If you are in the market for a new job or worried about being fired soon, you need to know what will happen with your 401k you worked hard to build. What happens to your 401k when you quit your job? What are your options? Can you cash out your 401k if you decide to leave your job? Today I’ll tackle all of those questions, and even offer some insight on what you can do with your money to diversify your savings and hedge against inflation.
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What Will I Learn?
- What Happens to My 401k If I Quit My Job?
- Leave The Old 401(K) With Your Former Employer
- Roll The Old 401(K) Over To Your New Employer’s 401(K)
- Roll The Old 401(K) Over Into An IRA
- Take Distributions From The Old 401(K)
- Can I cash out my 401k if I quit or have been fired?
- How Long Do You Have To Move Your 401(K) After Leaving Your Job?
- Can I Cash Out My 401(K) While Still Working?
What Happens to My 401k If I Quit My Job?
When you feel like it’s time to move on to greener pastures and quit your job, you have a few options when it comes to your 401k.
The first option is to cash it out entirely.
The second option is to simply leave it at your previous employer.
The third option, the one I’m the biggest fan of, is to roll the money into an IRA.
Before I break down how each of those scenarios can play out, it’s important to know that there are tax implications that go hand in hand with each option.
If you decide to take the cash, you’ll be required to pay income tax on any amount of money you withdraw. Additionally, you’ll be subject to a 10% early withdrawal penalty if you find yourself at an age younger than 59.5.
Leaving your 401k with your old employer is often what most people decide to do, and that’s fine, but if you do decide to access the cash prior to retirement age, you’ll be subject to penalties and taxes just like I stated above. Leaving your 401k with your prior employer will give you the ability to grow the account and keep money invested however you had it set up to invest.
The sexy option that I’d recommend most people look into (and please, consult your professional advisor, this is my expertise but NOT intended to be financial advise to the masses as we are all different), is to roll over the 401k into an IRA. An IRA gives you more control over how your money is invested, and right now, with inflation going crazy, the economy in shambles, and banks failing, it’s never been a better time to turn that 401k into a gold IRA.
What this does is allow you to use your funds that were vested at your previous company and put them into an account that holds gold and silver. It’s a process we’ve been talking about for quite some time, and if you look at today’s gold and silver prices, you know that the advise given was very sage and well ahead of the banking collapse.
Leave The Old 401(K) With Your Former Employer
Most plans will allow you to leave the plan with them if you have over $5,000 invested.
Roll The Old 401(K) Over To Your New Employer’s 401(K)
When you get a new job, and assuming they have a 401k plan set up, ask them if they accept rollovers. Most companies make their employees vest time with them prior to allowing them to enroll in a retirement benefit plan.
You can easily roll over your previous 401k plan to your new employer once you are enrolled in their retirement plan. There is a simple form to fill out and once completed, the old plan’s administrator will send your account information over and a transfer will take place between custodians, which will save you money in owing taxes.
An indirect transfer is when you take the balance of your account as a check. If you are under the age of 59.5 you will have to pay income taxes for the early withdrawal, however. Another disadvantage of this plan is that your prior employer also holds 20% for federal income taxes, and in some situations, state taxes even can be held as well.
Roll The Old 401(K) Over Into An IRA
If you aren’t doing this with one of the gold or silver IRA companies I mentioned earlier, and don’t go the precious metals route, you can open an IRA with your bank or insurance company.
Rollover to IRA Annuity
Another option is rolling over the 401k to an IRA Annuity. This is done by an insurance company and you can enjoy benefits like principal protection, tax-deferred growth, and a lifetime of retirement income.
Take Distributions From The Old 401(K)
Once you grow past age 59.5, you can access your funds via withdrawals and not have to incur a 10% penalty. Perhaps you are retiring and just want to have the funds closer to you, or maybe you just want to access the cash for personal reasons. Whatever your reasoning is, it’s your money! You’ll be subject to regular income taxes so keep that in mind (unless it’s a Roth IRA.)
After you’ve reached 59½, you may withdraw funds from your 401(k) without paying a 10% penalty.
Can I cash out my 401k if I quit or have been fired?
Yes, you can cash out your 401k if you have been fired or decided to quit, but you will be subject to 10% early withdrawal penalties if you are under age 59.5.
How to cash out 401k after being fired
Simply contact the Human Resources department at your previous employer and request to cash out the account. You may need to wait up to 30 days to get access to your funds.
Cashing out your 401k prior to age 59.5 is called a 72(t) distribution.
How Long Do You Have To Move Your 401(K) After Leaving Your Job?
You don’t have any time limit to make a decision on what to do with your 401(k) after leaving your employer. You can exercise any of the aforementioned options at any time.
Can I Cash Out My 401(K) While Still Working?
Some people get in a pinch and want access to their retirement money while working. Can you access your 401k while still working? That answer is yes, but with some caveats, including:
- You’ll certainly pay taxes on withdrawals.
- You’l get a 10% penalty if age 59.5 or younger.
- The money can NOT be put back into retirement savings.
Keep those notes in mind if you ever get to a place where you want to access your money for any reason. Financial hardship happens to everyone at one point or another, but make sure you think long and hard about the ramifications of cashing your your 401k while still working.