Moving Your 401K When You Quit

September 22, 2019

Your 401K is typically attached
to your job, so that your employer can match your retirement contributions. As
such, you may wonder: What happens to the account when you quit or change jobs?

In order to keep your
savings and better safeguard your financial future, here are your options:

Check Your 401K Savings

After changing jobs or quitting,
your next step all depends on how much your account currently has in it – and
if your next job offers a 401K plan. When it comes to managing a 401K, the
devil lies in the details.

Rolling Over

Thankfully, this is allowed
with most 401K plans. Rolling over entails “rolling” the contents of the
account “over” to the new account. This, however, requires you have a new job
set up within 30 to 90 days of leaving your old job. That new job must also
provide a 401K plan for the money to be rolled over.

Cashing Out

If you don’t have $5,000 or
more in your 401K account, your employer has the right to cash you out instead.
The money can then be moved over to an Individual Retirement Account (IRA) or
can sit in your savings until you find your next job (hopefully, one that
provides a 401K plan).

Be warned, however. If you
cash out instead of sending the money to an IRA, you’ll incur a hefty tax and
penalty fee for withdrawing from a retirement account before the age of
retirement. This, as of 2019, is 59 ½ years of age.

Keeping the Account

Although your employer originally
provided you with the 401K plan, you can keep it so long as you have more than $5,000
saved in it.

There is a major downside to
this option. You’ll likely have to pay any fees your employer used to pay on
your behalf to maintain the account. Businesses that employ many people receive
a discount for this larger number of accounts, which is both cost-efficient and
very hands-off.

However, as an individual
contributor, this may eat a hole at your savings.

The Benefits of Quitting

If you’re quitting or have been offered a new job
elsewhere, you have the benefit of time. You can decide what to do with your
401K. However, your employer is not required to remind you to handle your
finances before you leave. If you don’t plan ahead, you may lose what you’ve
saved.