How long can a company hold your 401k after you leave? (2024)

A company can hold your 401k up to 60 days after you leave. However, if you have amassed more than $5,000 in savings, your company can hold the 401k as long as you want.

Smaller amounts of accrued savings often result in a company cashing out your 401k, sending it in a lump sum, or rolling over your 401k into an Individual Retirement Account (IRA).

Two factors determine how long a company can hold your 401k:

• The amount of money. The amount of money in your 401k can determine how long your company can hold it.

  If you have less than $1,000 in your 401k, your company will likely automatically cash it out and send you a check with the lump sum of your savings. This check should be mailed to you within a few days.

  Your company cannot force a cash-out if you have $1,000 to $5,000 in your 401k. Rather, it is required by law for your former employer to transfer the funds into a new retirement plan, usually an IRA associated with your new employer. This transfer can happen in a few weeks or up to 60 days.

  If your balance in your 401k exceeds $5,000, your former company can not force a cash-out or transfer the funds into another retirement plan without instruction from you.

  In this scenario, your former company must leave the amassed savings in your 401k for an unlimited amount of time until you give them instructions on what to do with your retirement savings.

• Valuation process. This involves evaluating the balance of 401k participants at companies. Most companies evaluate 401k plans yearly, while some also assess them quarterly.

  This process is necessary and helps the company know your balance in your 401k. It considers elements like 401k loans, early withdrawals, recent contributions, past rollovers, and other factors.

  After you leave your company, these are your options for your 401k:

  • Don't give instructions. If your balance is over $5,000, you can leave it in your 401k for as long as possible. However, if you do this, it is important to keep track of your former company and any events that might impact your 401k, like bankruptcy.

  • Rollover your funds into a new 401k. You can ask your former employer to transfer your retirement savings into another 401k account with your new employer.

  • Rollover to an IRA. This is a great option if you want to diversify your investments. You can transfer your savings into an IRA and have more investment opportunities.

  • Take the lump sum. Withdrawing your 401k funds is an option, although it will cost you a considerable amount of your retirement savings because of income tax and penalties.