What Should You Do With Your 401(k) When You Get Laid Off?

When you get laid off, there are many things you need to do, including deciding what to do with your 401(k). You have the choice of leaving the 401(k) funds in your current plan, cashing out of the plan, or rolling the funds over into another qualified retirement account. Your employer will likely give you a packet with all of the necessary information to properly manage your options.

First, find out if you are fully vested. You are always entitled to the money you contributed to the plan, but how much of the employer’s matching contributions you’re entitled to depends on your tenure. If you worked there for a few years, chances are that you’re 100% vested.  Once you know your vesting position, you can explore your options.

3 Things You Can Do with Your 401(k)

1. Leave the Money in Your Old 401(k) Account

This sounds simple, but unless your old plan is extraordinary it’s probably best not to use this option.

  • First, your former employer probably doesn’t want to deal with the hassles and expenses of administering your account, and may pass the expenses on to you resulting in more fees that can erode your real returns.
  • Second, you may find it more difficult to get help when you need it.
  • Third, you will not be able to borrow against your 401(k) balances. This is not necessarily a bad thing, but it does leave you with less flexibility (here’s an article that discusses why borrowing from a 401k is bad).
  • Lastly, this will be one additional account that you’ll have to track and manage. And you won’t even be able to make new contributions to the account to make its management worthwhile.

Also note that if your balance is below certain threshold and you do nothing, your employer may close your account and send you a check. This will put you in a situation similar to the Cashing Out option below.  Try to avoid this, since it will give you much less time to react.

2. Cashing Out

If you cash out without designating a qualified retirement account, such as a 401(k) or an IRA, the employer is required to withhold and send 20% of the money to the IRS. If you do not deposit the remainder into a qualified retirement account within 60 days, you will have to pay taxes, and a 10% early withdrawal penalty if you are under age 59½.

To avoid these taxes and penalties, you have 60 days to deposit the money into a qualified retirement plan, but you will have to come up with the 20% withheld from your own funds to make your old balance whole again. You can recover the withheld amount when you file your tax return.

3. Rolling the Money Over into a Qualified Retirement Account

For many employees, this is the best option when changing jobs. There are two ways to roll over your 401k: direct and indirect.

  • If you do a direct rollover (also known as a trustee-to-trustee transfer), there are no taxes, withholding, or penalties. A check is sent directly from your current 401(k) plan to the designated retirement account, whether it’s your new employer’s 401(k) plan or your IRA. Remember that the option of rolling over to another 401(k) may not be available, unless you find another job right away. You may need to open an IRA to complete the rollover.
  • If you do an indirect rollover, a check will come to you, minus the 20% required withholding that is sent to the IRS. For example, if your balance is $100,000, your employer will send you $80,000.  To complete the rollover, you have to send a $100,000 check within 60 days to your new retirement account custodian to match the exact original amount. Any amount under $100,000 deposited into your new retirement account will result in taxes and a 10% early withdrawal penalty if you are under age 59½. The extra $20,000 that the IRS is holding will be returned to you when you file your tax return.


Out of the above options, I recommend the direct rollover into an IRA.  When done properly, you avoid taxes and penalties, and you don’t have to come up with the 20% difference as per the indirect option. On top of that, if you roll the money into an IRA account you will enjoy a much wider variety of investment options that may better help you achieve your asset allocation objectives and financial goals.

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87 thoughts on “What Should You Do With Your 401(k) When You Get Laid Off?”

  1. You mention a penalty, but to be more specific, you have to pay 10% for early retirement withdrawal. That isn’t a big deal if you’re just starting out and only have a few hundred in the bank.

    But if you’ve been contributing awhile, that’s a considerable ding, especially if you don’t make that payment immediately after getting the funds. (Money has a way of disappearing and that 10% that you swore you’d leave in the bank may just disappear.)

    I guess I’m wondering why you suggest rolling into an IRA. If your 401(k) is doing okay in your old employer’s account and you are hoping to get another job, why not just leave it there? Once you make something into an IRA, it’s my impression you can’t turn it back to a 401(k) again. So if you do get a job at a new place, you have to start your 401(k) from scratch.

