What to Do With Your 401(k) After Leaving a Job

Learn how to take control of your 401(k) after parting ways with an employer.

By Dillon Price, Monster Contributor

You probably won’t be in the same job forever. While you're on that 9 to 5 grind, it can be hard to think about what comes next. But whether you’re planning on switching jobs or have heard rumors about upcoming layoffs at your company, you might want to know what to do with your 401(k) after leaving a job—before your last day.

A 401(k) is a tax-deferred retirement plan offered by many employers. It’s a great option for employees to contribute a portion of their pay towards retirement while paying less in taxes.

Any money that you contribute to your 401(k)—or receive through vested employer contributions—is yours, even after you leave your job. But knowing what to do with it once you and an employer part ways can be confusing. Below, we’ll show you what to do with your 401(k) after leaving a job, so you remain in control of your money—and your future.

What Happens to Your 401(k) When You Leave a Job?

Any money you put into your 401(k) is yours. But some employers will also contribute their own money to your 401(k) to match the contributions you’ve already made. However, if you leave a job, you won’t own the employer contributions unless you’re 100% vested. Whether you are fully vested or not depends on the vesting schedule that your employer uses.

Employers have different policies about how much they will contribute to your 401(k). For example, let’s say your employer matches 100% of your 401(k) contributions each year up to a maximum of 3% of your yearly salary. If you earn $100,000 each year and contribute 3% of your income to your 401(k)—so $3,000—your employer will also contribute 3%, so an additional $3,000. Your employer may instead offer a partial match, which is typically 50% of your contributions on up to 6% of your yearly salary.

Whether or not you get to keep an employer’s matching contributions depends on how long you’ve been working for them. This is determined by your employer’s vesting schedule. Here are the three different types of vesting schedules you may encounter:

  • Immediate vesting: Employees immediately own 100% of an employer’s matching contributions.
  • Graded vesting: Employees gradually gain ownership of employer contributions after being with a company for a certain number of years. For example, you could be 20% vested in an employer’s contributions after two years and fully vested after six years.
  • Cliff vesting: Employees own 0% of employer contributions up to a specific date when they become 100% vested. This usually takes about five years.

What Happens to a 401(k) When You Quit?

Are you planning on quitting and are not sure what to do with your 401(k) after leaving a job? First check your vesting balance to find out if your employer’s contributions are fully vested. Any contributions you’ve made are yours, even after quitting a job. However, your former employer will keep any unvested contributions they made to your 401(k).

What Happens to My 401(k) If I Get Fired?

If you’re fired from a position, you can take all the money you contributed to your 401(k). Whether or not you get to take employer contributions depends on how long you’ve been employed with the company. You will lose your right to any unvested contributions made by your employer.

What Happens to Your 401(k) When You Get Laid Off?

If you’ve been laid off from a job, it’s not your fault. However, the same 401(k) vesting rule that applies to quitting or termination also applies when you’re laid off from a job.

What to Do With a 401(k) After Leaving a Job

Not sure what to do with your 401(k) after leaving a job? We’ll walk you through your options, including rolling over your 401(k), leaving it with a previous employer, and cashing it out.

Should I Roll Over My 401(k)?

When you leave a job, you can roll your 401(k) over into an Individual Retirement Account (IRA) or a new employer’s 401(k) without incurring any penalties or taxes. Your 401(k) rollover options typically include:

  • Rolling your 401(k) into a new employer’s plan: If your new employer offers a better 401(k) plan than a previous employer, consider combining your old account with the new one.
  • Consolidating multiple 401(k)s: Do you have multiple 401(k)s from previous employers? You can put all of your money in one place.
  • Rolling your 401(k) into an IRA: You also have the option of rolling your 401(k) into an IRA (traditional IRA, Roth IRA, SEP IRA, or SIMPLE IRA). An IRA offers more investment options than a 401(k), allowing you to invest in the stocks, bonds, and funds of your choice. The only drawback is you won’t be able to borrow money from an IRA like you would from a 401(k).

Should I Leave My 401(k) Alone?

Still not sure what to do with your 401(k) after leaving your job? You may be able to simply leave it alone, depending on the plan’s rules and your accrued balance.

You can only leave a 401(k) alone if your previous employer or plan allows it. To leave your 401(k) with a former employer, it should be worth at least $5,000. Otherwise, you’ll need to cash it out or roll it over. That threshold will increase to $7,000 in 2024 under the SECURE Act 2.0.

If your 401(k) balance is less than $5,000, your previous employer may liquidate the funds and cut you a check if you don’t roll over your account within 60 days. As a result, you may be subject to tax implications and a withdrawal fee.

