When you leave a job, you have several choices for your 401(k). Understanding vesting and rollovers helps you avoid taxes and penalties.
Your options
- Leave the money in the old plan, if allowed.
- Roll it into a new employer's plan.
- Roll it into an IRA.
- Cash it out, which can trigger income tax and often a 10 percent early withdrawal penalty if you are under 59 and a half.
Vesting
Your own contributions are always yours. Employer contributions may vest over time under a schedule. If you leave before you are fully vested, you may forfeit some employer money. Check your plan documents.
Avoid mistakes
- Do a direct rollover, so the money goes from plan to plan without passing through you.
- If you take a check, complete a rollover within 60 days to avoid tax.
- Repay any outstanding loan, since an unpaid loan can be treated as a distribution.
- Compare fees and investment options.
- Keep records of rollovers.
If there is a problem
If your employer delays releasing funds or mismanages the plan, contact the plan administrator, then the U.S. Department of Labor's Employee Benefits Security Administration. An attorney can help with serious issues.
Frequently asked questions
Can my employer take back my 401(k)?
Your vested balance generally belongs to you.
What about pensions?
Pension rules differ. Ask the plan for your benefit statement.