How to Access Your 401(k) Account From a Previous Employer
Navigate the process of managing your 401(k) from a past job. Understand how to locate it, your distribution choices, and their implications.
Managing 401(k) accounts from previous employers is a common consideration. This article clarifies the options and procedures involved.
Locating Your Previous 401(k) Account
Locating a previous 401(k) account begins with gathering specific details. Collect your former employer’s full legal name, approximate employment dates, and Social Security number. These details are necessary for identifying your old account.
Your former employer’s human resources or payroll department is the first point of contact. They can provide information about the plan administrator or custodian. If you recall the plan administrator’s name, contact them directly.
If initial contacts are unsuccessful, you might look for old account statements or benefit summaries you received during your employment. These documents often contain the plan administrator’s contact information and your account number. The Department of Labor’s Employee Benefits Security Administration (EBSA) can also assist in locating lost plans, particularly for plans that have been terminated.
Available Distribution Choices
Once a previous 401(k) account is located, several choices are available for managing the funds. One option is to leave the funds within the old plan, which is often permissible if the account balance exceeds a certain threshold, typically around $5,000. This approach allows the funds to continue growing within the existing plan structure.
Another choice involves rolling over the funds into a new employer’s 401(k) plan. This consolidates retirement savings into a single account, simplifying management. This option is available if your new employer’s plan accepts incoming rollovers.
Alternatively, you can roll over the funds into an Individual Retirement Account (IRA). An IRA offers a wide range of investment options and flexibility. This choice allows you to manage the funds independently of an employer-sponsored plan.
The final option is to cash out the account, which involves taking a direct distribution of funds. While this provides immediate access, it typically carries significant tax implications and potential penalties.
Steps for Account Rollovers
Initiating a rollover starts by contacting your former employer’s plan administrator. Inform them of your intent to roll over the funds and request the necessary distribution forms. These forms will detail the available rollover options and processing requirements.
Opt for a direct rollover, also known as a trustee-to-trustee transfer. In a direct rollover, the funds are sent directly from your old plan administrator to the new retirement account custodian. This method helps avoid potential issues like mandatory tax withholding and the risk of penalties.
An indirect rollover involves funds being distributed to you first, and you then have 60 days to deposit them into another qualified retirement account. Failing to complete this within the 60-day window can result in the distribution being treated as a taxable withdrawal, subject to income taxes and potential penalties. When selecting the recipient account, you will need to provide the new 401(k) plan or IRA custodian’s details to your former plan administrator. This includes the receiving institution’s name, account number, and routing instructions.
The former administrator provides specific distribution request forms and rollover instructions. These forms typically ask for information such as the type of rollover, the amount to be rolled over, and the details of the receiving financial institution. After submitting the completed forms, processing can take several weeks, and you will receive confirmation once the transfer is complete.
Cashing Out Your Account and Tax Implications
To cash out, contact the former plan administrator for required distribution forms. These forms will specify the information needed to process your request for a direct payout of the funds. You will need to complete these documents accurately to initiate the withdrawal.
Cashing out a 401(k) before retirement age is generally subject to mandatory federal income tax withholding, typically 20% of the distributed amount. The plan administrator is required to send this directly to the Internal Revenue Service (IRS). This withholding is a prepayment towards your eventual tax liability.
The entire withdrawn amount is generally treated as ordinary income for federal tax purposes. Depending on your state of residence, the distribution may also be subject to state income taxes. This means the 20% federal withholding might not cover your total tax obligation, potentially leading to additional taxes owed at tax filing time.
If you are under age 59½, an additional 10% early withdrawal penalty typically applies to the taxable portion of the distribution. This penalty is in addition to the regular income taxes. However, certain exceptions exist, such as distributions made due to permanent and total disability or for unreimbursed medical expenses exceeding a certain percentage of your adjusted gross income, which may allow you to avoid this penalty.