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What Happens to Your 401(k) When You Leave Your Job?

October 10, 2018

Quitting? Fired? What about your 401(k)? We explain.

3 min read

Life happens in chapters. And sometimes, a new chapter involves getting a new job or losing your current one. There can also be some cliffhangers from the preceding chapter—like what should you do with your retirement accounts, such as a 401(k) from your old job.

What’s a 401(k)?

A 401(k) is a type of retirement savings account that is sponsored by an employer–so, only employees of a company that offers one can contribute. Employees who enroll in a company’s 401(k) plan automatically contribute money to an account through payroll deductions.

There are two different types of 401(k). One is called a traditional 401(k), the other is called a Roth 401(k).

You usually fund a traditional 401(k) with pre-tax earnings, which is the gross pay you earn each month before taxes and other deductions have been taken out. By contrast, you usually fund a Roth 401(k) with post-tax earnings, known as your net income. This is the money you take home after taxes and other deductions have been taken out.

There is an annual contribution limit of $18,500 for individuals under the age of 50, and $24,500 for those over 50, as of 2018. Contributions over these limits are subject to income taxes.

Some employers also offer matching contributions, which means that a company will match the funds an employee contributes to a 401(k) every pay period, usually up to a certain percentage, for example up to 3% of your contribution.

Employment and your 401(k)

To reiterate, you can’t contribute to a 401(k) unless your employer offers one. That doesn’t’ mean you can’t save for retirement—in that case, you can open an individual retirement account or IRA.

But what happens to your 401(k) if you lose your job, or change jobs?

What happens to your 401(k) when you leave your job?

You can rest easy, because your money isn’t going anywhere—it’s your money, and you have control over what happens to it. And you have several options.

The best move will depend on your individual situation. But even if you do find yourself without a job, try your best to keep saving—it’s tough to play catch-up when it comes to your retirement savings.

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By Sam Becker

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