Laid off? What to do with your 401(k)
A layoff does not change your 401(k) options. You can still leave it, move it, roll it to an IRA or cash it out.
| Option | Upside | Downside |
|---|---|---|
| Leave it in the old plan | ✓ Nothing to move now | ✗ You cannot add new money. Old plan fees may still apply. |
| Move it to a new employer plan | ✓ One account to manage | ✗ Only if the new plan accepts transfers. Fees differ. |
| Roll it to an IRA | ✓ Often a wider range of investments | ✗ IRA fees vary by provider. Plan loans do not carry over. |
| Cash it out | ✓ Money is available now | ✗ Taxed as income. 20% withheld. A 10% extra tax applies before 59½ unless an exception applies. |
Source: https://www.finra.org/investors/learn-to-invest/types-investments/retirement/401k-investing/401k-rollovers and https://www.finra.org/rules-guidance/notices/13-45 and https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions and https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions
Get a current statement
Ask the plan for a recent statement. It lists your balance and the fees you paid.
Check the plan's rules for leavers
Plans set their own rules for former employees. Ask the administrator for them in writing.
Plan for taxes on any cash-out
A cash-out counts as income for the year you take it. Set aside money for that bill before you decide.
Review your investment choices
Your current funds may not carry over unchanged. Check which investments each option offers before you decide.
Set a time to review
Put a date on your calendar to review the plan notices and statement. Missed notices can delay your choice.
Common questions
Does moving my 401(k) after a layoff trigger tax?
Not when you leave it in place or roll it directly to an IRA. A cash-out is taxed as income.
Is there a deadline after a layoff?
Plans set their own timing. Ask the administrator for dates in writing, and keep a copy of every notice.
Can I cash out just part of the balance?
Plans vary. Some allow partial distributions and some do not. Ask the administrator what the plan allows.
Want the dollar effect first? Run your numbers in the free calculator to see how fees add up in dollars.
About a minute.