Leaving your 401(k) where it is is a great option if your 401(k) is performing well or provides better investment options than your new 401(k).

When you leave your 401(k) with your previous employer, you’ll still have access to your account and be able to change your investment options. However, you may encounter higher fees and other difficulties if you plan on withdrawing the money.

Cashing Out Your 401(k) After Leaving a Job

Still figuring out what to do with your 401(k) after leaving a job? You could cash it out, but it’s not typically a good idea to do so before the age of 59 ½ unless you absolutely need the money. While cashing out your 401(k) gives you immediate access to funds, the IRS will treat it as taxable income. Plus, you’ll have to pay a 10% early withdrawal fee for taking money from your 401(k) before the age of 59 ½.

Now, there are some scenarios in which the penalty can be waived, but it’s still not ideal to take the pay day. For instance, workers who are between 55 and 59 1/2 may be able to get the distribution and avoid the penalty tax, as well as those who have high medical bills or disabilities. You’ll have to contact your plan administrator to find out if you’re eligible.

If you need to cash out your 401(k) to make ends meet between jobs, you’ll need to contact your previous employer’s HR department or the 401(k) plan administrator to request the funds. It generally takes up to 30 days to receive a check.

Can I Take Out a 401(k) Loan After Leaving a Job?

Most 401(k) plans will not allow you to borrow funds if you’ve already left a job. However, if you’re looking to take out a 401(k) loan, you’re not out of options. In some cases, you can roll over your old 401(k) to a new employer, then take out a loan. Some employers won’t allow this. It’s best to check with your new plan administrator first.

You also have the option of borrowing money from your 401(k) before you leave a job, but doing so can be risky. Many previous employers will require you to pay back the funds immediately. If you don’t pay back the funds, you could end up with a taxable 401(k) distribution.

If your current or former plan administrator allows you to take out a 401(k) loan, you’ll need to pay it back within five years with interest included. The good news is you won’t lose any money if you pay back your 401(k) on time. That’s because borrowing from a 401(k) is tax-exempt and any interest you pay will go toward your retirement funds.

Can I Contribute to My 401(k) After Leaving a Job?

The short answer to this question is “no.” The purpose of a 401(k) is for your employer to help you save for retirement. If you no longer work for the employer, you cannot continue to make contributions to their 401(k). If you wish to contribute to a 401(k) from a previous job, you’ll need to roll it over to a new 401(k) or IRA.

How to Roll Over a 401(k)

Now that you know some of your options for what to do with your 401(k) after leaving a job, what’s your next step? Read on to find out how to roll over your 401(k) and how long you can expect the process to take.

Direct Transfer

A direct transfer (also called a trustee-to-trustee transaction) is the quickest and easiest way to roll over your 401(k). With a direct transfer, you avoid both tax withholdings and the hassle of handling the funds yourself.

Simply contact your old 401(k) plan administrator and request a direct payment to an IRA custodian or your new employer’s 401(k) administrator. You’ll likely need to fill out two forms before the transfer can be completed: the transfer form (with your old plan administrator) and the account application form (with your new 401(k) plan administrator or IRA custodian). The administrator will then close your 401(k) account and issue a check payable to your new 401(k) or IRA or transfer the money electronically.

Indirect Transfer

In an indirect transfer, a 401(k) administrator will send a check made out in your name or electronically wire the money into your personal bank account. You’ll need to deposit 100% of the money into your new 401(k) or IRA account within 60 days of receiving the funds to avoid paying taxes and penalties.

Unlike a direct transfer, an indirect transfer is subject to a 20% tax withholding. The IRS requires you to make up the 20% difference when depositing the money into your new account. Otherwise, you would have to pay a 10% early withdrawal fee if you’re under the age of 59 ½. The IRS will refund the 20% difference you paid once you file your taxes the following year.

How Long Do You Have to Roll Over a 401(k)?

The time it takes to roll over a 401(k) depends on your plan’s rules and how quickly you act after you leave your job. With a direct transfer, it will likely take between one and four days to complete a rollover.

With an indirect transfer, you will have 60 days to complete the rollover on your own. The sooner you deposit the funds into your new retirement account, the sooner you’ll complete the rollover.

Roll Over Your Skills and Experience to a New Job

Just like you need to decide what to do with your 401(k) after leaving a job, you’ll also need to put some thought into where to take your career next. Whether you’ve been laid off or are looking to switch employers, Monster can streamline your job search. Simply set up your profile to get started. We’ll meet you halfway by matching your resume with jobs that interest you, connecting you with hiring managers, and sending you free job notifications.

This article is not intended as a substitute for professional financial advice. If you’re wondering what to do with your 401(k) after leaving a job, always seek the advice of an attorney or financial professional regarding any questions you may have.