    Of course, if your 401(k) is being poorly managed, you would want to go elsewhere. But it seems like the easiest and smartest thing to do would be to just hang on and see what the job situation pans out to be.

  2. @Abigail — I mentioned 10% twice! 🙂 As for rolling your money into an IRA, that’s usually the preferred choice because you’ll have access to a lot more investment options. This is especially advantageous if your current plan offers sub-par selections.

    As for rolling over into a 401k, this is probably not the best option for someone who got laid off since they will probably take more than 60 days to find a good job with 401k in this economy.

    @Kyle — I think Roth is a good option for some, but if you have substantial amount of money already in 401k, converting that to a Roth could result in a huge and unaffordable tax bill.

  3. I’ve known several people who have either left their employer or been laid off and they took the cash. Bad idea in my opinion. I think they felt entitled or had an excuse to take money from the account and indulge a bit, but the reality is that they just took a nest egg they spent years building and then during a career transition, depleted a significant portion of it and started over. If they move a few times during a career, that’s a lost opportunity of a few hundred thousand dollars in retirement (present value assuming market moves up from here over 20 more years). I recently posted on 401K asset allocation which showed some disturbing trends as well regarding % held in company stock.

    I think you rendered some good advice here.

  4. Very informative post and very useful for me. That happened to me and I am looking into how to directly rollover my previous simple IRA account into a traditional IRA account.

  5. 401k? i get laid off now.. :). luckily, i have more than 401k at this time. thanks for post, it’s really make sense to me at this time.

  6. I may have a really stupid question, but I’m very new at this: Does it matter that the economy is in a slump right now — and you may want to wait to roll over your 401K into an IRA until the market perks up a little to make sure to not “lose” your money? And one more question: Am I correct in understanding you can’t roll your 401K over into a Roth IRA because the amount of money is usually too high to do so?

    • @Waggore – There’s no stupid question 🙂 First, in order to rollover your 401k, you’ll have to leave your current employer. Otherwise, the transition shouldn’t make a difference where the stock market is, because for the most part both 401k and IRA are meant to invest in the stock market. So you are really selling stocks to buy stocks.

      As far as Roth. You cannot rollover 401k directly into Roth IRA. However, you can rollover your 401k into a traditional IRA, then later convert that into a Roth IRA. However, many people do not follow this route because you’ll have to pay taxes on the conversion, which could be very expensive.

  7. Beginning Jan 1 2008 you can actually roll your 401k directly to a Roth IRA. Of course this still could get very expensive if you have a lot of money in the 401k. One still may want to rollover to a Traditional IRA and then convert the entire account to a Roth in different years to break up the tax liability.

  8. I have a question regarding my 401k. I got laid off and i told them i did not want to take the money out and they said ok. But behold they sent me a check of the 401k with federal taxes already taken out. I went through turbo tax and they said i am having to pay an additional 10% of my 401k which is really stupid because i got laid off instead of just taking the money. Does the 10% rule still apply to me? By the way i did not do anything special with the money i just cashed it and spent it “wasnt a butt load of money which is why i spent it”.

    • @Pez – I am sorry to hear about your situation and your HR/401k plan administrator could have handled it much better. If you are still within the 60 days window, you could open a Traditional IRA and avoid the 10% penalty. However, you’ll have to deposit the full original amount before taxes were taken out. If you are outside of the 60 days windows, you’ll have to pay the 10% early withdrawal penalty…unfortunately.

  9. My husband got laid off and his employer is also terminating the 401k plans. We have 5 children at home and a mortgage of $1500 a month. We only have about 40k left in the 401k. He is in construction, which has come to a screeching halt. I drive a school bus and carry the med. insurance, so I am afraid to leave that security for a job which I would be lowest on the totem pole. I think we should just pull it out and put it where we can get to it for immediate bills. We have a small savings, but only enough for 2 to 3 months and if the work doesn’t pick up, we will be in trouble. We are getting the house ready for market, but since he’s laid off, if we were to sell(not easy in this market) I don’t know if we would be able to buy something else. If we had the 401K less taxes and penalties, I feel it would help us float til the construction pulls up. I think with my salary and him picking up side work, we could make the other bills and food and gas. What do you think?

