Small 401(k)s may follow workers to their next job — except Roth

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 large 401(k) administrators — including Fidelity Investments, Vanguard Group and Alight Solutions, among others — in conjunction with Retirement Clearing House, has been in operation since late 2023. Its purpose is to address the problem of small-balance 401(k)s being left behind when employees leave their company — which can result in workers losing track of their retirement savings or cashing out.

Typically, when you part ways with an employer, you can leave your money in their 401(k) plan if the account value is above $7,000. Balances under $1,000 that you leave behind usually result in the plan cashing you out and mailing you a check, which may be taxable and subject to a 10% penalty if you’re under age 59½.

For amounts between $1,000 and $7,000, most plans roll over the balance to an individual retirement account if the ex-employee takes no action to move it on their own. If the money is in a traditional 401(k) — funded with pre-tax contributions and taxed when withdrawn in retirement — it goes into a traditional IRA. Likewise, Roth 401(k)s, funded with after-tax contributions and withdrawn tax-free down the road, go into Roth IRAs.

And that’s where Roth money is getting stuck in the auto portability system. While the network aims to connect those rolled over, small-balance IRAs with their owners once the workers are enrolled in a 401(k) at new employers, only traditional IRAs can be rolled into a 401(k). Roth IRAs cannot, due to federal law.

“It’s unfortunately just the way the tax law works,” said Kelsey Mayo, chief of retirement policy and regulatory affairs for the American Retirement Association, a trade group that represents the retirement plan industry. “It can’t legally work for Roth money. If the Roth money rolls out [of the 401(k)], it gets stuck in the IRA.”

As workers change employers throughout their careers, it’s possible for 401(k) accounts to get left behind, intentionally or accidentally. The typical U.S. worker holds about 13 jobs between ages 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 2025 research from Capitalize, which helps people roll over workplace savings to IRAs. The data includes accounts that former employees intentionally leave in their old plan, for example, to take advantage of lower fees or stronger creditor protections relative to IRAs.

When employers roll over small balances to IRAs, the money often sits in cash. This also means that while in that rollover IRA, the money is not benefiting from investment gains, which hurts long-term savings. An estimated 1.7 million of these rollovers occurred in 2025, up from an estimated 1.6 million in 2024, according to the Employee Benefit Research Institute.

The Portability Services Network was created after Congress authorized auto-portability for small-balance 401(k) accounts in the 2022 Secure 2.0 retirement legislation.

In simple terms, the network uses technology from Retirement Clearinghouse that periodically checks with 401(k) recordkeepers to see whether IRA owners within the network are now in a retirement plan at another employer in the recordkeeper’s system. If there’s a match, the funds can be transferred 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 rolled into their new 401(k) plan, according to Neal Ringquist, chief revenue officer of the Portability Services Network and Retirement Clearinghouse.

Not all 401(k) plans participate in the network. Roughly 21,400 plans are enrolled currently, representing 6.5 million participants, according to Ringquist. However, 401(k) recordkeepers are still in the process of signing up, and once the six that already are signed up have fully implemented auto-portability, it will represent about 63% of the market, he said.

Of course, the rule preventing rollovers from Roth IRAs to 401(k)s applies to any balance, not just small accounts.

However, if a person has a Roth 401(k) balance above $7,000, they can leave the money in the plan and roll it directly into their new 401(k), assuming their new employer allows it. It’s only when the money takes a stop in a Roth IRA that there is an issue.

Allowing the small-balance Roth IRAs to roll into Roth 401(k)s would be beneficial for retirement savers, Mayo said.

“It’s clarity for the individual saver,” Mayo said. “If they have pretax and Roth money and only part of it follows them to their new employer because the Roth money gets stuck in an IRA, that creates a lot of confusion for the saver.”

The bipartisan Retirement Rollover Flexibility Act, introduced in both the House and Senate in early December, would change the tax code to allow up to $7,000 in Roth IRA money to be rolled over to 401(k)s. Both bills were referred to committees in their respective chambers; it’s uncertain whether they will languish or move forward in the lawmaking process.

“We are hoping this restriction is addressed by legislation or regulators soon, as it would open up additional accounts that can take advantage of [auto-portability], particularly those in state-based [auto-IRA] programs,” Ringquist said.

Those state-run programs generally require employers of a certain size to either offer their own retirement plan or facilitate their workers’ enrollment in, typically, a Roth IRA. If a saver in one of these programs gets a job that offers a 401(k), they can’t roll their Roth money into their new plan.

“State auto-IRA programs have already enrolled more than 1.1 million workers, many of whom never before had access to a workplace retirement plan, and nearly all of them are saving 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 difficult for their Roth IRA savings to follow them,” Antonelli said.