If you resigned from your job, you must decide what to do with your 401(k) account. Typically, you can leave it with your old employer if you’re allowed to do so, roll over your balance into a qualified individual retirement account or into your new employer’s plan, or cash it out. If you choose the latter, it could take the plan provider a few days or weeks, or possibly longer, to send you your check.
Valuation and Liquidation
Before your 401(k) check is sent, your account must undergo a valuation. During this valuation period, the company assesses your account balance. Valuation frequency varies by company. For instance, employers might do it yearly, quarterly, monthly or daily. Most companies do them daily, but some don’t. The valuation date must pass before your check can be sent. Another factor is the way your funds are invested. Your investment has to be converted to cash before you can be paid. In most cases, liquidations happen quickly. But some investments, such as real estate, can take more time.
Employers are supposed to give 401(k) participants a copy of the summary plan description, which has the provisions for receiving payouts. Your SPD might list the actual time it takes to process your 401(k). Or it might simply say as soon as is administratively possible. In some instances, participants might have to wait until retirement age before they can take their money out even if they no longer work for the company. Check your SPD for the company’s distribution timing to get an accurate picture of your situation. If you don’t have a copy of the SPD, contact your human resources department or the plan provider to request it.
Before you request a payout, ask about fees you might have to pay. For instance, besides cutting you the check, for tax purposes, the plan provider also must send you a Form 1099-R that shows your payout. The provider might charge a fee for each check it issues and for preparing the 1099-R. If your account has short-term trading fees, that cost might come out of your check if you ask for an immediate payout. If you wait for the fee to expire, such as within 90 days, to request the payout, you might escape paying that fee. A short-term trading fee is an amount some investment providers charge shareholders who sell their shares before keeping them for a specific number of days.
Contact your HR department or plan provider for the forms you need to complete to get the payout. Fill out the document properly. State the reason for distribution, such as termination of employment. Select the distribution method, such as direct rollover or a check sent directly to you. Fill out the federal and state tax withholding section. Read this part carefully, because depending on your situation, you might have to pay extra taxes plus penalties. The form also might tell you exactly how long it typically takes the company to process the paperwork, such as three to four weeks if you don’t have any short-term trading fees.
- Jupiterimages/Comstock/Getty Images