  10. @ChelseaMomOf5 – I am sorry to hear that.

    I believe you can roll your 401k into a Roth IRA (you’ll have to pay taxes on the amount). And Roth IRA has a provision that allows you to withdraw the principal without paying the 10% early withdrawal penalty.

    Please check with your financial planner to make sure this is correct.

  11. Ok, I know you said there are no dumb questions but how about this one.

    My wife gets laid off and we asked about leaving the 401K with the former employers plan which she can do but now we are having second thoughts. The loot is fully invested in bonds and mutual funds and my question is. If she was to roll it over into an IRA does the plan company have to sell the funds and give her a cash check or can you just have a transfer of the funds?

    The reason I ask is because a couple of the funds had front load (5.75%) fees and I would assume that she had that amount lopped off her original contributions which over 15 years have been considerable. Of course the next question is if she does have to take the cash then I guess it would be best to wait until the market improves a bit?

    Thanks. Steve

  12. Steve, I’m not sure what the correct answer is, but I am leaning heavily toward a NO answer because 401k plan often has access to different funds than individuals do and you may not be able to own your current funds inside your IRA account. The best person to ask is probably your wife’s 401k plan administrator.

    As for timing the market, it’s not necessary. You are selling out of the stock market and into the market in relatively short time and would have not significant impact except for the trading expenses.

  13. Ok thanks Pinyo,

    I thought that might be the answer as just about everywhere there are comments about rolling into an IRA it talks as though its cash although no one specifically says that.

    I get your point about it not really being an issue cashing out and then repurchasing, it wouldn’t make much difference.

    I know this is not a forum for mutual funds but I thought it ironic that the front end load fund has the highest fee ratio and has done the worst YTD of any…………………..isn’t that always the way!


  14. All this sounds good, but I was laid off in april 09. Haven’t found a job yet and not even gotten an interview. I worked in HR in staffing (go figure). My money runs out in October. Unemployment is only 1900.00 a month. My mortgage is 1913.00 a month. No job in sight. My 401k has defaulted and I am going tomorrow to find a financial analyst.

    Fortunately I don’t have any credit card debt but have a 590.00 car payment. I am trying to sell the car but the loan is 26k and I can only get 16k for the car. I need to come up with the difference to get rid of the monthly payment. I may be able to make it without the car payment. I worked for more than 15 years at my company and RPO is there motto now.

    Can I roll the 401k over into an IRA and get the difference to pay off the car? If not then the car is repossessed and my credit, which took me 7 years to get built back up is ruined and no loans can ever come my way. Now I am not an over spender. My last car had 235,000 miles on it and broke last Feb ’08 so I had to get another car. I was making 90k yr so I was not one of those who was speculative. I also don’t have a second mortgage. I just don’t have a job and can’t get a loan. ING is my 401k company.

  15. Let’s say I get laid off and rollover my 401k into IRA. After I find a new job, can I rollover my IRA into my new job’s 401k?

    Thank You

  16. To Chelseamomof5:
    I am running for Congress and I would like to use your story to illustrate the pain felt by millions of Americans who have been laid off and need to spend their savings in 401k. Making you pay 10% penalty in your time of need really is kicking you when you are down. This is an unjust tax and I am trying to fight it, but I need real life stories to convince people to repeal this tax. If we succeed then maybe you can get a refund of that 10% penalty. Please reply to me at [email protected], Bryon Severns, Arlington, Libertarian Party of Texas.

  17. Hello- My wife has two (401k)s with two former employers both plans are just sitting there. She is now a stay at home mom and with our family growing we have decided to add 2 bedrooms to our home.
    My question is… Can we cash out one of the 401k’s for the addition on our home without a penalty? or can I borrow against it even though she is no longer working there?

    Based on what I’ve read neither of these are an option which leads me to one more question.
    If I roll over both 401k plans into a traditional IRA, can I then borrow against that? or is there a time frame of how long you must have an IRA before you can do that?

  18. How do a get at my 401k when the company American Staffing Resources doesn’t exist anymore? I paid into it. So I would like to do the roll over into a IRA. Also I was in the U.S Army for 2 years. So I paid in that 401k too. Where do I go please?

