“What happens to all the money I’ve put in my 401(k) if I leave my job?”
When you leave your company, your 401(k) travels with you; so no worries, you’re not locked into your company because your 401(k) “belongs” to them.
You generally have three options after you leave your job:
Leave your 401(k) with your employer: Some employers will allow you, particularly if you have over $5,000 in your account, to leave your money right where it is. You might choose to park your cash if you really like your investment options and you won’t have the same options in an IRA rollover. On the flip side, you can’t contribute to the plan or take a 401(k) loan (some home buyers do so to help with their down payment or closing costs) once you leave your company.
Rollover into an IRA or Roth IRA: In this common option, you roll the assets in your 401(k) into an IRA. If you choose, you can open your new IRA account using same plan administrator or fund family as your 401(k) and make a seamless transition. You can also select funds that weren’t part of your original 401(k) plan. Buyer beware: fund expenses and fees vary among companies, and can really take a bite out of your nest egg. Do your research and compare companies before you rollover.
Rollover into your new 401(k): Not every employer offers this option, but if the plan administrator puts this option on the table, rolling your old 401(k) into your new one may be the easiest way to manage your retirement funds, especially if you’re not a fan of checking multiple accounts and getting multiple statements. You’ll continue to reap the benefits of your 401(k) account, though you may need to reallocate if your fund choices don’t match those of your old plan.
There is a fourth option, but truth be told, it should only be an emergency option. You could cash out your 401(k), but know that when you cash out, everything in your account is taxed and hit with the 10% penalty; and that lump sum hitting your bank account could throw you into a different tax bracket, slamming you with a tax bill. Just. Don’t. Do. It.
If you’re vested long enough in your company, your employer’s contributions tag along for your ride. Like a boss.