Should you reconsider having multiple 401(k) accounts?

Can you have more than one 401(k) account? Yes, you probably have more than one if you’ve participated in multiple employers’ plans. If you find yourself in this situation, it’s important to consider your options before you keep multiple 401(k) accounts floating around. 

​​As of May 2023, an estimated 29.2 million forgotten or left-behind 401(k) accounts held approximately $1.65 trillion in assets. This number seems to be only growing; figures increased by over 20% from May 2021 (when it was 24.3 million accounts holding $1.35 trillion).

You might end up with multiple retirement accounts for various reasons, including limited options for moving old 401(k)s, automatic transfers into an IRA, or being auto-enrolled in a new employer's plan. Regardless, let’s review the ins and outs of having multiple accounts and how consolidating your accounts may be a wise option to consider.

How you may end up with multiple 401(k) retirement accounts

Let’s say you signed up for your employer-sponsored 401(k) at your first job and accumulated a balance of $1,500 after two years. Next, you accept a dream job across the country, and with so many moving pieces, you forget about your 401(k), leaving no instructions to your plan’s administrator. Your second job automatically enrolled you in a new 401(k), and you accumulated a balance of $9,000 over a three-year period. 

Fast forward to today, you decide to accept a new job offer and find that the third employer’s qualified plan doesn’t accept rollovers from other 401(k) plans. Since you’re happy with the 401(k) from your second employer, you decide to leave the $9,000 there. But you remember your 401(k) from your first job, and contact the plan administrator (years later at this point), and learn that the balance of that account was rolled into an IRA opened in your name.

In summary, now you have:

• A transfer to an IRA account from your first employer

• A 401(k) from your second employer

• A 401(k) from your current employer

Losing track of your 401(k) plans

Keeping tabs on multiple notices each year—from quarterly statements to annual fee disclosures—requires due diligence on your behalf. But ultimately, keeping track of all these notices may get burdensome, especially if you’ve had multiple employers over the years. It’s reasons like this that make losing track of an old 401(k) plan an accidental oversight.

When a plan administrator loses track of a participant, the funds are generally rolled into an IRA of the employer’s choosing or transferred to the state (in rare situations, the employer may transfer search costs and applicable fees to the participant). However, there’s no standard on what constitutes a “good faith effort” to locate a participant.

Ultimately, it’s a plan participant’s responsibility to notify employers of changes in mailing addresses or emails. Additionally, you should be monitoring your 401(k)s’ performance every few months. But all of this becomes more difficult to remember with multiple accounts.

Rules for accounts with small balances 

When you leave a job and have a balance of fewer than $7,000, failing to provide instructions on what to do with your 401(k) account generally results in two scenarios. 

The Department of Labor allows employers that offer 401(k)s, 403(b)s, or similar retirement plans to cash out participant accounts of $7,000 or less (up from $5,000 as of January 1, 2024, due to SECURE Act 2.0). This means employers may choose to allow employees to remain in plans regardless of account balance, or force them out if their balance is below a certain threshold. Plan participants should review their Summary Plan Description for additional information regarding distributions.

To lay it out, accounts with:

• Vested balances under $1,000: Employers have the option to issue a check to the former employee (i.e., a cash out).

• Vested balances between $1,000 and $7,000: Employers have the option to force the money out and roll over into an Individual Retirement Account (IRA) established for the participant.

How are employers treating accounts with smaller balances? One survey found that only about a quarter of employers—mostly those with small retirement plans—allow former employees to remain in their plans, regardless of the amount in the individuals’ retirement account. That means up to 75% of employees could be subject to a force-out distribution.

Paying more fees for your multiple 401(k) accounts

Of course, 401(k) and IRA accounts aren’t free. Each investment option in your 401(k) can have an investment fee. Some of those charges are higher than others. It’s important to review your investment strategy against the funds that your 401(k) account offers versus what you could invest in through an IRA. Financial professionals are available to assist you in making these decisions if you’re uncertain of what works better for you.

So, how can you avoid ending up with multiple 401(k) plans? Now that you know the disadvantages of keeping several retirement accounts, here’s your step-by-step game plan to prevent this from happening.

Solution 1: Explore all of your 401(k) rollover options

When separating from an employer, you have more options than just keeping the old 401(k) vs. rolling it over to a new 401(k). From rolling over to a Roth 401(k) or to a traditional IRA, evaluate your available options so that you can consolidate your nest egg into the account most suitable to your retirement saving strategy.

For more details, read:

• How to roll over your 401(k)

• Should I roll over my 401(k) into an IRA?

Solution 2: Update your contact information and leave clear instructions

If it makes financial sense to keep an old 401(k), keep your mailing address and email up-to-date. That way, you won’t miss out on any essential notices, and you’ll be more likely to act in a timely fashion and prevent an absent participant status. In addition, you’ll know if any material changes are made to the plan around its fee structure or recordkeeper.

Note that your plan sponsor has a fiduciary responsibility to ensure they keep track of you. If you don’t reach out to them when you move, your account could be forced into an IRA of their choosing, escheated to the state, or assessed a search fee to match you with your money.

Solution 3: Find your old 401(k) accounts from multiple employers

The National Registry of Unclaimed Retirement Benefits lists retirement accounts in the United States that have unclaimed balances. It is designed to help employees locate their abandoned accounts, and you can check the database online to see if your account is listed there.

However, manually locating old 401(k)s and navigating the associated transfer paperwork can be overwhelming. Human Interest's Rollover Concierge™, in partnership with Capitalize, simplifies the retirement account consolidation process, enabling participants to easily locate and combine their previous 401(k) plans. This free service provides greater clarity and control over their financial future.