  19. I want to quit my job . Roll over my 401k. However I have a loan against my 401k about 17,000. I dont have that kind of money lying around to pay it all back what should I do?

    • @geraldine — You’ll have to come up with the money somehow, or you have to stay with your job. One place where you could possibly get $17,000 to pay of your 401k loan may be Lending Club. Check it out.

  20. I enjoyed reading this post and yes, it does not really make sense to leave your money with your previous employeer. I actually work in the industry and one of my concentrations is on helping people figure out what to do with their 401K.

    Jennifer, I think that you need to sit down with a professional and have someone take a look at your situation because it is sensitive. Do you have any kind of paperwork from your 401K?

  21. I have a question/issue I was hoping you could shed some light upon. I became recently unemployed. I was hoping to find work before my next rent would be due (wishful thinking I know). I haven’t unfortunately found a job and I don’t qualify for unemployment. I opted to take my 401k out (cash out) so I can pay the bills and not be on the street…unfortunately, I’m just now seeing your post about not cashing out and how it will affect you. I haven’t received the check from my former employer yet, as it will take about a week to come to me. After the 20% tax was taking out, it should be about $4,462 give or take a hundred dollars (not much I would imagine compared to others)…so now I’m worried. Am I making things worse for myself? Do I just take that money and put it into a retirement plan even though I need it to pay rent? I don’t know what to do. I could use your advice. Thank you.

  22. Hi Lisette,

    I saw your comment and I am running out to an appointment right now but I will write to you either later on this evening or tomorrow morning. Your situation is very delicate and I would like to take some time and guide you in the right direction.
    Things will get better.


  23. @Lisette, this is a tough one. If you can find another source of fund to help you negotiate short-term expenses, I would try to do it and leave your 401k as a last result. You might want to check out Lending Club as an option. Another one is seeking help from your family or friends.

    As for your 401k, you might want to contact the plan administrator and see if anything could be done. It might be too late, it might not be. If it is to late, you can still deposit the check in an IRA account and figure out to come up with the other 20%. Even if you have to pay tax and penalty on the 20%, it is not that big a deal — consider it lesson learned.

    Feel free to drop by here or on our Q&A section to give us an update and ask more questions.

  24. It seems like these people who are in desperate times are not being heard. Unless they are close to retirement the should take their money and do the most constructive things with it, like food and shelter. Thousands are out of work and living on the street should not be an option to avoid paying what I agree is absolutely ridiculous amount of tax and penalty on your ow money. When you get back in stride do your homework and choose a good retirement plan and put in more than you normally would. The other thing that I experienced is my employer stopped matching funds years ago and cost of living raises are so small they might get you a tank of gas. It should not be the first option but if you need the money cash out and use it wisely

  25. If I have a loan out againsted my 401K and I’m laid off do I need to repay the loan in full before I can roll over to a IRA, or will it still allow me to repay in intallments? Thanks—-

  26. I was laid off my job and took out a loan from my 401k two years which still have a balance of $18,150 and do not have the money to pay it back. I still have $35,000 in my 401k so not sure on how to handle the $35,000 and the outstanding loan of $18150. Please give me any advise on how I just start.

  27. I am thinking about borrowing money out of my 401K to buy a home. If I were to get laid off first would it be better to just cash out my 401K and pay all penalties and taxes or roll the money into a roth and borrow from that?

    • @Justin – I think that’s a bad idea. It doesn’t sound like you’re in a position to buy a house — why are you in such a hurry? Right now your retirement fund is protected…you can’t lose it even if you lose your job or declare bankruptcy. The minute you convert that into your “house”, it is exposed. For example, if you lose your job and can’t afford the mortgage payment, you’ll lose your house (and since you took money out of our retirement fund to buy the house, you also lost your retirement fund).

      I would love to hear more about why you’re exploring this option.

