In this episode of Adam Talks, IRA Financial’s Adam Bergman Esq. explains why you should ask about your retirement funds when you leave a job.
Maybe you’re one of the 38 million Americans that have left their job in 2021. Well, if you are, don’t want to leave any money behind. So on today’s, Adam Talks, we’re going to be talking about leaving your job and the trillions, yes, trillions of dollars of remaining 401(k) funds left in your old employer and in most cases forgotten forever. So listen up and hopefully it won’t be one of the few that leave money on the table.
Hey, everyone. Welcome to another episode of Adam Talks. I’m Adam Bergman, tax attorney and founder of IRA Financial. So let me get started with some numbers. Here I’m going to throw some numbers out that will kind of shock you in terms of how many people left their job in 2021, how much 401(k) money is remaining behind. This is bonkers stuff.
So, through November 2021, an average of more than 3.9 million workers quit their jobs each month, meaning 2021 will hold the highest average on record, topping 2019. Record high, 4.4 million people, or 3% of workers, quit their job in September. That’s a lot of people. In October, 4.2 million workers quit their jobs. Yet another near record.
In fact, for seven months of 2021, workers have been quitting at near records. All told, in 2021, and this is actually not 100% accurate because this number is from early December 2021, but as of that date, 38 million workers quit their job. That’s by far the most ever.
Okay, 38 million; probably the numbers closer to 40 million because the numbers I gathered were early December. So let’s say 30, 40 million people left their job last year. There’s 500,000-600,000 401(k) plans out there. Lots and lots of 401(k)s.
If you work at a company with more than a few employees, most will have a 401(k). Yeah, there’s exceptions like fast food restaurants and other types of industries. But, majority of businesses that are established and have employees want to offer retirement benefits and hence will have a 401(k). So, here’s another crazy number: 24 million Americans have forgotten 401(k) accounts.
It’s 24 million people – it’s a lot! There’s 350 million people in this country. So, it’s like 8% of us have forgot our 401(k) behind, and that’s in excess, okay, get ready for this, $1.3 trillion of money that’s been left behind in 401(k) plans.
So, listen up. If you’re one of the 38 million or so people that left their job in 2021, you need to ask because you may not even know if you have money in a 401(k) plan. Why? I’m going to explain to you. When you start a job, in a lot of cases, your employer will ask if you want to opt in and make 401(k) contributions. Some companies will automatically enroll you and that’s been the trend to have more and more businesses automatically enroll people because the statistics show if you’re automatically enrolled, there’s a better chance you’re going to stay focused and stay in tune with making 401(k) contributions.
So the idea is that if you force people in and just get them in the habit of having money pulled from their paycheck each week or two weeks or month, the money will just end up flowing into the plan and the employee will just get used to the money being drawn. But, if you don’t force people in it, a lot of cases they’ll just not actively opt in because there’s cash flow issues. They need the extra money for mortgage or rent or whatever, right? We all have expenses. So what happens is, depending on your 401(k) plan, there’s either something called an elective or non-elective model.
Most 401(k) plans are safe harbor, meaning that in order for the highly compensated employees of that business to be guaranteed that they can max out and put in either $20,500 or $27,000 in 2022, the business needs to give a small little match or small little contribution, free contribution, to rank and file employees. Now, elective means the business will only make that safe harbor contribution if the employee puts in money. Sometimes it’s maybe 1% 2%, but generally it’s like a 3% minimum. So if the employee puts in 3%, say they make $40,000, they put $1,200 in, the company will match the $1,200. Sometimes if you don’t put in the 3%, there’s no match.
In other cases, depending on the plan documents and how they’re drafted, there is some flexibility. But there are also companies like IRA Financial. We do non-electives. We actually do a non-elective, which means even if the employee doesn’t put a dollar into the plan, we will match 4% of their salary. So let’s say you make $50 grand a year at IRA Financial and you just don’t want to make contributions, you’re just tight on money, got a bunch of expenses, no problem. We will give you free 4% of $50 grand, or about $2,000, even if you don’t put a dollar in. So what happens? That’s called the non-elective. So in that case, let’s say you’re at a job for six months or a year, two years or three years.
You may not know that you have all this money in a 401(k), or you may forget, or you may assume that it just never got done because you didn’t focus on it. But $1.3 trillion tells you the story. There’s money out there, and you may even be entitled to some of that money. So right now, it’s kind of hard to track down the money. There is a potential under new piece of legislation called RISE, which could get passed this year. It’s also known, or it’s going to mirror Closely SECURE Act 2.0, they’re going to at least the IRS, Department of Labor, try to create a database, type of national database so people can find their money.
But right now the only way to do it is to track down your former employer. So if you’re leaving your job, first thing you should do on an exit interview, well, not the first thing, but one of the things you should do once you tell your employer why you’re leaving is to ask if you have any 401(k) money? Okay.
