How Soon After Being Fired Does a Company Have to Get Your 401(K) to You?
Just because you lose your job, it doesn't mean you lose your retirement plan. Your employer isn't allowed to keep your 401(k) account. In fact, your employer doesn't even own your 401(k) account. Under the Employee Retirement Income Security Act, also known as ERISA, your employer must give your 401(k) account to you when you leave your job.
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Significance
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A 401(k) plan is a trust account under ERISA. A fiduciary is assigned to look over the money in the account and protect it from mismanagement. These protections also provide you with the right to your retirement savings when you leave your job. Your employer must allow you to transfer your 401(k) plan to a new employer or to an individual retirement account. This is normally accomplished by filling out a transfer request form and submitting it to the employer. The employer then transfers your funds to the new plan you specify.
Benefit
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The benefit for you is that you can have your 401(k) savings as soon as you leave your employer. You may roll your existing 401(k) account into a new retirement plan with a new employer if the new employer allows rollovers. Even if the employer's plan doesn't permit rollovers, you don't lose the retirement savings you've accumulated. You also have the benefit of choosing to what to do with your 401(k) account. If your new employer doesn't allow transfers into the new account, and you don't want to set up an IRA, you can leave your 401(k) savings with your old employer and make withdrawals from the account in retirement. Once you leave your employer, however, you may no longer make contributions to your 401(k) account.
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Disadvantage
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The disadvantage of being fired is that you may lose any contributions your employer made to the account. If your employer made contributions to the 401(k) account and established a vesting schedule, you lose any money you have not earned according to the vesting schedule. For example, under a cliff vesting schedule, you will lose any money your employer contributed if you haven't been with your employer for at least the minimum amount of time specified in the schedule. If this schedule requires three years of service, for example, you'll lose all employer contributions to the 401(k) if you have worked for your employer for less than three years.
Consideration
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Even if you leave your 401(k) account with your employer, you will lose any money not vested with the plan. However, all of your contributions will be yours to keep. Any money you earn beyond the vesting period is also yours. Before you transfer your 401(k) to another retirement plan, compare costs associated with the new plan. If the new plan is more expensive than your current plan, it may be beneficial for you to keep your existing 401(k) rather than move the money to a more expensive plan.
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