Can I cash out my 401(k) after I leave my job?
Learn more about your different options when cashing out your 401(k). Or speak to a financial advisor by answering a few questions below and get expert retirement savings advice.
Summary
You can cash out your 401(k) when you leave a job; however, depending on your age and situation, you may have to pay a penalty.
There are a few other options for managing your 401(k) when you leave a job, including leaving it where it is or rolling it over to a new account.
A financial advisor can help simplify retirement planning and make sure you’re getting the most out of your money.
How to cash out your 401(k)
If you’ve left your job, you might be thinking about cashing out your 401(k). However, you should approach this option with caution.
If you are younger than 59½, or if you don’t meet one of the IRS’ other exemptions for early disbursements, fully cashing out your plan permanently will automatically trigger a 10% penalty over and above all your existing income taxes.
Of course, whether this is a good decision depends on your circumstances. If you're unsure, it’s best to speak to a financial advisor.
If you do plan to cash out, you need to contact your plan administrator or log into your account online and request a withdrawal.
If you’ve had a few different jobs, you might have a few 401(k) plans to manage, so it’s worth looking for old plans if you suspect you might have a few tucked away somewhere.
What other options do I have?
If you’re moving jobs, cashing out is not your only option.
There are a few different options available, including:
Option 1: Leave your 401(k) where it is
Before you cash out your 401(k) plan after leaving your job, let’s look at an alternative you might not have considered – leaving it exactly where it is.
Many companies give employees the option of leaving their 401(k) accounts in the company plan.
While it’s not always possible to contribute to the account after leaving your job, it will be business as usual when it comes to the investment portfolio.
This means that it will grow based on the underlying investments while being overseen by the same account managers.
It’s worth noting that not every employer offers this option, and some plan administrators may charge you higher fees to leave your 401(k) after you’ve left the job.
Some will automatically close your account if it has only a small amount of money when you leave. If they do close your account, you will receive a check from your employer with income taxes already withheld.
Option 2: Rollover your 401(k) into your new employer’s plan
Another option is to roll it over into your new employer’s 401(k) plan.
Most financial advisors agree that, generally speaking, this is the best option when leaving one job for another.
In many cases, you’ll be able to do this even if there has been a period of time between leaving one job and starting another.
By doing this, you can consolidate your accounts if you have 401(k)s from previous employers.
However, it’s important to remember that not every employer offers this option, so be sure to check.
Option 3: Rollover your 401(k) into an IRA
You can also rollover your 401(k) account into an IRA.
When it comes to tax, 401(k) accounts and IRA accounts are similar. If you roll over within the allotted timeframe, 60 days, you will not be taxed or penalized.
According to many experts, this can be a good way to consolidate your retirement finances.
A rollover won’t count against your annual contribution limit.
It’s worth noting that any rollover can be arduous and time-consuming. If you want to manage it correctly and avoid any penalties, it’s best to work with a financial advisor.
What is the 60-day rollover rule?
If you cash out your 401(k) permanently before age 59½, you will trigger early withdrawal penalties.
However, thanks to the 60-day rollover rule, you can cash out your 401(k) and deposit the money into a new qualified retirement account penalty- and tax-free if you deposit the money into your new account within 60 days of making the withdrawal.
This process is known as an indirect rollover.
If you wait longer than 60 days to deposit the money into a new qualified account, the IRS will apply early withdrawal penalties and income taxes.
If possible, you can also opt for a direct rollover. This is where the plan administrator of your old 401(k) deposits the money directly into your new account.
Get expert financial advice
As you can see, there are several options available to you if you’re thinking about cashing out your 401(k) after leaving your job. However, depending on your circumstances, some of these options might be much better than others.
To navigate this complex situation and ensure your retirement planning stays on track, it’s best to seek our expert financial advice.
Unbiased can match you with an SEC-regulated financial advisor who can help. Simply answer a few short questions, and we’ll find an advisor perfectly suited to meet your needs. Better still, your first consultation is free.
Senior Content Writer
Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.