as of June 30, 2021, according to the Investment Company Institute. And the typical wealth held in an American family’s 401(k) has more than tripled since the late 1980s. With the widespread adoption of 401(k) plans, it might surprise you that they’re a relatively new employee benefit—and one that was created unintentionally by lawmakers.
Today, public and private sector employees alike use a 401(k)—or the nonprofit equivalent, a 403(b)—in order to plan for a comfortable retirement. In essence, a 401(k) allows an employee to forgo receiving a portion of their income, instead steering it into an account where the money can grow through investments. Unlike pensions, these retirement plans put more of the planning decisions—and responsibility—on employees rather than the company.
Employers can contribute to an employee’s retirement savings by matching the contributions to a 401(k) account up to an amount decided by the employer.
“The savings comes off the top, so a lot of people don’t miss their money when it’s going into their 401(k),” Ted Benna, the man long-credited for introducing the 401(k) to corporate America, told Forbes in 2021.
Whether or not that savings that “comes off the top” yields small or large returns is influenced by the employee’s age, tolerance for risk as well as market conditions over the lifetime of the account.
To illustrate how Americans’ retirement savings have evolved over the decades, Guideline compiled a timeline on the evolution of the 401(k), drawing on research from the Employee Benefit Research Institute, the Investment Company Institute, and legislative records.
Pre-1978: First, there were CODAs
Before the mighty 401(k) there were Cash or Deferred Arrangements, commonly known as CODAs.
These arrangements between companies and workers allowed employees to defer some of their income and the taxes they paid on it for a period of time. CODAs were a funding mechanism for stock bonus, pension, and profit-sharing plans.
In 1974, the Employee Retirement Income Security Act (ERISA) was enacted, creating a governmental body that oversaw and regulated company-sponsored retirement and health care plans for workers.
ERISA temporarily halted IRS plans to severely restrict retirement plans through regulation in the early 1970s, according to the EBRI. The act created a study of employee salary reduction plans as well, which the EBRI credits for influencing the creation of the 401(k) later on in the decade.
1978: The Revenue Act of 1978
The modern 401(k) originated in earnest in 1978 with a provision in The Revenue Act of 1978 which said that employees can choose to receive a portion of income as deferred compensation, and created tax structures around it.
Section 401 was originally intended by lawmakers to limit companies creating tax-advantaged profit-sharing plans that mostly benefited executives, according to the ICI. Thanks to the interpretation of the section by businessman Ted Benna, the language evolved into the basis of the modern 401(k), as it enabled profit-sharing plans to adopt CODAs.
The law was signed by President Jimmy Carter and became effective at the turn of the decade. Regulations were then created and issued by the end of 1981.
The Revenue Act of 1978 not only created the foundation for 401(k) savings plans but also flexible spending accounts for medical expenses and the independent contractor classification as it pertains to how a company pays employment taxes.
1981: IRS clarification leads major companies to adopt 401(k) policies
In the late 1970s, pioneering aviation company Hughes Aircraft was well on its way to becoming the largest industrial employer in the state of California. The company’s outside legal consultant Ethan Lipsig was writing letters to Hughes Aircraft, encouraging the company to turn the savings plan it offered employees into a 401(k) plan.
But it wasn’t until the IRS issued regulations assuring employers that they could legally defer a portion of payroll compensation to a 401(k) savings account that companies like Hughes, J.C. Penney, Johnson & Johnson, and PepsiCo began offering the plans to workers.
Nearly half of all large employers in the U.S. were offering 401(k) plans to their workers by the end of 1982.
1984-1986: The Tax Reform Acts of 1984 and 1986
In 1984 and again in 1986 U.S. lawmakers, pictured above, made amendments to the country’s tax code sometimes referred to today as the “Reagan tax cuts.”
In 1984, laws were amended as part of the so-called Deficit Reduction Act to tighten the rules around deferred compensation, including 401(k) savings plans. The legislation ensured that less highly compensated employees could also benefit from plans—not just the highest paid workers. In a brief published in September 1985, the EBRI expressed concern that Reagan’s amendment could jeopardize the popularity of 401(k) savings plans.
The Tax Reform Act of 1986 consolidated tax brackets, lowered federal income taxes, and placed an annual limit on deferred compensation, according to the EBRI. It had the added benefit of “endorsing” the 401(k) as a legitimate retirement vehicle because the Act implemented a 401(k)-type plan for federal employees.
1996: The Small Business Job Protection Act of 1996
The Small Business Job Protection Act came along in 1996 and simplified retirement programs—called SIMPLE plans—for small businesses. The act signed into law by President Bill Clinton was intended to help make America’s small businesses more competitive with large firms.
It specifically made the employer-matching contribution process easier through SIMPLE plans for businesses with fewer than 100 employees. The act also lowered taxes for small businesses, created safe-harbor formulas to eliminate the need for nondiscrimination testing, simplified pensions, and raised the minimum wage.
2001: The Economic Growth and Tax Relief Reconciliation Act
The Economic Growth and Tax Relief Reconciliation Act paved the way for many changes including allowing catch-up contributions for employees aged 50 and older, requiring faster vesting timeframes for matching contributions, and, perhaps most notably, introducing the Roth 401(k).
Officially launched to the public in 2006, a Roth 401(k) is employer-sponsored like a traditional 401(k). The account holder elects to contribute a portion of their income to the account, and the employer has the option to contribute matching funds.
The difference is that contributions are taxed before they go into the Roth account, which means that the owner doesn’t have to pay taxes again when they withdraw from the account after they are aged 59 and a half or older. At its core, the Roth 401(k) gives the owner the advantage of paying taxes now instead of being taxed on withdrawals later in life when the account is worth more monetarily—or when future tax rates may have increased.
Millennials are more likely to contribute to Roth 401(k)s than older generations, according to a 2019 report from the Transamerica Center for Retirement Studies.
2022: The Securing a Strong Retirement Act is making its way through Congress
Flash forward to the current day and much has changed about planning for retirement. Pensions have all but disappeared and many Americans continue to redefine what retirement will look like for them — and how to plan ahead for it. In the U.S., people live on average 10 years longer today than they did when the 401(k) was created in 1978, and recent research suggests that generations younger than baby boomers may live longer than their retirement accounts will support them. So it’s more important than ever that people stay on top of changes in their retirement planning. As more tools, technology, and resources became available for learning and investing, legislation has also been introduced to help Americans navigate retirement decisions.
The Senate is currently debating a set of bills collectively referred to as “SECURE 2.0,” as they build on the SECURE Act passed in 2019. Among other changes, the 2019 legislation made it so part-time workers could participate in retirement plans and made offering plans more appealing for small businesses that may have been hesitant in the past.
SECURE 2.0 goes further to make employee enrollment in a retirement savings plan like a 401(k) mandatory. It would also alter rules around making late contributions to payments so that Americans older than 50 can contribute even more than previously to their accounts.
This story originally appeared on Guideline and was produced and distributed in partnership with Stacker Studio.
The article 401(k) Day Is Coming Up. Do You Know Where Your Nest Egg Is? originally appeared on NerdWallet.
