With the exception of certain company contributions, the money in your 401(k) plan is yours to keep, even if you lose your job. However, if you get fired from your job, things will likely never be the same with your 401(k). While the company cannot confiscate your 401(k), it might require you to move it to another account. You might also lose any contributions the company has made on your behalf.
You can usually leave your 401(k) with your employer if you move on to another job, even if you got fired. One exception is if your 401(k) has a small balance. Since the proportionate cost of maintaining a small account is higher, many employers force departing employees to either take a distribution or roll over their 401(k) accounts if the value is less than $5,000. In most cases, rolling your 401(k) over to another 401(k) or even an IRA is a better option, since you'll face taxes and possible penalties if you take a simple distribution.
If you have taken out a loan from your 401(k) and still have a balance at the time you are fired, you could find yourself in a difficult financial situation. You won't lose your 401(k). But the terms of your loan are immediately over, and you must pay the loan back in full within 60 days. If you don't, the outstanding balance of your loan is treated as a taxable distribution by the IRS. You'll owe income tax on the amount of your loan, plus a 10 percent early distribution penalty if you are under age 59 1/2.
Vesting is a process by which you gain ownership of the funds in your 401(k). While you are always 100 percent vested in your own contributions, you usually have to wait a number of years before you are fully entitled to any company contributions. When you get fired, you immediately lose the right to any unvested money in your 401(k).
While the loss of your job is no doubt distressing, the options this opens for your 401(k) might work to your benefit. In losing your job, you now have the freedom to find a new home for your 401(k) assets. Rather than sticking with the possibly limited investment options of your former employer's 401(k), you might consider rolling over the funds into an IRA, in which you can purchase almost any investment at all. If you have found a new employer, your new 401(k) plan might offer better investment options than your former employer's 401(k).
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