  28. Hello
    I’m getting layed off in a few months, my husband and I have saved enough in our saving to pay for our mortage and bill for almost 2 years. We owe 102K in student loans, and I wanted to know if it was a good idea to take out whats in my 401K (about 25K) to pay off one of my private loans. The interest on my private student loan is not fixed, so right now its 4.25%, but it use to be at 9%. When I get laid off, we can live off my husband income, but can’t afford to pay my student loans, unless I’m in school (which will go into deferment). For 2010, with all our deductions our effective tax rate was 7%, so I’m thinking it not too much tax that will be taken out. But do I still have to pay the 10% penalty too? I wasn’t sure if it was waived if your permantly laid off. Thoughts?

  29. I should prob mention, I’m only 26 years old, so I still have time to add more money to my 401K, when I can find another job.

  30. What do you do when the company you worked for says that the 401k that you have was cashed out. but you did not cash it out

  31. @Stephanie: Regardless of how long your tax rate would actually be, you will still pay the 10% penalty. With one income still in the family I doubt you would qualify for a “hardship distribution”.

    On top of all that, regardless of the math, you are essentially saying you are willing to borrow from your future to pay for your today. The bigger issue is earning income, not having 401ks to pay things off.

    @Ronald: Demand documentation?

  32. My spouse had 401K from work, she was liad off in Jan, during the year she had partially contributed to the 401K ( around 2000 ). Is she eligible to make contributions to the traditional IRA during the same calendar year.

    Please let me know, your time and help is much appreciated.


    Uma K

  33. Have been laid off as of Sept 15th, 2011.
    Have an 401K with 50k and will be 591/2 in April 2012. Don’t want to just leave my 401K sitting at my past employer. Will get unemployment as of Jan 15, 2012
    Have the Car Note Rent and Utilities and a few Credit cards (6,000+)
    Difficult to find a job with the previous pay since I don’t have the degree but have the experience in bank securities. Most of these jobs are disappearing. Have been sending out Resume

    1. Should I cash out and just pay the taxes and secure my funds in a credit Union @ 4% interest on my money
    2. What other options do I have
    3. In this rough economy cash out and bury under a rock(smile)


  34. are there any laws governing the time that an employer has to do direct Roll over. We submitted paperwork 2 weeks ago and have heard nothing.

  35. I’m interested in moving my current IRA CD from one bank to another. It is not “due” for another 4 1/2 years, so I know there will be penalties from the original bank for closing it early. What I want to know is if I do a direct rollover to another bank’s IRA CD, will there be any IRS related penalties for “early withdrawal” or just penalties from the original bank?

  36. @Bootsa – You can avoid the 10% penalty by waiting until April 2012. Are you able to find a job (even a lower paying one) to keep you afloat until then?

    Another option is to take out an unsecured loan from Lending Club to pay down your debt and for the essential expenses. You will be in a better position once your unemployment checks start coming, can withdraw without penalty, or get a job.

    @Chad – I am not sure — my plan responded immediately and they were available whenever I call. Have you tried calling the plan administrator?

    @Laura – If you perform a trustee-to-trustee transfer, there should be no problem. But I am sure there will be a CD penalty involved — make sure you ask the bank and see if you could pay the penalty out of pocket to preserve your IRA fund (probably not, but it is worth a try).

  37. I quit my job to stay home with my newborn, my check was garnished for student loans while I was working. I cashed out my small retirement and the day the money was to be deposited into my account I found out vanguard gave the money to the gov. For unpaid student loans. Can I recover any of that money?

  38. It’s been said that you should NEVER cash out your 401(k). I disagree. It all depends on what you will do with it. In my case, I have 150K in a 401(k) and my employer has been contributing 50% of my contributions. In my case, the 10% penalty just means my employer contributed more like 40%, still not a bad deal (I know, the math is not exact). Here’s the kicker. Is the market going down? If so, we’re subject to some big losses, even if the money is in very conservative investments. Instead, I’m thinking of buying a rental property outright since the market is at a low. In my area, that will give me a steady income of about $700/month, plus the possibility of the house appreciating 50 – 100% when the market goes back up.

  39. Hello Pinyo, thank you for this article. I recently left my job of 4 years in the US to move to the UK. I am no longer contributing to the 401k. I plan on purchasing a home in the UK in the next two years (and wonder if i will be taxed on a withdrawal for the purchase of a home overseas). In the meantime, would it be a good idea to move 100% into “short-term fixed income fund” in order to keep it static regardless of the market? Or do you have any other suggestions on how to handle this? The 401k’s performance has dipped since I left the job. It is currently at -9%. At the same time, I do not want to withdraw the money and experience taxes and penalties. Thanks!

