If I leave my job, what happens with my 401K?

[pumpkinfish]

Do I have to cash it out or can I roll it over into something else? What if I'm not going to be employed for awhile?

 

[CowboyCO]

It stays with the 401K administrator unless you move it. You can roll it over into an IRA without penalty, but do not cash it and then try to re-deposit. It will get tagged for income taxes and a penalty, which amounts to about a 40% hit.

If you want to move it to another company, set up that account first and then let them handle the rollover for you.

 

[geffric]

If you cash it out.. ie take the money in it.. you will be taxed unless you are 65.. if not you can leave it at the company or roll it over to an IRA..

It is easy to do..for example: say your 401K is with Fidelity, then you talk with the Fidelity folks and they transfer it to an IRA.. easy and non taxable.. but talk with your accountant or advisor to ensure that this is not a taxable event..

 

[dizluvah]

One other point to consider: If your company offers matching funds (or ever put any bonus money into your 401K)- you will need to know whether you are fully vested or not. If not, you may only be eligible to receive a percentage of the matching money from the company. The vesting schedule will be in with your initial 401K information from your employer.

 

[Janet Hill]

If you cash it out.. ie take the money in it.. you will be taxed unless you are 65.. if not you can leave it at the company or roll it over to an IRA..

It is easy to do..for example: say your 401K is with Fidelity, then you talk with the Fidelity folks and they transfer it to an IRA.. easy and non taxable.. but talk with your accountant or advisor to ensure that this is not a taxable event..

If it's a tax deferred account you will pay taxes on it no matter what age you are when you withdraw it (unless of course your total income is below the threshold - not likely). You will not pay the 10% penalty if you've reached 59.5. There are other instances as well were you wouldn't pay the penalty and they are detailed in the instructions for Form 5329.

There are many different things and ways open to you to invest your money in now. I just recently left my employer and am now investing in real estate. You don't have to go the traditional route if you don't want to, because now you have the flexibility to invest in whatever you want.

 

[XYSRUS]

I left a company 9 yrs. ago. Didn't touch my 401. It kept earning interest but there was just no additional money to buy shares. FF 9 yrs and I recently went back to work for the same company. Got my 1st pay stub and what a surprise -my 401 contributions started right back up where they left off w/o me signing anything! Its all good though -10%saved and company matches 6%!

 

[Cheshire Figment]

Some companies if the account value is below a certain dollar amount will automatically cash you out.

Generally you will have several options:
1. Cash out
2. Roll it into the new employer's 401(k)
3. Roll it into a Rollover Standard IRA
4. Leave it with the old company.

Best choices generally are #2 or #3.

#1 will always be taxable in full. If you do #2 or #3 make sure that it is a direct trustee-to-trustee rollover where the money does not get sent to you. Often if you do not make a decision within a certain amount of time they will make the decision for you. Check the rules very carefully.

 

[Piecey]

My company wouldn't let me keep my 401k with them when I left.

I elected to have them cut a check "For the Benefit of *ME*" which I turned into an IRA.

It sits there, I've not done anything with it since I opened the account.

 

[Pakey]

I set up the 401k plan at my company and am one of the administrators.

Every plan is different. Each plan has a set limits for certain things.

If you have under a certain amount vested in the plan, you could be automatically cashed out as soon as your employer notifies the fund that you have terminated employment.

If you have under a certain amount (not necessarily the same as the above paragraph), you will not be allowed to keep your money in the group 401k plan. If you are over that set amount, your employer cannot make you withdraw your money from it. Our plan has this set at $5000 and there are several employees who terminated years ago who still have their money in this fund. The employer would probably prefer you move it because they pay fees for each individual in the plan, but they can't make you take it out unless you are below their set limit.

Once the plan is notified of your termination from the plan, you will receive forms, most likely from a company acting as third party administrator that you will have to complete if you want the money transferred. If you have any questions about the rules of your particular plan, call that third party administrator. They will be able to tell you if you have to take your money out now or whether you can leave it there until you are ready to transfer it to another retirement account (or cash it out and pay the taxes/penalties for early withdrawal).

 

[crisi]

You may want to consider the risks involved in leaving it with your employer if you have a long time to retirement. Companies often switch their 401k providers around, moving your account from one firm to another. When you retire, you are going to want to know where that money is. It happens on occasion that people leave their 401k in with their employers provider, it gets moved by their former employer from provider to provider a few times, the employer goes out of business - and the person doesn't know where their money ended up (they should keep sending you statements, this would help a lot - but not everyone keeps their statements).

 

[jlima]

One other point to consider: If your company offers matching funds (or ever put any bonus money into your 401K)- you will need to know whether you are fully vested or not. If not, you may only be eligible to receive a percentage of the matching money from the company. The vesting schedule will be in with your initial 401K information from your employer.

This happened to me back in 2002, when I left one job for another; I forfeited about $400 in company match money because I hadn't been with the company for five years. They had a sliding scale - 25% after 2 years, 50% after 3 years, 75% after 4 years and 100% after five years. I had passed my 4 year anniversary but hadn't made it to 5 years.

 

[disneymarie]

If you cash it out.. ie take the money in it.. you will be taxed unless you are 65.. if not you can leave it at the company or roll it over to an IRA..

It is easy to do..for example: say your 401K is with Fidelity, then you talk with the Fidelity folks and they transfer it to an IRA.. easy and non taxable.. but talk with your accountant or advisor to ensure that this is not a taxable event..

Dh is 60 we took enough to pay off a home equity, small amount with out penalty because he was over 59 1/2 It did count as income, but with being out of work when the company folded after 42 years we needed to do this.

We put it in an IRA and withdraw for the mortgage. Heck of a way to spend our retirement....

 

[wall*e2008]

Do I have to cash it out or can I roll it over into something else? What if I'm not going to be employed for awhile?

There is a lower threshold where you must close the 401K account, but that is a small amount (a few thousand dollars). You can keep it right where you are or you can roll it over into your new employers 401K (I don't recommend this) or into a self directed IRA. I would do the later. First setup the new account (I would choose Vanguard) and then have them get the money for you from the old 401K.

You may loose some of the matching money that you are not yet vested in. The 401K can tell you what amount is not vested.

Please do not cash it out. The penalties and loss of growth for your retirement will be huge.