With the exception of certain company contributions, the money in your 401(k) plan is yours to keep, even if you lose your job. However, if you get fired from your job, things will likely never be the same with your 401(k). While the company cannot confiscate your 401(k), it might require you to move it to another account. You might also lose any contributions the company has made on your behalf.
TL;DR (Too Long; Didn't Read)
If you lose your job, your 401k is likely to experience some changes. While the company can't take any of the money you put into the fund, you may have to remove the money from the fund and roll it over to another fund.
Value
You can usually leave your 401(k) with your employer if you move on to another job, even if you got fired. One exception is if your 401(k) has a small balance. Since the proportionate cost of maintaining a small account is higher, many employers force departing employees to either take a distribution or roll over their 401(k) accounts if the value is less than $5,000. In most cases, rolling your 401(k) over to another 401(k) or even an IRA is a better option, since you'll face taxes and possible penalties if you take a simple distribution.
Outstanding Loans
If you have taken out a loan from your 401(k) and still have a balance at the time you are fired, you could find yourself in a difficult financial situation. You won't lose your 401(k). But the terms of your loan are immediately over, and you must pay the loan back in full within 60 days. If you don't, the outstanding balance of your loan is treated as a taxable distribution by the IRS. You'll owe income tax on the amount of your loan, plus a 10 percent early distribution penalty if you are under age 59 1/2.
Vested Money
Vesting is a process by which you gain ownership of the funds in your 401(k). While you are always 100 percent vested in your own contributions, you usually have to wait a number of years before you are fully entitled to any company contributions. When you get fired, you immediately lose the right to any unvested money in your 401(k).
Possible Benefits
While the loss of your job is no doubt distressing, the options this opens for your 401(k) might work to your benefit. In losing your job, you now have the freedom to find a new home for your 401(k) assets. Rather than sticking with the possibly limited investment options of your former employer's 401(k), you might consider rolling over the funds into an IRA, in which you can purchase almost any investment at all. If you have found a new employer, your new 401(k) plan might offer better investment options than your former employer's 401(k).
Writer Bio
After receiving a Bachelor of Arts in English from UCLA, John Csiszar earned a Certified Financial Planner designation and served 18 years as an investment adviser. Csiszar has served as a technical writer for various financial firms and has extensive experience writing for online publications.
FAQs
Do you keep your 401(k) if you get fired? Yes. Your contributions, your employer's vested contributions, and their earnings belong to you, even if you get fired. You can leave them in your old employer's plan if the rules allow you to, roll over the money into a new account, or cash out.
How long can an employer hold your 401k after termination? ›
If there is less than $1,000 in your account, your former employer will cash out the funds and send them to you via check. If there is between $1,000 and $5,000 in the account, your employer has 60 days to roll it into another retirement account, such as an IRA, that they help you set up.
What happens to my 401k after I get fired? ›
Can I lose my 401(k) after I quit or get laid off? No. You always have ownership of the money you contributed to your 401(k) account even after being laid off. Your former employer must allow your money to remain in the plan until you decide to do something with it – with a few exceptions.
Do I still get my 401k if I quit my job? ›
Your 401(k) account isn't going to disappear once you quit a job; that money will always be there. But once you leave the job that set up the 401(k) account, you can't make any more deposits, per Vanguard.
Can an employer take away your 401k? ›
Key Takeaways
Your employer can remove money from your 401(k) after you leave the company, but only under certain circ*mstances. If your balance is less than $1,000, your employer can cut you a check. Your employer can move the money into an IRA of the company's choice if your balance is between $1,000 to $5,000.
Can employer deny 401k withdrawal after termination? ›
Although your former employer cannot refuse to give you your 401(k) funds without just cause after you leave, you can find yourself unable to access them. As mentioned before, if you have an outstanding 401(k) loan when you leave your job, you may be required to pay back the full balance of the loan within 60 days.
Can an employer take back their 401k match? ›
Under federal law, an employer can take back all or part of the matching money they put into an employee's account if the worker fails to stay on the job for the vesting period.
How do I find my 401k from an old job? ›
How to find your 401(k) from past jobs
- Contact previous employers. It may seem obvious, but one of the quickest ways to track down an old 401(k) plan is to go directly to the source. ...
- Review past W-2 tax forms. ...
- Check your mail. ...
- Search the National Registry. ...
- Search Form 5500 Directory. ...
- State unclaimed property.
Failure to follow 401(k) transfer rules may result in extra penalties and taxes. For example, if you don't do a direct rollover and receive the funds from your previous employer's plan in the form of a check, a mandatory 20% withholding will apply.
What happens if you don't roll over 401k within 60 days? ›
If you don't roll over your payment, it will be taxable (other than qualified Roth distributions and any amounts already taxed) and you may also be subject to additional tax unless you're eligible for one of the exceptions to the 10% additional tax on early distributions.
By age 59.5 (and in some cases, age 55), you will be eligible to begin withdrawing money from your 401(k) without having to pay a penalty tax. You'll simply need to contact your plan administrator or log into your account online and request a withdrawal.
