What Happens to My 401(K) if I Quit

If you’ve ever wondered what happens to your 401(K) when you leave a job, you’re not alone. In fact, it’s one of the most common questions employees ask when they intend to leave their jobs and make a 401(K) withdrawal. That’s why we’ve decided to tackle this question in today’s blog post. 

So what happens to your 401(K) when you quit or are fired? The short answer is: nothing. The longer answer is that it depends on the type of 401(K) you have, and whether you’re rolling it over and where.

Before you make a 401(K) withdrawal, it’s best to go over the other options that may be very beneficial to you. This article looks at what happens to 401(K) if you quit and what to do with your 401(K) after leaving a job. 

What happens to your 401(K) when you quit or are fired?

As previously stated, nothing happens to your 401(K) if you quit your job or are fired. What you should know is that the plan has your money in it, and no one can take it away from you. You only need to make wise decisions and follow the next steps to ensure that your savings are invested in the right place. 

What to Do with Your 401(K) After Leaving a Job

The first step most employees take after leaving their jobs is to make a 401(K) withdrawal. It might seem like the most obvious option to take, but it’s actually not. In fact, it should be your last resort if all else fails. Let’s look at some other options that can be helpful: 

Consider All Factors

Before you leave your job, it’s best to consider all the factors that might possibly hurt your 401(K) plan. This way, there would be no issues with your 401(K) if you quit. Consider reaching out to your employer’s retirement provider to determine if there are any underlying issues to solve, like a loan repayment. 

Keep It With Your Employer

If you quit, your former employer has two options: they can let you keep the money in your 401(K) account until the time comes for them to cash out those funds; or they can transfer those funds into an eligible retirement plan at another company and you can manage them there (if they do this, they’ll have to give you some kind of notice). Your employer is required to keep your money in the account until you reach retirement, at which point they can distribute it as they see fit. This isn’t always the best idea when you decide to leave an organization. However, if you want to make a 401(K) withdrawal before the retirement age, you’ll have to pay a 10% penalty plus the tax fee on the amount of money withdrawn. 

Move it to a New 401(K) Account

If you are still unsure what to do with your 401(K) after leaving a job, you can open an individual retirement account or roll it over to your new employer’s retirement plan. But before you do that, do enough research to determine what the investment options are and how they can benefit you in the long run. 

Roll It Into an IRA

If you’re rolling your 401(K) into an IRA, then the answer is simple: you keep your money in an IRA, and when you withdraw from it, that money will be taxed as normal income. If your plan has a loan provision, then you’ll have to pay back the loan immediately to avoid paying taxes and the penalty fee. The good thing about the IRA is that it provides employees with a wide range of investment options at a low cost. It serves as a good choice for many employees looking to leave their jobs and move their 401(K) plan. 

Conclusion

The first mistake many employees make when they quit their jobs is getting a 401(K) withdrawal done. They end up losing money and paying fees that could have been avoided. We advise that you go through the options listed above to see which one sounds more reasonable to you. 

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