And that’s a question most people don’t answer. And that probably is a leading indicator that when people leave their job, they don’t do it the right way. Listen, I’ll give everyone some friendly advice. I learned this from my parents, from mentors, colleagues. When you leave a job, do it the right way.
It’s a small world, okay? Trust me, it’s even smaller in a particular industry, especially if you are in a particular state or particular community, you want to do the right thing. Even if you had or feel like you were wronged, you didn’t get paid right or things didn’t go the way you wanted at that job. Do the right thing. Give notice, give two weeks.
Don’t badmouth the employer on the way out; doesn’t serve any purpose, right? You’re leaving. I know you may get five seconds of satisfaction by telling your boss to go fly a kite or do something, jump in a lake or something, but it doesn’t help. The end of the day, your old boss is not going to care. He’s going to forget about you in a week, two weeks, and you’re going to move on.
But, what you’re doing is you are now setting a reputation for yourself. So if number one, you lost that recommendation, right? You can’t use that former employer’s recommendation, which when you go to a new job, they’re going to say, oh, where did you work before, Adam? You say, I worked at Company X. Oh, can I get a referral for Company X? Now you can’t. Number two it’s a small world. So your next job, they may ask where you work before and they say, oh, did you know Jane at that company? She’s my great friend.
I went to college with her and Jane was your old boss that you told off. So think long term, do the right thing, give notice. And while you’re doing an exit interview, ask, “do I have any 401(k) funds?” You could say, this is a dumb question. I probably should know this, but do I have any 401(k) funds?
And then human resources or plan administrator, whoever you’re talking to, will give you the answer. The way this works is as follows. If you have less than $5,000 in a plan and you leave your job, there’s something called a Safe Harbor IRA, which basically allows your former employer, if they can’t track you down, to just dump your money to a custodian. And this is something IRA Financial is actually going to get into the business of, but just didn’t like the business model of pulling fees from people’s dormant retirement accounts. But that’s what happens.
You leave your job, you work a company X, say you were there two years, you have $3,100 in a 401(k). You had no idea. You didn’t tell your employer what to do with it. So you didn’t take it to an IRA or you didn’t port it to your new job; just sitting there. They have the ability, under the Safe Harbor IRA rules, to send it to an IRA custodian who is supposedly going to try to find you and basically just going to pull fees and put you in an essentially money market account where you’re just not going to earn any returns and your account will eventually be depleted to zero because the custodian will just take all the fees out of the account.
So under $5,000, the rules are they can do a Safe Harbor IRA and allow you, basically force that money to an IRA custodian, so why would the employer do this? They don’t want the cost of having you as a participant in the plan. There’s a cost, right? There’s additional record keeping costs, administration costs per employee. They just don’t want it. So they’re going to dump it off to a custodian, who’s going to put you in a very low returning investment, i.e., a money market, and strip the account out of fees over time. So ask! If you have over $5,000, obviously, you probably will know about it, but if you don’t, you have options.
Well, you have options in any case, whether you have a dollar or a million bucks, you can always roll it to an IRA tax free. Depending on your new employer, you can roll it into your new employer tax free. You can also take it as a taxable distribution, but you’re going to pay tax and a 10% penalty if you’re under 59 and a half. You’re also potentially going to be subject to 20% withholding on that distribution.
So they’re going to take at least 20% to make sure they’re going to get the taxes from that distribution. Now if you take an indirect rollover, meaning you take the money in your pocket, use it. You have 60 days and you can do it once every twelve months. They’re going to take 20% withholding. If you want to put the money back in the entirety, i.e took 20 grand out, they took 20% or $400, right? Well, no, let’s say keep it simple, right? You took $1,000 out, they took 20%, $200, you have $800, and now it’s within 40, let’s say 45. You start a new job at Company Z and you want to roll the funds back in the Company Z. You can make up that $200 withholding, put it in from your pocket and give them $1,000.
If you don’t, that 20% is gone. You can still roll it within 60 days, but you’re only going to roll $800 in. You’re still going to have that tax is going to be outstanding. So overall, you have options. If you leave your job and you’re one of the 38 million that have left your job, ask in an exit interview.
First of all, do the exit interview. Don’t badmouth your employer. You can give constructive criticism, be courteous, be respectful. It’s a small world. You don’t want to lose a contact and a valuable referral for no reason, just for a couple of seconds of satisfaction telling off your former boss.
Also, it’s a great opportunity to ask if there’s any retirement funds that you’re leaving on the table. Generally, the rules for the employer under $5,000, they have the ability to move it through a Safe Harbor IRA framework where basically the money gets put into a custodian that will put you in a very safe investment and take fees and will hopefully find you. Or you have the ability to port it to a new employer if the new employer allows it. And the most common way is move it to an IRA. That’s called the rollover. Approximately $400 billion of rollovers each year.
