Here’s What Happens to a 401(k) When You Leave a Job

Rachel Curry - Author
By

Jul. 11 2022, Published 1:53 p.m. ET

A steady 4.3 million Americans quit their jobs and 1.4 million were laid off in May, according to the Bureau of Labor Statistics’ latest Job Openings and Labor Turnover report. Many of these workplace separations require workers to transfer their 401(k) or other retirement savings accounts so they can continue stockpiling for the future.

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What happens to a 401(k) when you leave a job? It’s up to you, the worker, to transfer it so you can hold on to those hard-earned investments. Here’s how.

Workers must transfer 401(k) accounts when they leave a job.

The best option for your 401(k) when leaving a job is to do a direct 401(k) rollover. If you get a new job, you can roll your account over into a new 401(k) that your new employer manages.

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You can do this by reaching out to your former company’s human resources department or by contacting the investment firm that manages your company’s 401(k) accounts. Fidelity and Vanguard are two popular options for company-wide 401(k) plans.

Alternatively, you can roll over your 401(k) account into another type of retirement plan, such as an IRA (including a Roth or SEP IRA). If you leave a job to become self-employed or work for another company without employee-sponsored 401(k) benefits, an IRA may suit you.

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Should you get a check cashing out your 401(k)?

A direct rollover helps you avoid taxes and penalties associated with early withdrawals from retirement accounts. In the U.S., you must pay an additional 10 percent in taxes when you take money out of a 401(k) account before you reach 59.5 years of age.

Sometimes, getting a check that cashes out your 401(k) from a previous job can incur fees you want to avoid. That’s why you want to stick with a direct transfer in most circumstances.

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Beware: If you aren't fully vested, your former company may take back some money.

Many companies require people to remain at the company for a certain amount of time before becoming “fully vested,” or having full access to the retirement matching payouts from your 401(k) if you leave the company.

For example, you may be required to stay at a company for five years before getting to take all your employer-funded retirement savings with you when you leave. If you leave before the fully vested requirement, you may lose some or all of that money.

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What happens if you leave your 401(k) at your old job?

If you don’t roll over a 401(k), your former employer and its investment firm may be able to hold onto it for safekeeping. This depends on the company’s policies and the size of your retirement account (there may be a minimum balance to hold your account).

If you left a job years ago and never brought your 401(k) along, you may want to check your state’s unclaimed property portal. Abandoned retirement accounts may be listed as unclaimed property after a certain number of years. If you find your account and can prove ownership, you can take control of your account again.

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