How Long Can an Employer Hold 401k Funds After Retirement?


Your 401k plan may be your most important retirement asset. A 401k plan is a savings account held with your employer that you draw on during retirement. The retirement account may be funded by you, your employer or both. When you leave your employer, you may take the money with you.


  • Your 401k plan is held for your benefit. Your employer cannot keep your 401k plan after you leave your job. The company must release this money to you. You may have the money transferred by a direct transfer. Or you may take receipt of the money and transfer it via an indirect transfer. An indirect transfer allows you to receive the money and deposit it into another retirement account within 60 days. Finally, you may cash out the entire retirement account and use the money however you wish.


  • The 401k plan is yours. Your employer won't be able to tell you that you cannot have it. This gives you the freedom to leave your job whenever you want without worrying about your retirement funds are being held hostage by a former employer. You may spend the money immediately if you want, or roll the money into an IRA, and even another 401k with a different employer.


  • You might not be able to get money that your employer contributed to your 401k plan. Your employer may have a vesting schedule that you must meet. The vesting schedule is set by your employer and complies with IRS regulations. Your employer may allow you to take only part or none of the money until a certain length of employment has elapsed. If you leave before you are fully vested, you forever lose the non-vested portion of your employer's contributions.


  • You could pay a 10 percent IRS penalty for removing your retirement funds before you reach age 59 1/2. This penalty also applies to indirect rollovers that are not completed within the 60-day window allowed by the IRS. You may access your retirement funds before age 59 1/2 only in certain limited circumstances. The IRS does allow an early retirement option, but you must take equal and substantial withdrawals from your retirement account that are based on your life expectancy at the age at which you start taking those withdrawals. These withdrawals must continue until you reach age 59 1/2 or for at least five years, whichever is longer.


  • "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
  • IRS: 401(k) Resource Guide
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