Small 401(k)s can follow workers to their next job – except Roth

A system designed to help small 401(k) balances get employees from job to job is running into a roadblock: Roth accounts.

The Portability Services Network, a coalition of large 401(k) administrators including Fidelity Investments, Vanguard Group, Alite Solutions, and others, is working with retirement clearinghouses to begin operations in late 2023. The goal is to address the issue of employees being left with small 401(k) amounts when they retire, which can result in employees losing track of their retirement savings or cashing them out.

Typically, when you part ways with your employer, you can leave money in their 401(k) plan as long as the account value exceeds $7,000. If you leave a balance of less than $1,000, the plan will usually cash it out and mail you a check. Checks are taxable and may be subject to a 10% penalty if you are under age 59 1/2.

For amounts between $1,000 and $7,000, most plans will roll over the balance to an individual retirement account if the former employee does not take steps to move the balance himself. If the money is in a traditional 401(k) (funded with pre-tax contributions and taxed when withdrawn in retirement), the money goes into a traditional IRA. Similarly, a Roth 401(k) that is funded with after-tax contributions and withdrawn tax-free in the future will roll into a Roth IRA.

And that’s where Roth’s money gets stuck in the autoportability system. The network is designed to connect small IRAs that are rolled over with their owners after a worker enrolls in a 401(k) with a new employer, but only traditional IRAs can be rolled over to a 401(k). Due to federal law, you cannot have a Roth IRA.

“Unfortunately, this is just the way the tax code works,” said Kelsey Mayo, director of retirement policy and regulation at the American Retirement Association, a trade group representing the retirement plan industry. “Legally, it can’t function for Roth funds. If Roth funds are deployed (in a 401(k)), it gets stuck in the IRA.”

When workers change employers throughout their careers, their 401(k) accounts can be left stranded, either intentionally or accidentally. The typical U.S. worker holds about 13 jobs between the ages of 18 and 58, according to an ongoing 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, according to a 2025 study by Capitalize, which helps people roll over workplace savings into IRAs. This data includes accounts that former employees intentionally left in older plans to take advantage of lower fees and stronger creditor protection than, for example, IRAs.

When an employer rolls a small balance over into an IRA, the money is often held in cash. This also means that your funds are not benefiting from investment gains during the life of your rollover IRA, which has a negative impact on your long-term savings. An estimated 1.7 million of these rollovers will occur in 2025, up from an estimated 1.6 million in 2024, according to the Employee Benefit Research Institute.

The Portability Services Network was established after Congress authorized autoportability of small balance 401(k) accounts in the Secure 2.0 Retirement Act of 2022.

Simply put, this network uses technology from the Retirement Clearinghouse, which periodically checks with 401(k) recordkeepers to determine whether IRA owners in the network are currently enrolled in a retirement plan with another employer in the recordkeeper’s system. If there is a match, you can move the funds from your IRA to your new plan. Unless, again, the funds are Roth funds.

To date, 31,216 IRAs have been matched with workers and rolled into 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. According to Ringquist, there are currently approximately 21,400 plans registered, representing 6.5 million participants. However, 401(k) record holders are still enrolling, and once the six companies that are already enrolled fully implement autoportability, they will account for about 63% of the market, he said.

Of course, the rules that prevent rollovers from a Roth IRA to a 401(k) apply to any balance, not just small accounts.

However, if your Roth 401(k) has a balance of more than $7,000, you can leave that money in the plan and roll it directly into your new 401(k) if your new employer allows it. Problems only arise if the funds stop in your Roth IRA.

Mayo said allowing small balance Roth IRAs to be rolled into Roth 401(k)s would be beneficial to retirement savers.

“It’s clear for individual savers,” Mayo said. “If they have pre-tax and Roth money and the Roth money gets stuck in an IRA and only a portion of it goes to the new employer, that’s going to be very confusing for the saver.”

The bipartisan Retirement Rollover Flexibility Act, introduced in the House and Senate in early December, would change the tax code to allow up to $7,000 of Roth IRA funds to be rolled over into a 401(k). Both bills were referred to committees in their respective chambers. It is unclear whether the legislative process will stall or move forward.

“We hope that this restriction will be addressed by legislation and regulators soon, because additional accounts will be opened that can take advantage of (autoportability), especially those in state-based (auto IRA) programs,” Ringquist said.

These state-run programs typically require employers of a certain size to offer their own retirement plans or encourage workers to participate, usually in Roth IRAs. If a saver in one of these programs gets a job that offers a 401(k), the Roth funds cannot be rolled into the new plan.

“More than 1.1 million workers have already enrolled in the state’s automatic IRA program, many of whom previously had no access to a retirement plan at work, and nearly all of them are saving in Roth IRAs,” said Angela Antonelli, executive director of Georgetown University’s Center for Retirement Initiatives.

“The problem is, if one of these workers moves into a 401(k) job, it’s going to be difficult for their Roth IRA savings to follow them,” Antonelli said.