While investing in a 401k is one of the best choices that you will ever make. It would not be wrong to be worried about what happens to my 401k plan if I quit my job or even if you are fired from your job. No, don’t think that it is pessimist of you to be wondering about it. Gone are the days when people used to stick to a single job for their lives since both the employers and the employees are now always looking for something better. Thus it is not uncommon to switch a job which makes it natural to be worried about your future retirement plan or 401k. If you are leaving a company it could be because of one of the three reasons given below.
- Switching to a new job
- Planning to retire
- Starting your own business
What Happens to Your 401k When You Leave a Job?
Hey! Now you can stop worrying about it. Since even after you switch your job, you get to choose among some options that are going to be as helpful as the original 401k plan itself. But here is the catch; you must choose wisely as all the options might not be equally profitable for you. In an attempt to explain them we have briefly described about what happens to my 401k plan if I leave the company below:
Move 401k to the New Employer
If you are switching your job, the best option available for you is to move your existing 401k plan and the amount to the new employer. This will save you from the taxes. But don’t forget to check the terms and the match offered by the new employer before making this important decision.
Rollover 401k to IRA
This one is another smart option to consider making the most out of your existing 401k plan if you switch or leave your company. But before that don’t forget to carefully compare the match contribution and the benefits of both of them. The good part is that you still save the taxes if you ask for a direct rollover. Therefore Rollover to IRA is one of the options and you can read about this here How to Rollover 401 (k) to IRA and get yourself enrolled by viewing these steps.
Read More: How to Rollover 401 (k) to IRA
Continue with the Existing 401k Plan
You can also continue your plan with your existing employer. However, for this, the amount is your 401k plan must be between $1k to $4k. For an amount lesser than that, the employer may ask you to cash out the amount.
Cashing Out 401k After Leaving Job
Last but not the least; you can also cash out the amount in your 401k. However, it should be avoided because 1) the amount becomes taxable. 2) You will be spending the money only by compromising your future retirement security which is not recommended.
How Long Does It Take to Cash Out 401k After Leaving Job?
It will take minimum to three to maximum of four weeks to cash out your 401k plan with extra penalties and tax deduction on your distribution. But you can use your 401k for the investments in bonds, stocks and mutual funds.
Also Read:What is the Best 401k Plan to Invest in?
So depending on the reasons behind why you want to switch, you can go for one of these options that suit you the most. This will help you to keep your future secure and take the maximum benefit of the amount that you have already saved in your 401K.