How many 401ks can you have?

As an employer-sponsored retirement plan, most employees may have more than one 401(k) in the course of their career. A study by the Government Accountability Office shows that from 2004 to 2014, around 25 million Americans left behind a 401(k) account when they changed jobs.

You can have an unlimited number of 401(k)s. It is common for people who have worked several jobs to have old 401(k)s from their previous employer in addition to their current 401(k) account from their active job. You may also have multiple 401(k)s if you earn self-employment income in addition to your salaried job. In this case, you can set up an individual 401(k) even if you have another 401(k) account from your current employer.

401(k) Contribution Limits

If you have more than one 401(k) account, you should watch out for the IRS contribution limits. For 2021, the IRS contribution limits stand at $19,500. If you are age 50 or older, the IRS allows an additional $6,500 in catch-up contribution, which raises the limit to $26,000.

This contribution limit does not include any employer 401(k) matching. If you max out your portion of elective contribution in the primary 401(k) account, your employer can still match your contribution in your other 401(k) account. The total contribution limit for both elective deferrals and employer contribution is $58,000 for 2021.

Pros of Having Multiple 401(k) Accounts

If you have multiple 401(k)s, you may benefit in the following ways:

Pro: Lower 401(k) fees

If the new employer's 401(k) account has higher fees, then you are better off retaining the old 401(k) account with lower fees. For example, if the new 401(k) account charges 3% in account fees while the old 401(k) charges 1%, you can opt to retain the old 401(k) with the former employer instead of moving the funds to the new employer's 401(k) plan with higher fees.

Pro: Diverse investment options

If you want to invest your retirement money in diverse retirement options, you can maintain two or more 401(k) accounts. Previous employer’s 401(k) accounts will maintain their investment profile even if you no longer contribute to the account.

When you open a new 401(k), you can choose investment options that help you create a diversified investment portfolio.

Cons of Having Multiple 401(k) accounts

There are certain instances when you may have to rethink your decision to retain multiple 401(k) accounts. Here are some of the limitations of having multiple 401(k) accounts:

Con: Difficult to manage

If you have changed jobs five times during your previous working years, it means you have five 401(k) accounts to manage.

You will have to track the paperwork, make asset allocation decisions, pay taxes on distributions, manage beneficiaries, and monitor the account fees. It will be hectic to manage the five accounts, and you are better off rolling over all the old 401(k)s into one retirement account for easier management.

Con: Higher fees

Each 401(k) account comes with its own set of fees, and each investment option will charge investment fees. These fees can be as high as 3.5% for each 401(k) account.

When you add up all the fees across the multiple 401(k) accounts, the fees can be in hundreds or thousands, which continually eat into your retirement savings each year. Maintaining one 401(k) account will help you keep the fees at a minimum.

Con: Missing critical notices

Most often, the 401(k) plan administrator may send notices to participants to inform them of key changes such as an increase in 401(k) fees, termination of a fund, or required portfolio rebalancing.

If you have five 401(k) accounts, you could receive up to 15 notices during a financial year, and up to 100 or more notices within 10 years. If you miss out on reading these notices, you could delay in taking the required action, which could affect the accumulated savings.

Con: Forced transfer or cash out

If you leave your employer without giving instructions on what to do with your 401(k) savings, you could become a victim of forced cash out or transfer. If your 401(k) balance is less than $1000, the plan administrator will force cash out and send you a check with your account balance. On the other hand, accounts with $1000 to $5000 could be forcefully transferred to an IRA without your approval. 

What to do if you have Multiple 401(k)s

If you have more than one 401(k) account, there are certain things you should do to keep track of your old 401(k) accounts and protect your savings.

Here are the things you can do to safeguard your retirement savings:

Consider all your 401(k) rollover options

If you have changed jobs several times over the past years, it may be difficult to keep track of your old 401(k) accounts. For easy management of your retirement savings, roll over to an IRA or Roth IRA to enjoy better terms, a wider selection of investment options, and tax benefits.

Update contact information

If you decide to retain your old 401(k), you should update your mailing address and email to receive communications from the plan administrator. If you have less than $5000, you should provide instructions to the plan administrator on what to do with the retirement savings. You can opt to transfer old 401(k) to a new employer or an IRA with the required timeframe before the plan administrator forces a transfer or cash out.

Find lost 401(k)s from multiple employers

If you can’t trace your old 401(k) account, you can track lost 401(k) from multiple 401(k) providers. If you are unable to track the old 401(k) plan administrator, check with your former employer to know the new plan administrator's address. Once you locate where your retirement savings are, you should decide what to do with them, either to cash out, move to a new employer, or consolidate them into one IRA account.