Can I Get My 401k From My Old Job?

When leaving a job, managing your former employer’s 401(k) retirement plan is an important financial consideration. These plans help workers save for retirement with tax advantages. This article guides readers through the options for handling an old 401(k).

Your Choices for an Old 401(k)

After leaving an employer, you have three primary options for your 401(k) savings. Each choice affects the account’s future growth and accessibility.

One choice is to roll over the funds. This moves the money from the old 401(k) into another qualified retirement account, like an Individual Retirement Account (IRA) or a new employer’s 401(k) plan, preserving its tax-deferred status.

Another option is withdrawing or “cashing out” the funds. This provides immediate access to the money but often comes with significant tax consequences and penalties.

The third possibility is leaving the funds in the former employer’s 401(k) plan. The money remains invested in the original plan’s offerings, which may be suitable depending on the plan’s rules and account balance.

Transferring Your 401(k) to a New Account

Transferring 401(k) funds to a new retirement account, a rollover, maintains tax-deferred growth. Two methods exist: direct and indirect. A direct rollover moves funds directly from the old plan administrator to the new custodian, avoiding physical possession and potential tax issues.

An indirect rollover pays funds directly to the account holder, who has 60 days to deposit the full amount into a new qualified retirement account. Failure to redeposit within 60 days results in a taxable withdrawal, incurring income taxes and early withdrawal penalties. For indirect rollovers, the plan administrator typically withholds 20% for federal income taxes. To roll over the full original amount, the account holder must supplement the 20% from other funds, recovered as a tax credit when filing taxes.

To initiate a rollover, gather information from your former 401(k) plan administrator and the new account provider, including old plan details and new account information. The old plan administrator requires a completed rollover request form, specifying the rollover type and fund destination. New account opening forms from the receiving institution also need accurate completion.

After submitting forms, the old plan administrator transfers funds. For a direct rollover, funds are sent electronically or via check to the new custodian. For an indirect rollover, a check is issued to the account holder, who must deposit it into the new account within the 60-day deadline.

Withdrawing Your 401(k) Funds

Withdrawing or “cashing out” 401(k) funds provides immediate access to money but has significant financial repercussions. Distributions from a traditional 401(k) are subject to ordinary income tax rates because contributions were pre-tax. If you are under age 59½, these withdrawals are also subject to an additional 10% early distribution penalty, as outlined in Internal Revenue Code Section 72.

Several exceptions exist for the 10% early withdrawal penalty, though income tax on the distribution usually still applies.
Separation from service at age 55 or older.
Distributions due to total and permanent disability.
Distributions made to a beneficiary after the account holder’s death.
Unreimbursed medical expenses exceeding 7.5% of adjusted gross income.
Distributions made as substantially equal periodic payments (SEPPs) under Internal Revenue Code Section 72.
Qualified birth or adoption expenses up to $5,000 per child.
Certain financial emergencies or for victims of domestic abuse (specific conditions apply).

To request a withdrawal, contact your former 401(k) plan administrator for distribution forms. These forms require personal identification, withdrawal amount details, and tax withholding elections. The plan administrator may withhold a percentage for federal and possibly state income tax.

After processing, funds are disbursed. The plan administrator will issue Form 1099-R, reporting the gross distribution, taxable amount, and any federal income tax withheld for tax reporting.

Keeping Your 401(k) with Your Previous Employer

You can also leave funds in your former employer’s 401(k) plan. This is often permissible if the account balance exceeds a threshold, commonly $5,000. Plans may have a “force-out” provision to automatically roll over or cash out accounts below this threshold, often moving them into an IRA if no other instructions are provided.

Leaving funds in the old plan means they remain invested according to its options. While this offers continuity, investment choices may be more limited than an Individual Retirement Account (IRA), which typically provides broader opportunities. You may also incur ongoing administrative fees, which vary by plan, or specific recordkeeping fees.

Accessing funds or changing investment allocations in a former employer’s plan generally requires contacting the plan administrator, which can be less convenient than managing a personal IRA. Periodically review the plan’s fee structure and investment performance to ensure it aligns with your long-term financial goals.