Auto-portability fix for small 401(k)s leaves Roth savers behind

Leaders at an auto‑portability network set up to keep small 401(k) balances from getting lost when workers change jobs are sounding alarm bells over a gap they see for Roth savers – one that, if left unaddressed, advisors may increasingly have to navigate.

The Portability Services Network – a consortium that began in late 2023 with large recordkeepers including Fidelity Investments, Vanguard Group and Alight Solutions – is designed to automatically move stranded 401(k) balances when participants land at a new plan. The network focuses on accounts between $1,000 and $7,000 that would typically be pushed into an individual retirement account if a worker does nothing after leaving an employer.

As detailed by CNBC, standard rules governing 401(k)s usually provide for balances under $1,000 to be cashed out and mailed as a check, often triggering taxes and a 10% early withdrawal penalty if the worker is younger than 59½. Amounts between $1,000 and $7,000 are commonly rolled into safe‑harbor IRAs – generally in cash – if participants do not provide instructions. For traditional 401(k) assets, that means a traditional IRA; Roth 401(k) dollars are sent to a Roth IRA.

The Portability Services Network periodically queries participating recordkeepers to see whether those small-balance IRAs now belong to someone who has enrolled in another 401(k). If there is a match, traditional IRA assets can be swept into the worker’s new plan.

According to joint research by PensionBee and the Employee Benefits Research Institute, automatic rollovers could lead some 13 million accounts holding a combined $43 billion to be swept into safe-harbor IRAs by 2030. Communication gaps between workers in motion and their former employers puts a meaningful chunk of those assets at risk, as just one in five workers reportedly get a clear explanation of their retirement options when leaving a job.

The choke point appears especially severe for Roth IRAs. As the CNBC report lays out, federal law allows only traditional IRA assets to be rolled over into a new employer's 401(k).

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

To put things in some perspective, the Investment Company Institute estimates households moved $670 billion from workplace plans into traditional IRAs in 2022, and about 59% of traditional IRA–owning households held rollover assets by mid-2024. 

Roth IRAs are a smaller, but still meaningful, part of the picture: Roughly 26% of US households owned Roth IRAs in mid‑2024 – equivalent to just over 34 million households at the time – with 22% of Roth IRA–owning households reporting at least some of those assets originated in an employer plan.

Neal Ringquist, chief revenue officer of the Portability Services Network and Retirement Clearinghouse, told CNBC that the network has matched 31,216 IRAs with workers and moved those balances into new 401(k) plans. Roughly 21,400 plans with 6.5 million participants are enrolled, and once all six participating recordkeepers are fully turned on, the system is expected to cover about 63% of the market.

For now, that auto-portability only applies to traditional dollars. Advisors could see more clients show up with small Roth IRAs that sit in cash, disconnected from the rest of their retirement strategy. In 2025 alone, an estimated 1.7 million small 401(k) balances were rolled into IRAs, up from 1.6 million a year earlier, and many of those accounts are not invested for growth.

Read more: Forgotten 401(k)s hit record $2.1T as job insecurity leaves retirement savings stranded

Allowing small Roth IRA balances to follow workers into new Roth 401(k)s would help make things clearer for individual savers, 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 December, would let up to $7,000 of Roth IRA money move into 401(k)s. Ringquist said the network’s backers “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].”