Even though there are some exceptions as per some specific company distributions, the money in your 401(k) account is yours to keep. No one will be able to tap the fund even if you’re fired from your job. However, remember that when you’re fired from your current job, things will never be the same for your 401(k) savings account. While the business or the employer cannot tap or seize the fund from your 401(k) account, you might have no other choice but to transfer the money to another account. You might also lose the employer’s matching.
Many people ask whether they will lose access or funds from their 401(k) account if they are fired. To answer their question, we have written this article. Here is what will happen to your 401(k) account when you’re fired.
Value
When you’re fired from your current job, and you’re looking for another one, you can easily leave your 401(k) account to your previous employer. But there is one small exception you need to know about. Sometimes, the 401(k) account might not have a massive balance.
Since the cost of maintaining a smaller 401(k) account is relatively higher than the larger accounts, many employers ask they're leaving employees to either cash out the entire amount to rollover their 401(k) account when the overall value of the 401(k) account is less than $5000. Cashing out the 401(k) account might be the worst mistake you could make, as you will need to pay a 10% penalty.
This is why rolling over your 401(k) account to an IRA account, or another 401(k) account will be the best choice. This way, you can avoid taxes and penalties. Consider using a solo 401k contribution calculator to know how much money you should contribute to your 401(k) account and what it would look like after 20 years. This will help you while you roll over your account.
Outstanding Loans
If you took a loan from your 401(k) account and still have outstanding loans when you’re fired, you will undoubtedly face some difficult financial situations. However, keep in mind that just because you will face a difficult financial situation doesn’t mean you will lose your 401(k) account.
When the terms and conditions of your loan are over, you need to repay the full amount within 60 days. If you fail to repay your debts within 60 days, the loan amount you took will be taxable by the IRS. Not to mention, you will also owe income tax as per the amount of loan you took from your 401(k) account. Additionally, you will also face a 10% penalty for making a withdrawal before the age of 591/2.
Vested Money
This is one of the most important points you need to remember. Do you know what vesting is? It’s a process through which you will gain ownership of your 401(k) account funds. As per Sofi, 401(k) vesting is important. Even though you will always be 100% vested in your 401(k) account, you might have to wait for a couple of years before you become fully entitled to the distributions of the company. When you’re fired from your company, you will end up losing rights to the unvested amount.
Conclusion
Even though you might face difficult situations, you will never lose access to your 401(k) account even when you’re fired. Consider contacting and we will help you.