What Happens to Your 401K as a Former Walmart Employee?

Leaving a job means making decisions about your retirement savings. If you were a Walmart employee with a 401(k), it’s important to understand your options to avoid unnecessary taxes and penalties while keeping your retirement savings on track.

There are several paths you can take with your Walmart 401(k), each with different financial implications. The right choice depends on factors like fees, investment options, and tax considerations.

Checking Account Access After Leaving

After leaving Walmart, you can still access your 401(k), but contributions and employer matching stop immediately. Your account remains with Merrill, Walmart’s 401(k) provider, and you can log in through their website or contact customer service for details.

You can continue managing your investments by reallocating funds or adjusting risk levels, though fees may apply. Automatic contributions stop, but existing investments remain and grow based on market performance.

Account maintenance fees may become more noticeable after you leave. While Walmart may have covered some administrative costs, those fees could now be deducted from your balance. Reviewing your statements can help you avoid unexpected reductions in your savings.

Distribution Choices

Your next steps depend on your balance and financial goals. If your vested balance is below $1,000, Walmart may automatically cash it out, triggering taxes and penalties if not rolled over. Balances between $1,000 and $5,000 may be transferred into an IRA unless you take action. If your account holds more than $5,000, you can usually leave it in the plan, allowing investments to continue growing.

Taking a lump-sum distribution has immediate tax consequences. The IRS requires a 20% withholding, and if you’re under 59½, an additional 10% penalty may apply. For example, cashing out a $10,000 balance could leave you with only $7,000 after withholdings, with potential additional tax liability when filing your return. Withdrawals are considered taxable income, which could push you into a higher tax bracket.

Some plans allow periodic withdrawals, spreading out tax liability over multiple years. This may be beneficial if you expect lower income in future years. If you are 73 or older in 2024, you must take Required Minimum Distributions (RMDs) to avoid a 25% penalty on the shortfall.

Rolling Over to Another Plan

Transferring your Walmart 401(k) to another retirement account can provide more investment choices and potentially lower fees. Rolling over into an Individual Retirement Account (IRA) or a new employer’s 401(k) maintains tax advantages while consolidating accounts for easier management. Comparing expense ratios, administrative fees, and investment options can help determine the best choice.

A direct rollover transfers funds without triggering taxes or penalties. Your 401(k) provider sends the money directly to the financial institution managing your new account, avoiding tax withholding. An indirect rollover, however, involves receiving a check for your balance, which must be deposited into a new retirement account within 60 days to avoid taxation. The IRS mandates a 20% withholding on indirect rollovers, meaning you would need to replace the withheld amount with other funds to complete a full rollover without incurring taxes.

Some choose to roll over their 401(k) to a Roth IRA, converting pre-tax savings into after-tax funds. While this eliminates future taxes on qualified withdrawals, the converted amount is treated as taxable income in the year of transfer. Rolling over $50,000 from a traditional 401(k) to a Roth IRA, for example, adds that amount to your taxable income, potentially pushing you into a higher tax bracket. Spreading conversions over multiple years may help reduce the immediate tax impact.

Considering Loan Balances

If you took a loan from your Walmart 401(k) before leaving, repayment terms change once you separate from the company. Many plans require full repayment within 90 days; otherwise, the outstanding balance is reclassified as a distribution, triggering income taxes and possibly a 10% early withdrawal penalty if you are under 59½.

Beyond immediate taxation, an unpaid loan reduces long-term retirement savings. If you borrowed $10,000 and fail to repay it, that amount is removed from your investment portfolio. Assuming a 7% average annual return, losing that $10,000 today could mean forfeiting over $38,000 in potential earnings over 20 years.

Tax Consequences to Review

Withdrawals from a traditional 401(k) are taxed as ordinary income, increasing your total earnings for the year and potentially pushing you into a higher tax bracket. If you are under 59½, an additional 10% early withdrawal penalty applies unless you qualify for an exception, such as permanent disability or certain medical expenses exceeding 7.5% of your adjusted gross income.

Rolling funds into another retirement account avoids immediate taxation, but converting to a Roth IRA makes the transferred amount taxable in the year of conversion.

State taxes also play a role. Some states impose their own penalties on early withdrawals or have different tax treatments for retirement income. For example, California adds a 2.5% penalty on early distributions, while states like Florida and Texas do not tax retirement withdrawals. If you move to a state with lower or no income tax, delaying withdrawals until after relocation could reduce your tax liability.

Deadlines and Timing

Managing your Walmart 401(k) effectively after leaving requires attention to deadlines. The IRS and plan administrators set specific timeframes for rollovers, withdrawals, and required distributions.

If rolling over your 401(k), the transfer must be completed within 60 days to avoid taxation. This is especially important for indirect rollovers, where the IRS mandates a 20% withholding. If the full amount isn’t deposited within the deadline, the withheld portion is considered income, potentially triggering additional taxes and penalties.

For retirees or those approaching retirement age, Required Minimum Distributions (RMDs) must begin at age 73 in 2024. Failing to withdraw the required amount results in a 25% penalty on the shortfall, which can be reduced to 10% if corrected within two years. The IRS calculates RMDs based on life expectancy and account balance, so planning withdrawals strategically can help minimize tax impact. If you are still working and participating in a new employer’s 401(k), you may be able to delay RMDs from that plan, but this does not apply to your Walmart 401(k) unless you roll it over.