  40. I was told that you cannot take money from your 401k while on unemployment. The lady at unemployment said that it will count as earned income because its taxable income and that would effect my unemployment claim. I cant live on unemployment and was hoping to pay bills with a combination of unemployment and 401k money until a find a new job. IS this true. You cant take 401k while on unemployment or you will nullify your claim to unemployment?


  41. i had 401k account (Fidelity) with a previous employer that was bought out by the current employer, which has a different 401k plan company (one america). I did not rollover the fidelity onto the new employer thus im not receiving anymore company matches, its just still sitting there. Can i cashout my 401K balance (25K) because theres been no contributions for over a year now. what must i do to get my money thats sitting there?

    • @John – The match only happens when you contribute, so no rolling over should have no impact on that. I don’t know your age and financial situation, so this may not apply. In general, I do not recommend cashing out. I’d contact the plan administrator and see if you could rollover your old plan to the new one, or to an IRA.

  42. I pulled out my 401k and bought a car, they withheld 10% taxes I took out $58,000 and ended up with $46,000. Do I still pay more taxes?

  43. @Koobej – I think that’s withholding for early withdrawal penalty. You will have to pay taxes on the $58,000 when you file your tax return. I hope you kept some of the money for tax payment.

  44. I have had a loan from my 401k that I took out several years ago. Recently, I got laid off. My employer offered to let me keep making the loan payments but I saw the letter too late and by the time I sent in the payments for the loan it had been over 90 days and the loan defaulted. Can I avoid the interest and penalty charges at all? For example can I treat the outstanding loan balance that defaulted as a distribution from the plan and roll it over to an IRA within 60 days? Any ideas to avoid the penalties?

  45. I am looking at changing jobs. Thing is, I have a 401k loan with a balance of approximately $8,400. My 401k account balance is a little over $24k, and that includes the outstanding balance.

    If I accept the new job, I don’t have the money to pay off the $8,400 loan balance. Would I get penalized and pay taxes on the $8,400, then be able to roll over the remaining money in the 401k? What are my options? Thanks,

  46. Pinyo,
    I would be willing to take the penalty for the outstanding amount, I just don’t know what procedure I would have to follow. The new job opportunity is much closer to home. My current commute is 96 miles a day. The new job would be about 30 miles per day. With the savings in fuel and maintenance, I could save for the extra taxes, not to mention, I could contribute more to the new 401k on top of what I think I should be able to roll over. Normally, I wouldn’t want to take a payout like that, but due to the economy and lack of jobs in my field that are close to home, I think the new opportunity would be more beneficial in the long run.

  47. I took out $58,000 out of my 401k, taxes they took out was close to $13,000 state and fed. I’m 61 years old. Will I have to pay more taxes again?

  48. So I lost my job few weeks ago and I had a 2500$ 401k account with them. I applied for unemployment (which is still to be determined), can I cash my 401k and get full amount of unemployment per week or is cashing 401k counted as additional income that can be held against my unemployment? or should I just roll it to IRA? please help

  49. I was laid off about 4 years ago, I have 401k with my previous employer. I borrowed from it one time and was in the process of paying the loan back when I was laid off. I left the 401k where it is. I’m in school full-time. My wife is trying her best to make ends meet until I graduate, but times have become dire for money. We really need the money now. I am to the point now that I don’t care how much taxes I have to pay in penalties. What can I do?

  50. @Eric – You can talk to your plan administrator. You can roll over the remaining balance in your 401(k) and you have 60 days to pay back the $8,400. If you cannot pay back the $8,400, you will have to pay a 10% early withdrawal penalty (~$840) and taxes (probably about $2,000).

    @Luckyj – That depends on your other income and deducations, the $58,000 will be taxed at your marginal tax rate. If that ends up being more than $13,000 then you’ll have to pay more, or you could potentially get some of that back as well.

    @Mixte – I am sorry about your job loss. The best thing to do is give your state unemployment agency a call.

