How to Leave a Job with 401K Plan

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Trying to find a new job? Before you cash in your 401K, learn tips for financial planning in this free video clip from a business expert.

Part of the Video Series: Financial Planning for Beginners
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Video Transcript

Now, what happens if you leave your job and you still have this 401K plan?, or what if your company goes bankrupt, will you still have that money? Well, rest assured, the 401K money that you put in is your money and the employer can't touch it, it 's protected by a special trust. But, if you leave your company there's some things that you do need to know. You do have some options with how you withdraw that money from the company. The first option is, you can take money out and roll it in to a new employer's plan, so if I leave one company and I go to another company they will allow me to roll that money over. It's called a rollover. The other thing you can do is put money into an IRA, and you can transfer it over, you can either cash it out and put it in yourself, or you can have it paid directly to the company and this is called an IRA rollover. The IRA rollover, in my opinion, is one of most flexible options, because there a lot of lending provisions on the IRA as well that a lot of people don't know about. The third option is you can cash it out. This is something I don't really recommend because taking money out is going to subject you to income tax as well as a 10% penalty. But, a lot of times companies that have 401K balances that are under $5,000.00 will automatically send you a check unless you elect otherwise. So, be smart about when you leave your company, make sure you know all the details about rolling over your money and make sure that you pay as little tax as possible.

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