What happens to your 401(k) after you quit or get laid off?

Figuring out how to manage your personal finances after quitting a job or experiencing a layoff can feel overwhelming, and you may be wondering what happens to your 401(k) after leaving your employer and how it impacts your retirement plan.

The good news is that leaving your job doesn’t mean losing the retirement savings you worked hard to earn. In the guide below, we’ve spelled out what you need to know about your 401(k) after you quit or experience a layoff.

What happens to my 401(k) after I quit or get laid off?

If you quit your old job or were laid off and didn’t previously take any action to withdraw or roll over your 401(k) savings, your retirement account is still yours despite it being tied to your former employer. You’ll still be able to access your account, check your balance, and change your investment selections after leaving your job, but there will be some changes.

Employee and employer contributions stop

For example, you’ll no longer be able to make any new contributions to your account or receive employer-matching contributions in your old employer-sponsored plan. In most cases, the money that you put into your 401(k) will be fully vested (you can take it with you). But not all employer contributions may be vested if you’ve only been at the company for a year or two.

You may face administrative fees

You will still incur any 401(k) fees associated with the account. These could be investment fees, administrative fees or both. These may increase, as some employers stop paying certain fees after an employee has left the company, leaving the former employee to pick up the cost.

You can no longer borrow from that 401(k)

If your 401(k) plan supports a loan feature (not all plans do), the ability to borrow from your 401(k) will end at the same time your employment does. This is not to say that your 401(k) should be your first stop when you need a loan, but it is an option as long as you’re employed by the company administering your 401(k).

However, in the majority of circumstances, your money stays where it is until you decide to move it. There are some instances where this isn’t the case, though. The next section will outline some of those scenarios in more detail.

What should you do with your 401(k) if you quit or get laid off?

The answer to this question ultimately depends on your financial circumstances. Regardless, you have a few options to think about before moving forward with a final decision.

Do nothing

Unless the balance of your retirement savings plan is on the low end (under $5,000), it’s probably fine to leave your 401(k) plan as is. More often now than ever, 401(k) plans offer adequate enough investment options that you won’t be short-changing yourself if you decide to leave things as they are. But you should investigate the plan to ensure you aren’t being charged unnecessarily and that you’re happy with the mutual funds on offer.

Cash it out

If you have a reasonably low balance, or if you simply need the money now, cashing out your 401(k) is definitely an option. The catch, however, is that if you’re dealing with a pre-tax, traditional 401(k), you’ll owe income tax on any amounts cashed in and face early withdrawal penalties if you’re under the retirement age of 59.5. If you do plan to cash out, have a strategy to cover the tax bill coming down the road (may include Federal, state, and/or local taxes). It’s best to consult with a financial planning advisor who can help clarify what the tax implications of cashing out could mean to you and the impact it may have on your retirement planning.

Roll it over into your new company’s 401(k)

A straightforward way to consolidate your retirement plan finances is to roll your old employer’s 401(k) into your new employer’s 401(k) – assuming your new employer allows “roll-ins”. Assuming they do, combining 401(k)s is a smart way to get a better handle on your retirement savings by keeping things under one roof. Less paperwork tends to make financial management easier both logistically and psychologically, especially if your new employer offers a decent employer match.

Roll it over into an IRA

Rolling your 401(k) into an IRA can potentially help you save on fees and offer you a wider investment menu from which to choose. Most self-directed IRAs are free to open – save perhaps a small ongoing administrative charge. IRAs also allow for more than just a select list of mutual funds to serve as investments: you’ll be able to choose from stocks, bonds, ETFs, and in some cases, even crypto, making it a smart option for your retirement planning. Note that if you roll over a traditional 401(k) into a traditional IRA, you can enjoy the continued benefits of tax-deferred growth on your future retirement income. There are a few rollover options when it comes to transferring a 401(k) to an IRA that you should be aware of.

Can I lose my 401(k) after I quit or get laid off?

No. You always have ownership of the money you contributed to your 401(k) account even after being laid off. Your former employer must allow your money to remain in the plan until you decide to do something with it – with a few exceptions.

