Americans have $2.1 trillion sitting in nearly 32 million forgotten 401(k) accounts. How to figure out if you've left retirement savings behind

Of course, anyone with a forgotten 401(k) could boost their retirement savings if they were able to retrieve the account and salvage the funds, and that’s doable. But there are other financial implications that come with leaving such an account with a former employer.

The financial implications of a forgotten 401(k)

Andrew Huynh, certified financial planner at Pink Planning, told MarketWatch about three specific concerns with leaving a 401(k) account with a former employer.

Fees can eat into the balance

As Huynh explains, employers often shift administrative fees for 401(k)s to the balance of the account once the account’s owner is no longer with the company.

“Former employees are often charged extra fees periodically and can even have their funds forced out of the plan if their balances are under a certain threshold,” Huynh told MarketWatch.

Jeff Judge, certified financial planner with Chesapeake Financial Planners, says these fees typically don’t translate into one big charge. Instead, he describes the fees as a “slow bleed that adds up over years, and most people never look closely enough to catch it — that bleed compounds against you at the exact moment you’re not watching the account.”

For those who realize they have retirement savings that were left behind, the sooner they can claim the account and salvage the funds, the better.

Allocation strategy

As Matt Chancey, CFP with Tax Alpha Companies, explained to MarketWatch, workers who leave a 401(k) account behind often leave the account’s allocation strategy to their former employer.

“You can’t manage what you can’t see,” said Chancey. “Scattered accounts create three problems: your asset allocation isn’t coordinated, you can end up overweight in employer stock without realizing it [and] what happens when a former employer switches 401(k) providers.”

Without proper oversight, an abandoned 401(k) can lead to investments that may not work in the account owner’s favor. This could also eat away at the account’s balance, which would lead to less money recovered if the owner were to eventually reclaim the account.

Inaccurate beneficiaries

David Demming, CFP at Demming Financial Services Corp., warns of another issue with lost or forgotten 401(k)s.

“Lost accounts are a problem, often with no or inaccurate beneficiary designations,” Demming told MarketWatch, adding that some states can confiscate abandoned accounts under laws pertaining to unclaimed property. “Additionally, [beneficiaries] may face five-year payouts rather than 10-year payouts when documentation is incomplete.”

In order to spread out the tax obligation, the SECURE Act gives 401(k) heirs a 10-year window to draw down the account. But if the account owner’s beneficiary information is incomplete or missing, the IRS could trigger the 5-Year Rule, a penalty that forces an account’s heir to drain the account and pay the accompanying taxes in much less time.

How to recover forgotten retirement funds

If you believe you may have left a 401(k) account behind when switching employers, your best bet is to call your former employer and inquire about the account.

“They should be able to tell you who is the current plan recordkeeper,” Catherine Valega, founder of Green Bee Advisory, told MarketWatch. “Then you call them with your Social Security number. Sometimes your state’s find missing money site works, as well.”