    @Scott – Have you consider putting your education on hold and find a job to get your finances back in shape? If you feel that withdrawing from your 401(k) is the only option and is willing to pay the taxes and penaty, then give your plan adminstrator a call and they can guide you to the process.

  51. my husband was laid off before his employer contributions to 401k were vested….is this considered a loss for tax purposes?

  52. Thanks for the article, but I have an additional question. My former company dissolved late last year and they sent me my 401K contribution this week, to the tune of $156, NO taxes were taken out. I need the money and want to cash the check (I have no interest in opening another fund/account) – what exactly are the penalties I’ll be facing?

    I don’t know anything about this stuff, I’m a pay-with-cash-and-don’t-get-over-your-head kinda gal. I’ve avoided this “grown-up” stuff as much as possible, I didn’t even know I was contributing to a 401K or anything.

    I understand about the 10% for early withdrawl, but no one can tell me what other fees I’ll have to pay, or when I’m paying this stuff (I’m assuming tax time).

    Thank you so much!

  53. @Alexis – You can always take your 401k contributions with you, e.g., roll it over to an IRA. But you won’t be able to keep your employer’s 401k match. I doubt you can claim the unvested match as a loss.

    @JReichert – If you’re not 59.5, there is a 10% penalty on top of the taxes. You can report the penaly on Form 1040 or Form 5329.

  54. I filed for unemployment but it has taken more then a month for them to process and approve.(approx $11,000 in benefits) My 401k just sent me a closed out balance check approx $5,000. Do you know how this will effect my unemployment disbursement claim?

    • @mguy – As far as unemployment benefits go, it’s best if you call the state office and ask.

      As for your 401k, if you don’t need the money, you still have 60 days to deposit it into an IRA and avoid paying taxes and penalty. If you can afford to do that, I highly recommend that you do so.

  55. I was let go from my company of 22 years last year in May. We were able to do all right for a little while on owed vacation pay and my wifes new job. The job turned out to be a bust and so she returned to part time nursing while finishing her school. I was still playing the unemployment game and ended up losing that battle. I had started going to school in June and the bills were already added up.

    I cashed out my 401k in order to pay off most of our debt.

    I was careful to make sure and withhold an extra 5% of taxes for state and federal just in case. Now my wife is also unemployed and trying to finish up the last months of her masters degree before returning to work.

    Two week ago, we went and had our taxes done. To our complete shock, we owed $15,000 to the IRS. I had thought that I would be getting money back because of withholding extra. I was under the mistaken impression (i guess) that the 10% penalty would have been taken out when the distribution was made. The numbers seemed right at the time since out of $170k I only got $109k. Needless to say the money was better spent paying off high interest credit cards, a vehicle, and other debt, than it was sitting in savings.

    Now I find my family with no income and a $15,000 tax bill that will have to be filed for on April 15th. The only bright side to this is that I will be getting $2,500 back from the state which will keep us afloat for a few more months.

    Any suggestions? Comments? (even admonishments?) 🙁

  56. If I get laid off but there is a chance I will be rehired by this same company sometime in the future can I still do a direct rollover into my IRA when laid off.

  57. In 2009 after I worked for a small company for 13 years I decided to open up a business of my own. I cashed out my 401K plan that I was fully vested in to do this, and of course I had to pay penalties and taxes. Unfortunately my business did not take off and I closed it. For two years after that I did continue to get notices showing that I had earned some money which my former employer signed the forms sot hat I could get that money. After that I got no notices so I called to check and was told that my former employer had closed my account. Would he have had to notify me that he was doing that? I just received an e mail from him, he says he did not close it. Am I entitled to a copy of anything that he may have signed to do this, and can he re-open this now?

    • @Connie – If there’s still money left in your former 401k, I think you employer would have to consult with you, or at least notify you before closing it. I would try to get documentation and see what’s going on.

  58. My husband pass away last month and I found the documents with 401K, his last work was on 2002, and the company moved the money into an independent IRA controlled by the state of California, how can I find the IRA’s name? or how can I recover that money? he left my seven years daughter without protection…. please help.