So it’s obviously quite a popular mechanism, especially when almost 40 million people leave their job. So you don’t want to be one of those folks, the 24 million folks that have 1.3 trillion. It’s embarrassing. It’s leaving free money on the table. Again, it’s not your fault.
In a lot of cases, it’s not their fault because they’re just either automatically enrolled or there’s a non-elective contribution made on their behalf. No one tells them about it, or they may be signed paperwork as part of their on-boarding in the business years back and they have no recollection of it. They weren’t really focused on the 401(k). And even if it’s $1,000 or $500 or $6,000, it’s your money, okay? And that’s money that is growing without tax, that you can take it as a distribution when you leave your job or roll it into an IRA tax free.
But it’s your money. Don’t leave it on the table, okay. Also, what happens? Companies go bankrupt, right? And then it’s hard for those companies to allocate out the money.
You want to take your money, right? You don’t want to leave it to your former employer, as the trustee of the plan, to decide how to divvy up that money, whether it’s to a Safe Harbor IRA or what they do if they can’t locate you. So I probably get, not me personally, but our business probably gets 50, 60 calls a week from random people who see us. They see our name, IRA Financial, they heard of us, and they think we have their retirement account. They’re like, hey, IRA Financial, I think I have a 401(k) with you.
I worked at Company Z. Where’s my money? We have to tell them. “We don’t know. That’s your job. You’ve got to find the money.” Right now, there is no national database. It’s up to you to find that money. So go find it. Don’t leave it on the table.
The worst thing you can do is leave hundreds, if not thousands of dollars that’s yours on the table. So that’s it. The point of this is, I’ve been reading a lot. We’ve actually had at IRA financial; we’ve had people kind of just quit for no apparent reason.
Good people just because they just for whatever reason, they want to work or they want to work from home more than we were able to do and just quit. And we’re seeing that issue now with people asking for a 401(k), which is totally fine. We do a good job of notifying and indicating to our team that you have retirement funds. We educate people about it, but not every business does. And obviously there’s 24 million people, 24 million people with $1.3 trillion.
It’s freaking bonkers. There’s $1.3 trillion of money out there that people are not claiming. So I don’t want that to be any of you. So hopefully you now know if you are planning on leaving your job or you have left your job in the past, call them up.
If you left your job even five years ago, ten years ago, the business is still there. Call them up and say, hey, Company X. Hey, Joe, I know you’re a human resource. I worked there eight years ago. Just call him.
Not sure. Do I have money in the 401(k) still? You’ll be shocked, okay? Because I’ve had some people do that and they’ve called me back and said, “Adam, I can’t believe it, but I had X dollars in there. Like, I’m going to buy you lunch.” I was like, okay, let’s do it!
But it’s true. There’s 24 million people or 24 million accounts. So it’s not like there’s 4,000 people or $25 million. I wouldn’t waste your time, but 1.3 trillion. There’s 13 trillion of IRA funds, 1.3 trillion of 401(k) funds out of, there’s about eight to ten trillion of 401(k) defined contribution funds.
Okay, 1.3 of it, almost 10% is just there, just hanging around. Okay? So go get it. So if you take anything from this podcast, if you’re listening, if you’re watching on YouTube, call your former employers. If you’re not sure. It’s a phone call, big deal.
It waste ten minutes on the phone. If you are leaving your job now, ask. Okay, it happens where based off the type of plan it is, you may not even aware that you are opted in. Either money’s coming to your paycheck you don’t even know, or the company is just making non-elective contributions or profit sharing contributions on an annual basis. And you have no idea and you haven’t been given the right information, you haven’t been up to date on following the developments of the account opening, and now you’re kind of in the dark. But it’s your money. So don’t leave it on the table. Don’t leave it to companies like mine to just strip it of fees. Even though IRA Financial doesn’t do that.
There’s IRA companies that I associate with, do and they’re good companies. They’re trying to do the right thing, but they don’t have the manpower to find all these IRAs and they have millions of accounts and again that counts under the $5,000 over the $5,000, hopefully the employer is doing a better job in tracking it down.
So that’s it. I hope you guys enjoyed today’s Adam Talks. Appreciate you guys spending some time with me. I was just blown away by the numbers. I was thinking of doing something on cryptos because it’s been a blood bath this week but I saw this article on it and I saw the 24 million and the 1.3 trillion connected to almost 40 million people leaving their job this year and I was like, wow, if I can make a difference and even help one person or two people find their money, it’s worth the podcast just for that. So thanks for listening. Thanks for watching on YouTube.
You can see me now doing some video shoots of this podcast, which is a lot of fun too and that’s it. Have a great rest of your day and a great rest of your week and I’ll talk to you everyone again next week. Be well.