Any unvested money (employer contributions that have not yet vested in the plan) may be forfeited as well. Some companies require you to be employed for a certain length of time before any employer contributions “vest” in the plan. Check your 401(k) plan document to be sure.

Your old employer may switch 401(k) providers after you’ve left, which means your money gets moved to a new institution with different fees and investment options. You won’t have any choice if they choose to do this, but the money in your 401(k) is still yours.

There’s also a risk that your old employer initiates a ‘forced rollover’ of your account. We’ll break this possibility down for you:

Your employer can force your account out of the 401(k) plan, sometimes.

If you leave your 401(k) behind, your former employer has to follow certain IRS rules and plan provisions associated with your account. Some employers impose a “force-out” provision to reduce the number of accounts left behind and decrease the company’s potential liability from their employer-sponsored plan.

If your old employer uses this provision (not all do), they can force smaller balances out of the plan and into an IRA of their choosing. If your vested balance (the amount of money over which you currently have ownership ) is less than $5,000, your employer is allowed to force your money out of the plan in 1 of 2 ways:

1. If your balance is < $1,000, your employer can cut you a check. If this happens, and your employer didn’t withhold taxes from the check, we suggest you deposit it into an IRA as soon as possible to get ahead of your financial planning. You typically have 60 days to do so before needing to pay penalties and/or taxes on it. If your employer does withhold taxes, you’ll need to deposit the entire pre-tax balance to an IRA to avoid taxes and penalties. Or, you can just take the cash and pay a somewhat small penalty.
2. If your balance is between $1,000 and $5,000, your employer may ‘force out’ your balance into an IRA of their choosing. This is known as an ‘involuntary cash-out’ or ‘forced rollover’ (a lump sum distribution).

For vested balances greater than $5,000, your employer must keep the money in the plan unless you instruct them otherwise.

One note: the $5,000 upper limit will be raised to $7,000 in 2024 as a result of the SECURE 2.0 law passed in December 2022.

If you try to check your account and it’s no longer at the same 401(k) provider – don’t panic. The plan may just be at a different financial institution and Capitalize can help you find it.

Company-specific FAQs

If you’ve been laid off from any of the companies below, we can help you locate your 401(k) and provide some guidance as to what to do with it. Ultimately, though, you’ll be in charge of making the final decision. You can either cash out your 401(k), combine it with a new employer’s 401(k) plan, or roll it into an IRA. If your balance is greater than $5,000, you can also leave your 401(k) where it is until you decide what to do with it.

What should you do with your 401(k) if you’re laid off from Walmart?

Walmart’s 401(k) plan is located at Merrill. Log in to Merrill’s 401(k) plan system and locate your account, and if you don’t have your login details, contact Merrill support.

What should you do with your 401(k) if you’re laid off from Wells Fargo?

Wells Fargo’s 401(k) plan is administered through Empower Retirement. Log in to your Wells Fargo 401(k) plan either via the company intranet or via the Wells Fargo teamworks page.

What should you do with your 401(k) if you’re laid off from Microsoft?

Microsoft’s 401(k) plan is located at Fidelity. Log in to Microsoft’s 401(k) plan system through the Fidelity NetBenefits page and locate your account.

What should you do with your 401(k) if you’re laid off from Amazon?

Amazon’s 401(k) plan is located at Fidelity. Log in to Fidelity’s 401(k) plan system and locate your account. If you don’t have your login details, contact Fidelity support.

What should you do with your 401(k) if you’re laid off from Meta?

Meta’s (formerly Facebook) 401(k) plan is located at Fidelity. Log in to Fidelity’s 401(k) plan system and locate your account. If you don’t have your login details, contact Fidelity support.

What should you do with your 401(k) if you’re laid off from Google?

Google’s 401(k) plan is located at Vanguard. Log in to Vanguard’s 401(k) plan system and locate your account. If you don’t have your login details, contact Vanguard support.

The Bottom Line

Going through a job transition or layoff can be stressful, but your 401(k) savings are still your own. Most importantly, a job transition doesn’t need to derail your good efforts toward saving for your retirement income. Capitalize can help you understand your rollover options and manage the entire process of moving your 401(k) into an IRA for you – for free.