    • @Maripaz, I am sorry about your loss. I would talk to the company and see if they can give you any more information. In either case, you should be the primary beneficiary, and hopefully, your husband (and the comapany that moved your husband’s account) gave the IRA custodian all the pertinent information. If you know who controls the IRA account, you can also try to contact them directly.


  60. My employer close the doors and cancelled the 401k contract with John Hancock. We were sent paper work for distribution of our funds. Because some of us still unemployed had no other alternative but to withdrawal the funds. We are being penalized for early withdrawal. Is there any exception when its not the employees “fault” that the early withdrawal is being done? How long can they hold the distribution from the employees? The contract was terminated over 3 months ago, the funds still have not been released? Stating the trustee has changed the distribution date. I feel like there’s something going on that’s just not right or even legal. Any advise is greatly appreciated!

    • @Amy – That is not very nice of your ex-employer. Call John Hancock about the fund and see if it’s possible to rollover the fund into an IRA. If the fund is still undistributed and John Hancock can help you with a trustee-to-trustee transfer, you can avoid taxes and penalty.

  61. My former employer terminated John Hancock 401K program and my 401K assets got rolled over to an IRA with Millennium Trust Company (MTC).

    Per my research, that IRA account is called “Automatic Rollover IRA”. It was established for missing or non-responsive participants who remain in the retirement plan. MTC is a partner with John Hancock.

    However, my former boss and I have been working on rolling over my 401K assets to my existing IRA at Vanguard. My former boss faxed all the rollover request paper works to John Hancock but I think John Hancock (401K) didn’t receive my rollover request and considered me as a non-responsive participant.

    Questions for you,
    1. Is this automatic rollover considered a direct transfer (trustee-to-trustee)? I just don’t want to deal with tax.

    2. Is it advised to have two IRA accounts? I’ll be working abroad for many years starting from this summer. My initial thought was to consolidate all my assets before I leave but if you think there’s an advantage to have more than one IRA account, please advise.

    3. Since all my 401K is rollover to this kind of IRA with MTC, I no longer depend on my former firm, correct?

    4. Do you happen to know if I can rollover my assets from MTC to Vanguard right away? In general, is there a minimum length of time that I have to keep my money with one financial institution before I can rollover it to another financial institution?

    Please let me know if you have other suggestions or comments.
    Thank you.

  62. If terminated at age 55 or older, penalty free withdrawls can be made from a 401K. That’s an important option that wasn’t addressed.

  63. OK, this is all very confusing. My employer has notified me that he’s closing his account in a few days on February 1st, 2015 through email.

    Originally, we got laid off in 2010, so I let the account sit and do it’s thing. I do not have another retirement account AT ALL. Does this mean my only option is to cash out (if I don’t have another retirement account) and take all those nasty percentage penalties? This is so unfair.

    Thanks for your help.

    • In addition, I was only notified today about my employer closing the account, which is only 6 days before February 1st. I took note we have to act 60 days prior, abs obviously we didn’t get that luxury. What can I do?

  64. I was terminated from my job so I took the money from my 401k I had to use some for bills and I rolled over the rest to a roth some of my 401k funds were taxed and pretaxed but now its time for me to file taxes and it seems as if i’m being penalized again. Is that correct? Is there something I can do so I won’t owe back so much It seems as if they took an amount when i received it and now they are saying I owe something else. WHY?? this is my first time ever having to pay the IRS and I would like it if I did not owe a cent.

    • @Nichelle – Talk to a CPA. If some of your 401k funds were taxed, you should be able to file paperwork to avoid double taxation.

  65. I was laid off of my last job on june 8,2015.

    I wrote a letter to my Human Resources asking that i need my 401k information and i never got a letter back. Then today i emailed her asking again as to how much is on my 401k and where they were putting that money and i been requesting this info. What else i can do or who can help me for them to give me what is mine, I’m also handicap, laid me off, paid my insurance till end of june when i was in hold for a total hip replacement for july and they all new i was due for surgery, neither the had paid me all my earned PTO I just was awarded on may. Im despair and dont know where to get advice or who can help. Please advice.

  66. I am a few months from being vested in my company in the oilfield and there has been talk of being laid off, my question is do they have to vest me or am i just going to loose out on my money I have put in?

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