An employer may offer you the opportunity to open a retirement savings account in the form of a 401(k). Some companies automatically enroll you in their company retirement plan. The company may match a percentage of your contributions as a perk or benefit. The money typically is tied to company profits and is invested in a variety of other funds. You may only participate in the program while you're still working for the company, but you can leave your money in the 401(k) after you leave.
1. Leave the money with the investment company handling the 401(k). You don’t have to do anything for the money to continue to collect earnings on the investments. If the investment company is reliable and offers you good returns on your money, you may consider making additional contributions to the account or rolling over other 401(k) plans from other employers into just one account that's effectively earning you money.
2. Provide the institution that manages the investment account with your updated contact information as it changes. You should continue to receive notices and statements relaying any activity in the account.
3. Safeguard your money by leaving it where it is. According to the Financial Planning Association, your money is protected from creditors as long as it stays in a 401(k) account. If you are out of work and don't want to leave your money vulnerable to creditors, consider leaving it where it is or rolling it over into another 401(k).
4. Start taking qualified contributions without paying a penalty from the account after you turn 55 if you've retired or have been terminated. Penalty-free early withdrawals usually are not possible with other investment vehicles, such as IRAs.
5. Keep track of your investment accounts. It can be easy to lose track of your retirement money if you move around a lot and switch jobs often. Consolidate your retirement accounts when they become unwieldy.
- Roll your money into an individual retirement account if you have less than $1,000 in the 401(k). Employers can cash out your 401(k) if it's under $1,000, take out 20 percent in taxes and mail you a check for the balance. If the total amount is between $1,000 and $5,000, your old employer can roll the money into an IRA for you. For amounts over $5,000, the company needs your written consent prior to moving your money. Companies apply these rules to avoid maintenance fees they must maintain on active accounts.
- You may lose money if your previous employer goes out of business and you have remaining money in their 401(k). You may only receive the money you contributed if the matching funds were not fully vested. If the company does not have a forwarding address to advise you of the plan termination, your funds may go into the state’s unclaimed money funds.
Items you will need
- Change of address forms
- IRS.gov: 401(k) Resource Guide - Plan Participants - Plan Termination
- Financial Planning Association; Should You Stay in Your Old 401(k)...; Patricia Konetzny; 2004
- IRS.gov: 401(k) Resource Guide - Plan Participants - General Distribution Rules
- "Wall Street Journal"; How to Protect Your 401(k)...; Andrea Coombes; 2011
- Comstock Images/Comstock/Getty Images