When you leave a job, there are a few loose ends that need to be tied up, such as gathering the personal items from your desk, saying goodbye to coworkers and, usually, an exit interview. But one of the most important steps is taking ownership over your 401(k) plan as you leave the company.
As GOBankingRates previously reported, there have been more than 24 million forgotten 401(k) accounts left behind by employees when they leave a job, and each one can end up costing a person an average of $700,000 in lost retirement savings over the course of their lifetime.
While the process has traditionally been a bit cumbersome, there’s a new, easier option for employees to transfer the account thanks to a new service from three of the biggest 401(k) administrators.
The New York Times reported that Fidelity Investments, Vanguard and Alight Solutions have come together with Retirement Clearinghouse to create a new service called the Portability Services Network. It’s basically a one-stop portal for “locating an employee’s workplace retirement account and automatically transferring the balance to a new employer’s plan,” including taking care of the temporary in-between step of holding the funds in an individual retirement account.
The service is targeted to anyone who has a balance of $5,000 or less in their retirement savings.
Employers can, and most will, drop you from their 401(k) when you leave the company if your balance is under $5,000 (that figure increases to $7,000 in 2024 as regulated by the Secure Act 2.0).
If your balance is less than $1,000, your employer can cash out your account and send you a check for the balance. If you don’t reinvest the money in a new retirement account within 60 days, you could pay taxes and an early-withdrawal penalty on the cashed-out funds. In fact, approximately $92 billion in savings leaves the U.S. retirement system every year because Americans who switch jobs prematurely cash out their workplace retirement accounts, according to a Fidelity press release.
For balances above $1,000 but below $5,000, the employer will likely roll your money over into a “safe harbor” IRA that poses little risk but has low returns.
Either way, you’ll miss out on the benefit of compounding gains by not reinvesting the funds in a new retirement account.
Retirement Clearinghouse says nearly 15 million workers with a 401(k) switch jobs every year, and around 30% have savings totaling less than $5,000. Fidelity said the Portability Services Network will help “mitigate cash-out leakage and preserve trillions of dollars in savings in the U.S. retirement system, particularly benefiting minorities, women and low-income workers.”
There will be a fee for the service, depending on the balance in the retirement savings being rolled over, but it will be capped at $30, says The New York Times. However, you don’t need a third party to move your account. In its guide to rolling over your 401(k), GOBankingRates explains the four steps to take to transfer your account when you leave a job.
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This article originally appeared on GOBankingRates.com: Retirement Savings Update: There’s a New, Easier Option To Move 401(k)s When You Change Jobs