How Does A 401K Work If You Quit?

  1. 21750 POINTS
    Jim Winkler
    CEO/Owner, Winkler Financial Group, Houston, Texas
    That is a great question! Once you have started a retirement plan, it remains yours, whether you are with the company or not. They will no longer make contributions to it, and now you won't either, so it will sit there in limbo, and grow slowly. Contact your HR person, or plan administrator if you do not know which financial institution is managing the fund, so you can figure out what you want to do. You may be able to roll it into your new employer's 401k plan, if they offer one. You may be able to roll it into a Roth IRA plan that you establish. If you consider taking the cash from it, be aware that it will be heavily taxed, and you will pay a penalty for removing the cash - plan on giving away at least a third of it, okay? I hope that helps, contact me with questions if you have them, and thanks for asking!
    Answered on August 29, 2014
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  2. 37376 POINTS
    David G. Pipes, CLU®, RICP®
    Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
    The 401(k) is governed by a document drawn for the employer.  Most plans offer a variety of distributions when you terminate, but they are not required to do so.  Exercising these options can be quite important.  Generally you would want to maintain the character of the funds.  If they are tax deferred funds you would want them rolled into a standard IRA.  If your income tax is going to be low you can consider rolling it into a Roth IRA and pay the tax for the withdrawal as though it were ordinary income, which is often an alternative.
    Answered on August 29, 2014
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