The laundry list of rules governing 401(k) plans has ballooned in recent years all in the name of simplifying plans for their participants. Funny how that works.
One of those friendly rules includes a plans ability to forcibly rollover low balance accounts into an IRA at a qualified custodian.
This option for plans has existed for a few years now but previously only applied to accounts between $1,001 and $5,000.
In 2024 that amount will jump up to $8,000 which will affect an estimated 800,000 plan participants.
This is not ideal for a few reasons:
- You don’t know what default investment the funds could be going into. Some of these are directed to money market accounts which may not be in line with your investment objectives.
- You don’t know the fee structure of the account it is going to which could include custody fees.
Furthermore, if your account is under the $1000 mark. Your plan could cash out your account by check which would incur the 10% early withdrawal penalty. And if you didn’t update your address with your old employer then things could be extra sticky as you may not know that check was ever cut.
It is more important than ever now to make sure you keep tabs on your retirement account when you change jobs. If you don’t make a decision on what to do with it, the plan at your old company might just make one for you.