Retirement / The Compound Effect
Got an Old 401(k)? Trump's New Laws Could Affect It Even More Than You Think
| 6 min | By Heath J. Harris
Thanks to SECURE 2.0 and Trump-era regulatory changes, that old 401(k) sitting with a former employer could be costing you more than you realize.
If you have worked more than one job in your career, chances are you have an old 401(k) still sitting with a former employer. Maybe it is collecting dust in a fund lineup you chose a decade ago. Maybe you have forgotten it exists entirely.
Here is the problem: thanks to recent regulatory changes -- including moves under former President Trump and updates from the SECURE 2.0 Act -- those "out of sight, out of mind" accounts could suddenly become a bigger deal than you think. At Compound Advisory, we help clients across the country consolidate and optimize their retirement accounts, and the conversations we are having right now about old 401(k)s are more urgent than ever.
New Investment Options -- and New Risks
Trump-era regulatory guidance expanded what 401(k) plans can offer, opening the door to alternative investments like private equity, real estate funds, and even cryptocurrency-linked products.
That might sound exciting, but it comes with real concerns:
- These investments often carry significantly higher fees than traditional index funds
- Many are illiquid -- meaning your money could be locked up for years with limited access
- Older plans may not have the administrative infrastructure to manage these options effectively
- Your risk profile could shift without you even realizing it
If you have an old 401(k), your former employer's plan could add these options to the investment menu -- and in some cases, default funds could change -- without any notification that your risk exposure just increased.
The Catch-Up Contribution Shake-Up
SECURE 2.0 introduced a significant change for workers aged 60 to 63: starting in 2025, you can contribute up to $11,250 in extra catch-up contributions to your 401(k), on top of the standard limit. That is a meaningful opportunity for people who are behind on retirement planning.
But there is a curveball. Starting in 2026, if you earn more than $145,000 in FICA wages, those catch-up contributions must be made on a Roth (after-tax) basis. This changes the tax calculus of retirement saving in a fundamental way:
- You lose the immediate tax deduction on catch-up contributions
- You gain tax-free growth and tax-free withdrawals in retirement
- If your old 401(k) gets merged or reactivated, you could be hit with this requirement unexpectedly
For high earners, this change requires careful coordination with your overall tax planning and Roth conversion strategy. The question is not just whether to contribute, but how those contributions interact with your other retirement accounts, your projected tax bracket in retirement, and your Social Security timing.
Auto-Enrollment and Auto-Portability: Not for Everyone
New 401(k) plans are now required to automatically enroll employees at a minimum of three percent, with annual increases up to at least ten percent. They will also include automatic portability features that move small balances when employees change jobs.
These are positive changes for new plans. But older plans are not required to adopt them. If your old 401(k) is sitting in a legacy plan, you could be stuck with:
- Higher expense ratios than modern low-cost alternatives
- Outdated fund options with poor performance histories
- No automatic rebalancing or portfolio modernization
- Limited customer service and digital access
Expanded Eligibility Does Not Fix Old Accounts
Starting in 2025, part-time employees who work at least 500 hours for two consecutive years must be allowed into their employer's 401(k). This is a significant expansion of coverage. But it does absolutely nothing for accounts that are already sitting idle with former employers.
If that account is not being actively managed, it is drifting along -- potentially in the wrong allocation, with the wrong fees, and without any of the benefits of the new rules.
Why This Matters More Than You Think
The compounding cost of neglected retirement accounts is real:
- Fees that quietly erode returns -- Outdated funds often charge expense ratios three to five times higher than modern index alternatives. Over 20 years, that difference can cost you tens or even hundreds of thousands of dollars.
- Misaligned risk -- A portfolio you selected at age 35 is almost certainly wrong for you at 55 or 65. Without rebalancing, you could be taking on far more risk than appropriate -- or far less than needed to meet your goals.
- Tax surprises -- The mandatory Roth catch-up rule could disrupt a pre-tax savings strategy if you are not prepared.
- Missed Social Security optimization opportunities -- Your retirement account strategy should be coordinated with your Social Security claiming decision, not siloed.
What to Do Right Now
Here are five steps you can take today to protect yourself:
- Find every old 401(k) -- You would be surprised how many people have "lost" accounts worth tens or hundreds of thousands of dollars. The Department of Labor's abandoned plan search and your former employer's HR department are good starting points.
- Review your current investments -- Look for high expense ratios, poor performance relative to benchmarks, and misalignment with your current risk tolerance and time horizon.
- Consider a rollover to an IRA -- Moving old accounts into an IRA or your current employer's plan can give you more control, lower fees, better investment options, and greater tax planning flexibility.
- Plan for the 2026 rule change -- If you are in the 60-to-63 age bracket, start coordinating your catch-up contribution strategy now, before the mandatory Roth requirement takes effect.
- Get professional guidance -- Regulatory changes create both risks and opportunities, and a small mistake in rollover execution or tax treatment could cost you significantly.
How Compound Advisory Helps
At Compound Advisory, we help clients -- whether based near our Annapolis, Maryland office or working with us virtually from any state -- align every account, old and new, into a coordinated, tax-aware retirement income strategy. As a fee-only fiduciary, we do not earn commissions on rollovers or product sales. Our only job is to help you make the decision that is best for your financial future.
If you have old retirement accounts and are not sure what to do with them, start with a complimentary Retirement Clarity Assessment. We will review your full picture and help you determine the smartest path forward.
Compound Advisory is a registered investment advisor. All investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. Tax and legal information is for educational purposes only -- consult a qualified tax advisor for your specific situation.