Jul 19, 2018, 12:46 PM
(from Forbes) Every state has an Unclaimed Property Law law that requires financial institutions to report abandoned and unclaimed personal property after a specified time period. In most states, institutions must do this three or five years after has been deemed to be either abandoned or unclaimed. These laws essentially give individuals three to five years after reaching retirement age to claim retirement accounts. After that time, the state takes your unclaimed IRA or 401(k) and takes the money out of the tax-deferred shelter.
A new movement might be brewing that would empower states to treat retirement accounts as abandoned property much sooner. In 2016, Pennsylvania enacted an unclaimed property rule that essentially treats retirement accounts no differently than all other accounts. After just three years of inactivity, regardless of the account holder’s age, the account will now qualify as unclaimed property. The account will be liquidated and placed in the Commonwealth of Pennsylvania’s General Fund, where ordinary income taxes are owed on the entire amount and, in addition, there will likely be a 10 percent penalty tax for early withdrawal from your account, if done prior to age 59.5.
This change puts a substantial burden on anyone with accounts held in Pennsylvania. This means you should continue to log into your accounts every year, check the balances, and make sure your contact information is current. It’s also a good idea to make sure you know the definition of “inactive” that applies to your accounts. Since the rule requires financial institutions to report the abandoned property, it applies to the financial institutions in Pennsylvania, specifically mutual-fund giant Vanguard, with more than $3 trillion in assets.
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