Moving Your 401K When You Quit
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.
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.
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.