How to Automatically Transfer 401 (K) Money When Changing Jobs
Changing jobs often includes a list of steps to make the transition easier. One often overlooked step is transferring money from your old company 401 (k). As you prepare for a new presentation, you can put this task aside – and forget about it for years later. Or worse, you can cash out your 401 (k) balance.
According to a 2019 report from Alight Solutions, 4 out of 10 former employees canceled their entire 401 (k) account after leaving their job, which may have been an expensive move. These people paid income tax on withdrawals, along with a 10% penalty if they were under 59.5 years old. But the new 401 (k) feature could prevent people from cashing in their plans and losing some of their savings to pay taxes.
A new feature called auto portability automatically transfers your old 401 (k) to your new employer’s plan. A recent report from the Employee Benefits Research Institute said this new technology could keep $ 2 trillion in our nation’s pension system. The same report also predicts that car portability could narrow the retirement savings gap among certain groups of people, such as single women.
Alight Solutions will be the first 401 (k) provider to use auto portability, CNBC reports . By the end of the year, they expect 185 companies and 5 million employees to have access to the new feature. Those with access can change jobs without worrying about moving 401 (k) funds. The transition between the plans of the company will occur automatically, without any action.