Small 401(k)s may follow workers to their next job — except Roth
Westend61 | Westend61 | Getty Images
A system designed to help small 401(k) balances follow workers to their next job is running into a snag: Roth accounts.
The Portability Services Network, a coalition of major 401(k) managers including Fidelity Investments, Vanguard Group and Alight Solutions, has been operating since late 2023 along with the Retirement Clearinghouse. Its goal is to solve the problem that small balance 401(k)s left behind when employees leave their companies can cause employees to lose track of their retirement savings or cash out.
Typically, when you part ways with an employer, you can leave your money in the 401(k) plan if the account value is over $7,000. Balances under $1,000 that you leave behind will usually cause the plan to withdraw your money and send you a check; this may be taxable and subject to a 10% penalty if you are under age 59½.
For amounts between $1,000 and $7,000, most plans roll over the balance to an individual retirement account if the former employee takes no action to move it on his or her own. If the money is in a traditional 401(k), which is funded with pre-tax contributions and taxed when withdrawn in retirement, it goes to a traditional IRA. Similarly, Roth 401(k)s that are funded with after-tax contributions and future tax-free withdrawals fall into Roth IRAs.
Here’s Roth money getting stuck in the auto portability system. While the network aims to connect small-balance IRAs to owners that are rolled over after workers sign up for 401(k)s at new employers, only traditional IRAs can be rolled over to a 401(k). Due to federal law, Roth IRAs cannot do this.
“Unfortunately, this is the way it is tax law studies“Legally, he can’t work for Roth money,” said Kelsey Mayo, chief of retirement policy and regulatory affairs for the American Retirement Association, a trade group that represents the retirement plan industry. [of the 401(k)]He’s stuck with the IRA.”
There were approximately 1.7 million people from this period in 2025
As employees change employers throughout their careers, it is possible for 401(k) accounts to be left behind, either intentionally or accidentally. The typical U.S. worker holds approximately 13 jobs between the ages of 18 and 58. continuing Bureau of Labor Statistics survey of people born between 1957 and 1964.
An estimated 31.9 million 401(k) accounts, totaling about $2.1 trillion, remain with former employers. Capitalize’s 2025 researchThis helps people transfer their workplace savings into IRAs. The data includes accounts that former employees intentionally left in their old plans to take advantage of lower fees or stronger creditor protections than in IRAs, for example.
When employers rollover small balances to IRAs, the money usually remains in cash. This also means that money in the rollover IRA does not benefit from investment gains, which hurts long-term savings. An estimated 1.7 million of these rollovers occurred in 2025, up from 1.6 million in 2024, according to the Employee Benefit Research Institute.
More than 31,000 IRAs reach their owners’ new 401(k)
Portability Services Network was later created Congress allowed automatic portability for small-balance 401(k) accounts in the 2022 Secure 2.0 retirement legislation.
Simply put, the network uses technology from the Retirement Clearinghouse, which periodically checks 401(k) recordkeepers to see if IRA owners in the network are no longer in another employer’s retirement plan in the recordkeeper’s system. If there is a match, funds can be rolled over from the IRA to the new plan — again, as long as it’s not Roth money.
To date, 31,216 IRAs have been matched with workers and included in new 401(k) plans, according to Neal Ringquist, chief revenue officer at the Portability Services Network and Retirement Clearinghouse.
Not all 401(k) plans participate in the network. About 21,400 plans are currently enrolled, representing 6.5 million participants, according to Ringquist. However, 401(k) recordkeepers are still in the process of signing up, and the six already signed up said that once automatic portability is fully implemented, it would represent about 63% of the market.
Consolidation of retirement savings is ‘clarity’ for savers
Of course, the rule preventing rollovers from Roth IRAs to 401(k)s applies to all balances, not just small accounts.
However, if a person’s Roth 401(k) balance is over $7,000, they can leave the money in the plan and roll it directly into the new 401(k) account, assuming their new employer allows it. The problem only arises when the money stops in the Roth IRA.
Allowing small-balance Roth IRAs to roll over to Roth 401(k)s would be beneficial for retirement savers, Mayo said.
“This is clarity for the individual saver,” Mayo said. “If they have pre-tax and Roth money and only some of that money follows them to their new employer because the Roth money is stuck in an IRA, that creates a lot of confusion for savers.”
Bill would deposit $7,000 into Roth IRA in 401(k)s
bipartisan Pension Transfer Flexibility ActThe legislation, introduced in both the House and Senate in early December, would change the tax code to allow up to $7,000 of Roth IRA money to be rolled into 401(k)s. Both bills were referred to committees in their respective chambers; It is unclear whether it will weaken or advance in the lawmaking process.
“We hope this restriction will be addressed by legislation or regulators soon as this will be able to take advantage of additional accounts. [auto-portability]especially state-based ones [auto-IRA] programs,” Ringquist said.
These government-run programs often require employers of a certain size to either offer their own retirement plans or make it easier for their workers to enroll, typically in a Roth IRA. If a saver in one of these programs gets a job that offers a 401(k), he or she cannot roll over Roth money into the new plan.
“State automatic IRA programs already have multiple enrollments 1.1 million workers, Many have never had access to a workplace retirement plan before, and nearly all save in Roth IRAs, said Angela Antonelli, executive director of the Center for Retirement Initiatives at Georgetown University.
“The problem is that when one of these workers moves to a job with a 401(k), we make it harder for Roth IRA savings to follow them,” Antonelli said.
