Figuring out how to manage your personal finances after experiencing a layoff can feel overwhelming, and you may be wondering what happens to your 401(k) after leaving your employer.
The good news is that leaving your job doesn’t mean losing the retirement savings you worked hard to earn. In the guide below, we’ve spelled out what you need to know about your 401(k) during a layoff.
If you were laid off and didn’t previously take any action to withdraw or roll over your 401(k) savings, your retirement account is still yours despite it being tied to your former employer. You’ll still be able to access your account, check your balance, and change your investment selections after leaving your job, but there will be some changes.
For example, you’ll no longer be able to make any new contributions to your account or receive employer matching contributions. In most cases, the money that you put into your 401(k) will be fully vested (you can take it with you). But not all employer contributions may be vested if you’ve only been at the company for a year or two.
You will still incur any 401(k) fees associated with the account. These could be investment fees, administrative fees or both. These may increase, as some employers stop paying certain fees after an employee has left the company, leaving the former employee to pick up the cost.
If your 401(k) plan supports a loan feature (not all plans do), the ability to borrow from your 401(k) will end at the same time your employment does. This is not to say that your 401(k) should be your first stop when you need a loan, but it is an option as long as you’re employed by the company administering your 401(k).
However, in the majority of circumstances, your money stays where it is until you decide to move it. There are some instances where this isn’t the case, though. The next section will outline some of those scenarios in more detail.
The answer to this question ultimately depends on your total financial circumstances. Regardless, you have a few options to think about before moving forward on a final decision.
Unless your balance is on the low end (under $5,000), it’s probably fine to leave your 401(k) plan as is. More often now than ever, 401(k) plans offer adequate-enough investment options that you won’t be short-changing yourself if you decide to leave things as they are. But you should investigate the plan to ensure you aren’t being charged unnecessarily and that you’re happy with the mutual funds on offer.
If you have a reasonably low balance, or if you simply need the money now, cashing out your 401(k) is definitely an option. The catch, however, is that if you’re dealing with a pre-tax, traditional 401(k), you’ll owe income tax on any amounts cashed in. If you do plan to cash out, have a strategy to cover the tax bill coming down the road (may include Federal, state, and/or local taxes).
A straightforward way to consolidate your retirement finances is to roll your old employer’s 401(k) into your new employer’s 401(k) – assuming your new employer allows “roll-ins”. Assuming they do, combining 401(k)s is a smart way to get a better handle on your retirement savings by keeping things under one roof. Less paperwork tends to make financial management easier both logistically and psychologically.
Rolling your 401(k) into an IRA can potentially help you save on fees and offer you a wider investment menu from which to choose. Most self-directed IRAs are free to open – save perhaps a small ongoing administrative charge. IRAs also allow for more than just a select list of mutual funds to serve as investments: you’ll be able to choose from stocks, bonds, ETFs, and in some cases, even crypto.
No. You always have ownership of the money you contributed to your 401(k) account even after being laid off. Your former employer must allow your money to remain in the plan until you decide to do something with it – with a few exceptions.
Any unvested money (employer contributions that have not yet vested in the plan) may be forfeited as well. Some companies require you to be employed for a certain length of time before any employer contributions “vest” in the plan. Check your 401(k) plan document to be sure.
Your old employer may switch 401(k) providers after you’ve left, which means your money gets moved to a new institution with different fees and investment options. You won’t have any choice if they choose to do this, but the money in your 401(k) is still yours.
There’s also a risk that your old employer initiates a ‘forced rollover’ of your account. We’ll break this possibility down for you:
If you leave your 401(k) behind, your former employer has to follow certain IRS rules and plan provisions associated with your account. Some employers impose a “force-out” provision to reduce the number of accounts left behind and decrease the company’s potential liability.
If your old employer uses this provision (not all do), they have the ability to force smaller balances out of the plan and into an IRA of their choosing. If your vested balance (the amount of money over which you currently have ownership ) is less than $5,000, your employer is allowed to force your money out of the plan in 1 of 2 ways:
For vested balances greater than $5,000, your employer must keep the money in the plan unless you instruct them otherwise.
One note: the $5,000 upper limit will be raised to $7,000 in 2024 as a result of the SECURE 2.0 law passed in December 2022.
If you try to check your account and it’s no longer at the same 401(k) provider – don’t panic. The plan may just be at a different financial institution and Capitalize can help you find it.
If you’ve been laid off from any of the companies below, we can help you locate your 401(k) and provide some guidance as to what to do with it. Ultimately, though, you’ll be in charge of making the final decision. You can either cash out your 401(k), combine it with a new employer’s 401(k) plan, or roll it into an IRA. If your balance is greater than $5,000, you can also leave your 401(k) where it is until you decide what to do with it.
Walmart’s 401(k) plan is located at Merrill. Log in to Merrill’s 401(k) plan system and locate your account, and if you don’t have your login details, contact Merrill support.
Wells Fargo’s 401(k) plan is administered through Empower Retirement. Log in to your Wells Fargo 401(k) plan either via company intranet or via the Wells Fargo teamworks page.
Microsoft’s 401(k) plan is located at Fidelity. Log in to Microsoft’s 401(k) plan system through the Fidelity NetBenefits page and locate your account.
Amazon’s 401(k) plan is located at Fidelity. Log in to Fidelity’s 401(k) plan system and locate your account. If you don’t have your login details, contact Fidelity support.
Meta’s 401(k) plan is located at Fidelity. Log in to Fidelity’s 401(k) plan system and locate your account. If you don’t have your login details, contact Fidelity support.
Google’s 401(k) plan is located at Vanguard. Log in to Vanguard’s 401(k) plan system and locate your account. If you don’t have your login details, contact Vanguard support.