17 Sep What happens to your 401(k) if you get fired?

Q. What happens to your 401(k) if you get fired?
— Concerned

A. We’re sorry to hear that you lost your job, but your 401(k) should not be a problem for you.

A company-sponsored 401(k) retirement plan belongs to the employee as it generally holds pre-tax contributions that were directly deducted from the person’s paycheck, said Claudia Mott, a certified financial planner with Epona Financial Solutions in Basking Ridge.

Employers also make contributions on behalf of the employee, which should also remain in the account, she said.

“However, some employers have a vesting period, or a time period over which a portion of the funds are deposited into the 401(k) and the remainder are placed in a trust,” she said. “In the event that an employee is terminated, the unvested portion of the employer contributions are likely forfeited.”

When the rollover amount is determined, it will reflect the appreciated value of the employee contributions, the fully vested portion of the employer contributions and will net out any loan balances that are outstanding, Mott said.

Upon termination, the pre-tax 401(k) can be rolled over to a traditional IRA without any tax consequence as long as the funds are deposited within 60 days of the withdrawal, she said.

“It is important to make sure the rollover happens within the 60-day time period so as to avoid possible taxes and penalties on the distribution,” she said.

Another option would be to merge the prior 401(k) into the new employer’s retirement plan if it is allowed, she said.

If the account is a Roth 401(k), meaning contributions were made on an after-tax basis, it would need to be moved to a Roth IRA, Mott said.

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This story was originally published on Sept. 17, 2021.

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