If you’ve been let go or laid off, or even if you’re worried about it, you might be wondering what to do with your 401k after leaving your job.
The good news is that your 401k money is yours, and you can take it with you when you leave your old employer. Whether that means rolling it over into an IRA or a new employer’s 401k plan, cashing it out to help cover immediate expenses, or simply leaving it in your old employer’s 401k while you look into your options, your money isn’t going anywhere.
You Can Leave Your Money Where It Is
If you have more than $5,000 in your 401k, you can leave it in your old employer’s 401k plan — and even if you have less than that, they still might let you leave the money where it is, but you should ask. If you have less than $5,000, your employer has the option to make you take a distribution, but not all employers will exercise that right.
This is the simplest option, and it’s the one many people choose when they’re fired suddenly. You usually can’t plan for a job loss, so you might not even have time to decide what to do with your 401k money before you get fired or laid off. And you might need some time to process the layoff for a while before you even get around to worrying about the money in your retirement plan.
“Well,” you might ask, “how long do I have to rollover my 401k from a previous employer?” That’s a good question. If you want to do a direct rollover, in which your former employer writes a check directly to your new employer for deposit into your new employer’s 401k plan, you can pretty much wait as long as you want.
However, if you want to do an indirect rollover, where you cash out the money and then deposit it into another tax-advantaged account yourself, you have 60 days from the time you cash out to deposit the money into another such tax-advantaged account, like an IRA. If you’re planning to roll over the money into another 401k, you want to avoid this option, since your old employer will be required to withhold 20% from your payout for taxes.
Furthermore, while you can leave your 401k money in your old employer’s 401k, you won’t be able to make contributions anymore. It might also be hard to make changes to your account, like if you need to update your beneficiary or change your address. So, you’ll want to plan to get the money into a new account as soon as you can.